House of Commons Hansard Debates for 13 Dec 1994

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disrupt the debate entirely, they are so embarrassed by the broken promises of two years' standing over the whole issue of taxation.

Mr. Nigel Evans (Ribble Valley): Answer the question.

Mr. Brown: The hon. Gentleman asks me to answer a question that the Chancellor will not answer. The Chancellor made a promise five minutes ago and broke it five minutes later.

I want to look at the issues affecting the Budget in relation to living standards. Let us look at how it affects the home owner. Let us look at the Budget overall. Home owners are faced with mortgage rises that have already come through since September and are facing likely mortgage rises from decisions on interest rates that were announced last week. The Chancellor must justify and explain to the House why the very same home owners are also being hit by the withdrawal of mortgage tax relief and the imposition of a home insurance tax. We have seen even in the social security statement --at a time of growing insecurity in the jobs market, which has been recognised by surveys and opinion polls only this week--the withdrawal of support for mortgages when people are unemployed.

Home owners have been hit by this Budget, as they were by previous Budgets. They have been hit with interest rate rises, the withdrawal of mortgage tax relief and home insurance tax. As they will tell Conservative Members--no doubt Thursday's by-election in Dudley will serve as a starting point-- unemployed people are now hit by the withdrawal of mortgage tax relief.

How has the Budget hit motorists? We have often heard the Chancellor defend an increase in the cost of petrol; but let us examine the overall cost to the motorist. The price of petrol has now risen twice, a car insurance tax is being introduced and vehicle excise duty is being increased. It is no wonder that motoring organisations express worries about people's ability to hold on to their cars.

Let us consider the cumulative effect of Budgets on widows. The starting point at which a widow paid tax used to be £99; now, as a result of the changes made by the Chancellor, it is £93. The Chancellor tells us that we should not worry about his decision to cut duty on champagne, but I believe that people will observe the contrast between his ability to cut champagne duty and his ability to tax widows at the same time.

The Chancellor also defended his measures in relation to beer and spirits this afternoon, saying that last Thursday he raised the tax on champagne. What, however, is the final result? Beer is up by 1p and whisky by 26p, while champagne is down by 19p.

Mr. John Townend : Does the hon. Gentleman really think it sensible to levy a higher tax on a bottle of claret costing £25 than on a bottle of cheap Australian sparkling wine costing £3? The previous position was an illogical anomaly that the Chancellor has put right. It is ridiculous to make out that we are trying to benefit the wealthy by cutting the price of champagne.

Mr. Brown: That shows the difference in the priorities of the parties. I regard it as an anomaly that widows who used to start paying tax at £99 are now starting to pay it at £93. I think the hon. Gentleman would agree that, in a

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Budget that raised everyone's taxes, it was not a priority for the Chancellor to cut duty on champagne for people who have enough money to afford it.

Two weeks ago, the Chancellor said that he had "listened to the concerns" of industry. He said:

"No Chancellor can remain unmoved in the face of this".--[ Official Report , 29 November 1994; Vol. 250, c. 1096.]

Let me ask the Chancellor and the Chief Secretary how many jobs they expect to be lost as a result of the rise in beer and whisky duties. If the Chancellor could not remain unmoved in the face of those concerns two weeks ago, will he now tell us how many jobs he expects to be lost?

The Chancellor presented a second argument. He said that he could have introduced no alternative measures that would not penalise middle or lower- income Britain. He gave us the impression that he had been as fair as possible. But what did Mr. John Spiers, of BESt Investment, say in the Financial Times only last week?

"If we had written it ourselves we could not have come up with a better Budget for the tax shelter industry."

Those are not my views; they are the expert views of people close to the industry, who do not usually speak highly of this aspect of Budgets.

Mr. Spiers went on:

"I cannot see why ever anyone should pay capital gains tax again."

Commenting on the Budget, the Financial Times said:

"The scale of the incentives dangled by the Chancellor suggests sponsors and venture capitalists will be queueing round the block to launch venture capital trusts."

