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and against the background of the political mire through which he has dragged his already beleaguered leader, there was no hint of an apology this afternoon. There was no remorse. There was not even the cynical recognition that one would expect of a politician of the right hon. and learned Gentleman's depth of the political damage that he has done to himself and to his Prime Minister. Perhaps he does not regret the damage that he has done to the Prime Minister, but no doubt he regrets the political damage that he has done to himself. The Chancellor seems not to understand how far he is distancing himself and the Conservative party from the majority of those outside the House. Even I am astonished at how the right hon. and learned Gentleman can turn a fiscal crisis into a political drama. Equally, I am astonished at how far he has separated himself from the British people, including his constituents.

I was surprised to receive a copy of last week's edition of the local newspaper in the Chancellor's constituency. With the indulgence of the House--the article is pertinent--I shall read the paragraph which is headed:

"No sign of boom for Rushcliffe's dressmakers."

It will become obvious why dressmakers are the small traders who have been selected. The article reads:

"The owner of a dressmaking shop which faces closure after 20 years has accused Chancellor and Rushcliffe MP Kenneth Clarke of being out of touch with his own constituency."

Even the dressmakers of Rushcliffe--not generally regarded as the most revolutionary vanguard of the proletariat--are apparently being forced towards protest in the local press by their own beloved Member, the Chancellor.

I am not sure of the relationship that the Chancellor has with dressmakers in Rushcliffe or why he has lost their confidence in particular, but it is a sign of how detached the right hon. and learned Gentleman is when his local newspaper is lambasting him on behalf of small business men and women and entrepreneurs, not industrial workers. I am talking of people who produce quality goods and artistic goods that the Chancellor deems to be a part of the centre of the dynamic new economy that he is creating.

I shall explain to the Chancellor why such a reaction comes from the dressmakers of Rushcliffe and from all thoughtful people throughout Britain to his political mistake over value added tax. Rejection was led by the Labour party, but it was fuelled, supported and sustained by people throughout the country of all political persuasions or of none because the Chancellor's proposals were unjust, because they did nothing to assist economic recovery and because they went entirely against the grain of the fair-mindedness of the British people.

The Budget and the appendix before us will do nothing to resolve the fundamental problems of the economy. That brings me again to the comment of the hon. Member for Croydon, South, that the economy "ain't broke".

What are the problems to which the Chancellor should have had regard in the Budget? They can be neatly summarised as the problem of the lack growth over the past 15 years--this year's growth will bring problems in its own wake--along with trade, tax, unemployment and investment problems over the same period.

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It must be remembered that the Conservative party formed a Government 15 years ago, but the Chancellor speaks as if he had only recently inherited power. He suggests that all the problems of taxation that he has inherited were written in the Book of Revelations and had nothing to do with him or his predecessors. The Government came to power promising that they would lighten the burden of taxation on the British people. They claimed that it has been levied on the backs of the people by interfering socialists and that they would sort it.

What is the result? This year, we are facing a tax burden on the typical family in Britain in 1995-96 of 36.1 per cent. of gross income. Last year it was 35 per cent. When the Government came to power it was 32.1 per cent. under the dreadful high-taxing Labour Government. The gross proportion of tax taken from the average family has increased by 4 per cent., and 4 per cent. of the original 32 per cent. is, in absolute terms, a 12.5 per cent. increase. That is the burden that has been placed on the average family. That is the result of the Government's efforts.

What was set out in the Budget to deal with the increasing burden of taxation? The Chancellor retained VAT on fuel. He was forced under pressure from the Labour party, from people throughout the country and even from his fifth column--perhaps we should call it the eighth column--to abandon the proposed increase. As I have said, he retained the rate of VAT on fuel which was imposed last year. He pressed ahead with the seven new taxes that were introduced in last year's Budget. In addition to the already record levels and proportions of income that are taken in taxation--last year it was 35 per cent.--seven individual taxes were introduced, to increase the burden on the average family by £360 a year or about £7 a week. The VAT proposals in last year's Budget will add another £80 a year to the average tax burden.

When Conservatives take the advice of the hon. Member for Ribble Valley and steal this year from Peter to give back next year to Peter, they had better take things back to where they were. They will have to return the equivalent of 7p in the pound in direct taxation. The British people would still ask, "Has it all been worth it?" A financial system cannot be worked by mirrors, but that is what the Chancellor is trying to do.

A reallocation of taxation is taking place. The Chancellor is hooked on VAT; he is a VAT addict. He stood at the Dispatch Box agonising about the decisions that he had to take to increase taxation on the purchase of goods. We were deeply moved. The right hon. and learned Gentleman would have brought a tear to a glass eye