That leads me to a statement issued by the journal of BESt Investment, entitled "Tax Shelter Service". The Chancellor had better be aware of the implications of the measures that he is asking us to approve. The company states:

"The Budget may have been regarded as boring . . . but for the tax shelter business it contained arguably the most exciting combination of measures ever seen. The Government is now offering up to 60 per cent. tax rebates on investments . . . Investors will have no less than four opportunities for sheltering tax . . . As a result we cannot see why anyone should choose to pay capital gains tax in future."

Why is all that happening? Why is the Chancellor's Budget leading to the biggest ever boost for the tax avoidance industry? Far from ending tax abuses, as the Chancellor implied he was doing in his speech last week, he has opened up many more. Far from dealing with the criticisms of executive share options that have been put to him--not least by the vice-chairman of the Conservative party--he has cost himself much more money, and in the process has introduced more tax shelters for the capital tax avoidance industry.

Mr. Kenneth Clarke rose --

Mr. Brown: I am happy to give way to the Chancellor, but I think he should explain why the tax shelter industry describes the Budget as the best boost that it has had for years.

Mr. Clarke: The hon. Gentleman keeps slipping between the words "tax shelter" and "tax abuse". What he describes are people trying to explain the tax advantages of investing in small, emerging, growing companies through the vehicle of venture capital trusts. It is new

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investment in new businesses and new jobs. It is absurd to describe those tax reliefs as a tax abuse; they are good for small industry and good for employment.

Mr. Brown: If the Chancellor were telling us the whole truth, he would mention the fact that he has extended the tax reliefs to the property industry. He has reopened all the abuses that made the closing down of the business expansion scheme necessary. Far from simply helping new manufacturing industry to get off the ground, as the Chancellor implies, the Budget--in two instances--extended the capital gains exemptions to the property industry. It is for that reason--the return of 60 per cent. tax relief, not the creation of jobs--that the tax avoidance industry is telling people about the great new opportunities that are available to them.

Last year, the Chancellor said that we would receive £1.3 billion from capital gains tax revenues. Now, in the Budget, he has downgraded the amount to £800 million. Despite all that he says about the boom in the economy, he has frozen the amount that he expects to receive next year at £800 million as well.

The Chancellor tells us that there is not a single alternative that he could consider, other than penalising middle and lower-income Britain, and that it would be wrong to end the tax privileges surrounding executive share options. In fact, the Chancellor's Budget has opened up even more opportunities for tax avoidance--opportunities available both to those who hold executive share options and to those who are prepared to avoid their capital gains tax liability throughout the 1990s and probably beyond.

I remind the Chancellor that it was not me alone who raised the question of capital gains tax abuses. The vice-chairman of the Conservative party put it thus:

"Although in the 1980s Conservative seemed to promise a classless society . . . the reality is now that the rich are getting richer on the backs of the rest who are getting poorer. Excessive pay packages especially in the privatised utilities cause real offence. Could we in future tax share options as income not capital gains and introduce some level of options above which tax would be charged as they rise in value not just when they are exercised?"

The Chancellor says that, by refusing to do that, he loses only £60 million. Indeed, he said in the House last week--the Chief Secretary nods-- that the sum was only £50 million to £60 million. That is not an insubstantial amount; it could be used to defray the rising cost of dental treatment or eye tests, for instance. It could have given a better deal to many people who face tax rises. I do not see how the Chancellor can justify the loss--if it were so--of £60 million through this scheme. Even the Financial Times has said:

"the real joy of executive share options is that there is no risk of losing money."

The Association of British Insurers and the National Association of Pension Funds have said that the schemes may not be in the interests of shareholders, the public or employees. All the research that has been carried out recently shows that two thirds of the schemes do not have performance targets. The all-party Select Committee that examines these matters--its members come from both sides of the Chamber, but it is dominated by Conservative Members--criticised the schemes and commented that they rewarded short-term performance and not the long-term needs of the economy. Yet the Government have refused, even though it has cost £370 million on their own figures, to deal with the problem.

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If the Chancellor of the Exchequer examines carefully the Treasury's assumptions about the revenue that it loses as a result of executive share options--I do not believe that he has--he will find that the assumptions are wanting, and that the loss is substantially larger. Perhaps the Chief Secretary to the Treasury will do us the courtesy of responding to my arguments one by one when he replies later this evening.

The Chancellor of the Exchequer should understand that the estimated £60 million is based on some strange assumptions. Those who hold executive share options include Lord Young, Sir John Nott and other well- known Conservatives. It is assumed that those men, who are sophisticated in terms of financial markets, will buy shares other than at the best time for share values. It is then assumed that they will sell just about every share on the day that they buy them. It is further assumed that most of the capital gains tax exemption has been used in other ways and is not available to be set against share options. The next assumption is that none of the advantage is transferred to wives or spouses.

Mr. Kenneth Clarke: Will the hon. Gentleman give way?

Mr. Brown: I shall give way if the right hon. and learned Gentleman can correct what I have just said.

Mr. Clarke: I am advised that the figure that I used includes the possibility of transfers to spouses.

Mr. Brown: Why is it not stated in the assumptions underlying the proposals, especially as the Chancellor of the Exchequer promised at the beginning of the year that all the assumptions--the promise was based on a freedom-of-information gesture--would be explained to the House? In fact, the necessary statement has not been made. That is why we have a figure as low as £60 million. The Chancellor has been wrongly advised.

Why is it also assumed that men or women with executive share options will fail to perceive the advantage of defraying up to £200, 000 of their capital tax liability by using the various schemes that the Chancellor has over time introduced, or by continuing to use the reinvestment relief that is available? It seems that the assumption behind the Treasury calculations is that the business acumen, flair and entrepreneurial spirit for which share option holders have been praised by the Government desert them on the day that they get hold of an executive share option. The Treasury's £60 million is based on a guesstimate that share option holders will act irrationally and against their interests when it comes to dealing with their own finances.

The main tax planning tool is the annual capital gains exemption--the spreading of disposals to wives. At the same time, it is assumed that shares will be bought when it is not the best time to buy them and when they do not represent best value. The Government's assumption will lose the Treasury substantial moneys.

As I have said, Lord Young has executive share options. He could pick up £1.1 million in profit on share options. Let us assume that he is granted them and decides not to sell in one go. He can then spread his capital gains tax liability over 10 or more years. He can transfer some of the shares to his spouse. He could take up a venture capital trust now. He could secure reinvestment relief and invest in property. As I have said, he could use up all his

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capital gains tax liability by means of such schemes. There is no reason why he or anyone else around him should have to pay CGT. None of these factors is properly taken into account in the Treasury's calculations.

If a few men in the privatised utilities can set against their share option liabilities--they run into £3 million for three top directors of PowerGen and £1 million for the top man at National Power--the various schemes to which I have referred, the moneys that will be received as a result of executive share options will be far less than assumed. The Government have not calculated the cost to the nation properly; they have not been serious about tackling the abuses which have arisen; and they are unaware of the anger throughout the country at the fact that they are prepared to penalise middle and lower-income Britain while allowing those who are extremely rich to go ahead and cash in their executive share options without paying a proper amount of tax.

Mr. Nick Hawkins (Blackpool, South): Does the hon. Gentleman agree with his departing colleague, the right hon. Member for Islwyn (Mr. Kinnock), that those who fall into the so-called category of the undeserving rich are those earning less than £60,000 a year--I ask the question in the light of the hon. Gentleman's recent remarks--or does he feel that the figure should be pitched a little lower than that?

Mr. Brown: The hon. Gentleman has misread the remarks of my right hon. Friend the Member for Islwyn. I talked to my right hon. Friend about those remarks on the day he made them. He never mentioned "undeserving rich". He and I have made a distinction between those who create wealth, start businesses and provide jobs--they deserve rewards for doing so--and others who under the Government have been given, because of monopoly positions or other privileges accorded to them, unfair rewards that cannot be justified in any taxation arrangements that the Government may make for them. When a millionaire can avoid paying any income tax, there is something extremely wrong with the taxation system. The hon. Gentleman should put his question to the Chancellor of the Exchequer, not to me.

Mr. James Clappison (Hertsmere): Will the hon. Gentleman give way?

Mr. Brown: I shall give way once more and then I wish to conclude my remarks.

Mr. Clappison: I am grateful to the hon. Gentleman, especially as he has said that he wants to bring his remarks to an end. Perhaps the hon. Gentleman will consider his overall macro-economic strategy and say something about borrowing. Does he accept the Government's approach to borrowing, or would he be prepared to accept a higher level of borrowing? Which is it?

Mr. Brown: I have said on many occasions that the aim of policy that is directed towards the public sector borrowing requirement should be to enable us to fund consumption. Investment is justified in certain circumstances, as any company or family would invest. The golden rule to which I would adhere is that consumption should be funded over the cycle by revenues. In my view, investment justifies borrowing in certain circumstances. That is a far more prudent policy than the

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one that the Government pursued over the 1991 1993 period. Either they misled us about the real position of the economy or they have been entirely incompetent in implementing their policies. The executive share option issue will not go away. We heard today that Mr. Maurice Saatchi of Saatchi and Saatchi is proposing at some stage to cash in share options that would be worth about £5 million. He obviously meant it when he said words to this effect, "Don't let Labour ruin it." I refer to the slogan for the 1987 election. The tax bombshell was for others; the tax bonanza was for him.

For people like Mr. Saatchi and those in the privatised utilities, there is a national lottery that does not involve scouring the country looking for the winner. Winners are known in advance. By naming those who occupy the boardrooms of privatised utilities, we can predict with precision those who are making the millions. It is a lottery in which the participants do not win once: they win every year under the Government. Indeed, many people have been winning for 15 years. They are the happy few. Many of them are part of a band of tax avoiders under a Cabinet whose members make promises to take good care of them.

We propose that the Government should consider levying a windfall tax on utilities. The Chancellor of the Exchequer said that he would not consider the proposal in detail because he rejected the concept of a windfall tax, despite the fact that one had been imposed on the banks by a Conservative Government in 1981.

Let us consider the facts; the House should be aware of them. Utilities have made profits of £45 billion during the recession, doubling their profits. The profits of electricity units increased by 250 per cent. Profits within the water industry have virtually doubled to £1.8 billion. National Power has trebled its profits during the same period. PowerGen has doubled its profits. In the past few days, it has been reported that Northern's dividends have increased in value by 30 per cent. while Eastern's and Southern's have increased by 25 per cent. and 24 per cent. respectively. The business is so lucrative that many electricity companies are buying back their own shares and making extra payments in dividends. Is it not obvious--

Mr. Nick Hawkins (Blackpool, South): They should cut prices.

Mr. Brown: The price cuts will be coming from next year. We must deal with the situation that has arisen this year and last year as a result of the excess profits that have been made.

Mr. Peter Rost, a former Conservative Member, who now represents the Major Energy Users Council, said:

"The right course is for the taxpayer to benefit. It is right to claim back the money and use it to pay for policies that benefit the economy as a whole."

He speaks for a substantial body of opinion. Artificially created profits have resulted from the monopoly position that the Government have given to industries through privatisation and their profits have doubled during the recession when most ordinary industrial companies had no profits. That should be re-examined.

The Chancellor of the Exchequer should consider the position in relation to the national grid. Will he confirm that, for the purposes of sale, the national grid was valued

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at £1 billion or less when it was sold to the electricity companies and that it is now valued at nearly £4 billion--some people say £5 billion--that a windfall profit will be made as a result of its demerger, that the Government have a golden share in the national grid which they should use to extract the best benefit for the country, and that the electricity companies are even resisting a scheme that would give a substantial amount of the money to their customers? Is it not right that the public should share in the benefit from the windfall profit, which has accrued not because of the companies' good management but because the Government gifted them the resource?

If the Chancellor rejects the idea of a windfall tax, let him consider the comments of Sir Geoffrey Howe in 1981, who said that the business sector-- this was his justification for the windfall tax--had largely been protected from the effects of recession. That has happened in relation to the utilities because of the monopoly position. When the Chief Secretary to the Treasury argues against that view this evening, he will be arguing against Lady Thatcher's position when a Conservative Government were in power. Sir Geoffrey Howe said that profits

"have increased sharply, both absolutely and by contrast with the experience of most other businesses."

That has happened in relation to the utilities. He said that he could not avoid the conclusion that he should require banks "to make a special fiscal contribution."--[ Official Report , 10 March 1981; Vol. 1000, c. 772- 73.]

If it was right for the banks with windfall profits to make a contribution, it is surely right for the utilities to do so, especially when we know about the profits to be made by the national grid.

The Chancellor says that he knows nothing about the taxation benefit that may accrue, but will he confirm that, the day after the Budget, a week before his mini-Budget, the President of the Board of Trade met the electricity companies to discuss the windfall that should come to the Treasury once the sale had taken place? The Chancellor looks as if he knows nothing about it. He should check what sources of revenue are available before he introduces new taxes on ordinary people.

The Chancellor prides himself on being tough on ambulance men, tough on prison officers, hard on the people that he has been up against, including teachers, and hard on doctors; but when it comes to the utilities and to people at the very top with substantial sums of money, he is a soft touch, and the Budget is increasingly viewed as unfair.

Let us apply the fairness test to the Budget. It is clear that income tax cuts were made between 1979 and 1992 for people at the very top--the top 1 per cent. received 30 per cent. of tax cuts and the top 5 per cent. received nearly 50 per cent. of tax cuts. However, the top 5 per cent. do not pay 50 per cent. of tax rises; at best estimates, they pay only about 10 per cent. That is not a fair approach, given the substantial benefits that they received throughout the 1980s, which even Mr. Maples has been forced to acknowledge.

What is the strategy behind the Budget statement and the follow-up statement that had to be made last Thursday? It is the only strategy that the Conservative party has left for the next election. It is not an economic strategy but simply an election strategy. There are no taxes that the Government will not be prepared to increase

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and no suffering that they will not be prepared to impose to create the scope for what they think is the election- winning card--a tax cut next year, running into an election next year or the year after. That is how the Prime Minister in particular views the position. Let me tell the Chancellor the facts about taxation which will confront the electorate in 1996 or 1997. In 1992, £37 billion was paid in VAT. Next year, it will be £48 billion. Despite all the promises at the previous election, the amount taken in VAT has risen by £11 billion and much of that amount arises from increases announced by the Government.

The Chancellor went to the electorate with a pledge that he would lower income tax. Let us consider what has happened in relation to income tax and national insurance. In 1992, total income tax and national insurance paid amounted to £72 billion. Next year, it will amount to £90 billion. In 1992, £57 billion was paid in income tax. By next year, it will be £70 billion. Even if the Government were able to cut the basic rate of income tax by 5p in the pound, the overall tax bill would be higher in 1996 and 1997 than in 1992 when the election was fought.

As a result of all the tax rises that have taken place, next year the British people will pay £50 billion more in taxation than they paid in the 1990 1992 period. Even a cut of 5p in the basic rate of income tax will not undo the damage that is equivalent, as the Chancellor admits, to 7p in the pound. That is why Conservatives will be embarrassed in their explanations to the electorate in the next election campaign.

When we face the next election, we will have tax rises that have been real and lasting, that have happened all the time and that have hit the many most. That should be compared with tax cuts that people will realise are token, an attempt at a pre-electoral bribe and beneficial to the few most. An election year tax cut, contrived to obscure relentless increases in taxation, year after year, will not impress the British people, especially when it is clear from what we have said today that the biggest beneficiaries of the Budget and the mini-Budget statement will be people at the top who are able to shelter substantial capital gains through tax avoidance.

Where the Chancellor could have been fair, he has been unfair. Where he could have taxed excesses at the top, he has taxed the daily purchases of the vast majority. Where he could have closed tax shelters, he has opened them up. He has taxed beer but cut tax on champagne. He has even introduced new taxation on ordinary savers but given millionaires huge windfall help. A tiny minority of the people stand to benefit most as a result to his measures.

These are not the Budget measures of a caring or competent Government. These are the Budget measures of a Government who are out of touch with the British people. The House, by its actions and speaking on behalf of the public, stopped VAT on domestic fuel rising to 17.5 per cent. It is time for the House and the people of this country to stop the Government. What the people of Dudley, West will say on Thursday, the whole country will say at the earliest possible opportunity, and the Government will go.

5.47 pm

Mr. John Biffen (Shropshire, North): I apologise to the House and, more particularly, to the Front-Bench spokesmen, that I have an unbreakable commitment that

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will keep me from the bulk of the debate, including the winding-up speeches. I assure the Whip, however, that I shall be here for the vote and I shall, I hope, compensate for my bad behaviour by making a short speech.

I always enjoy these occasions, not least because my right hon. and learned Friend the Chancellor of the Exchequer clearly revels in these exchanges. He revels in that good-natured bruising, rather like Brian Clough in happier days, as he berates his opponents and even, in more hilarious moments, his friends. I thought that I should get in with an early bid for his favour by saying how much I welcome his decision to present the Budget resolutions. It would have been ill-advised to take the implied advice of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and to allow the elasticity of the public sector borrowing requirement to cope with the statistical problem.

Similarly, I welcome my right hon. and learned Friend's decision not to place any further pressure on public spending, partly because it is often an illusory gesture that only rephases public spending commitments, but also because the local government settlement this year is extremely stringent.

I should like to reflect on the unique nature of the corrigendum, as my right hon. and learned Friend called it, to the original Budget statement. It has come about because of a taxpayers' revolt. Taxpayers did not exactly take to the streets, but they nevertheless made it known to Members of Parliament in the most powerful and genuine way imaginable that VAT on domestic fuel was inequitable and challenged a great many of the inherent value judgments about our taxation priorities. That is not a wholly novel experience, because almost exactly the same thing happened with the community charge. My mind strayed back to the happy days before the 1979 general election, when Tory policy on taxation and public spending was reinforced by the experience of proposition 13 in California, where Howard Jarvis and Paul Gann pioneered a revolt on the streets to enforce tax discipline and, subsequently, public spending discipline. The movement that we are experiencing is subtly different. There is no doubt that the pressures being put on us are against any disturbance of our inherited tax pattern. The community charge was a new tax and the extension of VAT to domestic fuel was an innovation involving an existing tax, but it was deemed to go beyond the original social objectives of VAT, which is what I shall dwell on for a moment.

I understand that my right hon. and learned Friend the Chancellor did not have much time to manoeuvre, but he responded to last week's events by reinforcing all the old traditional taxes. We have in fact diverged fractionally from our European Union partners as a result of this exercise, but I dare say that there will not be many damp handkerchiefs on that account.

The House must recognise the disciplines on it that are implicit in the strong public reaction against further taxation, especially in certain respects. The hon. Member for Dumfermline, East (Mr. Brown) is perfectly right to take up the cudgels against the extension of VAT. My right hon. and learned Friend the Chancellor responded fraternally, but it was a bit of a custard-pie exercise. I did not think that it was altogether real politics. Is it seriously supposed that any party wants to extend VAT to food, transport or housing? The hon. Member for Dumfermline,

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East points across the Chamber, but I would love to know what he thinks in his heart is the difference between his conditional stance and that of my right hon. and learned Friend.

Those are bound to be conditional stances because we do not conduct our fiscal policy in a vacuum. It is conducted with the advice, guidance and nudging of our European Union partners--and with the negotiating skills of which my right hon. and learned Friend feels that he is possessed. That brings us into a genuine confrontation with our European partners, not necessarily a bitter confrontation, but one that the House must recognise. Their taxation policies proceed from quite different social and economic backgrounds from ours.

We have always had a cheap food policy. Historically, it was based on free trade, but there are now social considerations in deciding to have a zero rate on food and travel and, until recently, on fuel. We know what storms are released when one begins to disturb that social pattern. It is a matter of great anxiety for Chancellors and shadow Chancellors that their tax manoeuvres are constrained in that way, but our experience of the past few months is that they are so constrained.

There is a European context to this debate. That is not the paranoia of a Tory Euro-sceptic, but the calm reflection of someone who tries to be tolerably well informed about what is happening around and about. One cannot talk about convergence, cohesion or a single currency without accepting that they have implications for a fiscal pattern that will have broad comparability across the European Union.

I watched Opposition Members this afternoon with an almost missionary zeal and I have to ask what the parliamentary Labour party's position is on Europe, or that of Labour Back Benchers. Originally I would have said, and will still say, that they are today's Trappists and tomorrow's sceptics. There is not a significant element in the Labour party that would trade in our present taxation pattern and social objectives expressed in our low or zero rates of tax over wider areas of the Community. For them, there is no merit in that. There may not be much merit in it for many others, but it becomes politically impossible to put taxes such as VAT on food, travel and housing if it is seen as part of a deal inspired by external agreement and force.

Dr. John Reid (Motherwell, North): Surely the real comparison is not between the United Kingdom and other countries, but between the total taxation levied on the typical individual or family in Britain when the Government came to power and that levied 15 years later. As my hon. Friend the Member for Dumfermline, East (Mr. Brown) constantly points out, despite the fact that a central plank of the Government's programme was to reduce taxation, the average share of the typical family's gross income that goes in tax has gone up in 15 years from just over 32 per cent. to 36 per cent. That is the real comparison.

Mr. Biffen: I am happy to acknowledge the underlying shift in public spending that has occurred under the Conservative Government. I suspect that the hon. Gentleman will find that roughly the same has happened in other western European countries, because in many ways they have exactly the same social characteristics as

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us. They have the same population structures and the same demands from the elderly and the young, which all make for a powerful spending base for the Government.

My point is that we have come to finance that spending in accordance with our past social and economic judgments as to what were acceptable balances of taxation. We shall not find it easy to move away from that which will inevitably bring us into conflict with other economies that have different taxation patterns but which requires movement on our part in the light of common commitments within the European Union.

My thoughts on the matter were given a particular focus by The Times on Monday. At the Essen summit meeting, Mr. Kohl said that the Prime Minister's Euro-sceptic critics would be

"swept away by the wind of history, as they deserve".

It is nice to be told to hitch up one's Lederhosen and get marching into the future, but it is not like that. The social and economic judgments that have created our tax policy and structure came about because our constituents put pressure on their Members of Parliament who, in due course, determined the system that we now have. It is not one that can be easily mortgaged to outside interests, and nor should it be.

5.58 pm

Mr. Malcolm Bruce (Gordon): I always enjoy following the right hon. Member for Shropshire, North (Mr. Biffen), whose contributions are nothing if not individual. However, it is important to put it on record that this particular tax change was an entirely self-inflicted wound for the Government and did not originate in Brussels. It is extraordinary that the turntable has revolved to such an extent in two weeks. We were told initially that the extension of value added tax on fuel was absolutely crucial to the Government's Budget requirements and that the £1.5 billion revenue that it would raise was irreplaceable but, within a fortnight, the Government came up with alternative measures and settled for almost half of what they had said was absolutely essential. They have settled for £750 million to £800 million instead of £1.5 billion.

We were also told that if the House of Commons were so foolish as to vote down the extension of VAT, it would have a catastrophic effect on interest rates, which would rise by 2 to 3 per cent. The Chancellor may, of course, have been simply trying to protect himself from what he saw as the future effect of his current economic policy. But, so far, there is no sign that any such emergency increase is anywhere in the wind.

Indeed, the Governor of the Bank of England, giving evidence to the Treasury and Civil Service Select Committee, of which I am a member, made it clear that, as far as he was concerned, although the outcome of the vote may have affected the timing of the increase--at his request, the meeting was brought forward to 8.45 am as opposed to 9.30 am--the increase was related to the overall economic situation and his judgment of what was required at the time and had nothing whatever to do with the changed circumstances resulting from the vote.

Just for the record, it was interesting that the Chancellor indicated that he decided to increase interest rates. Of course, technically that is absolutely true, but the Governor of the Bank of England made it clear that the

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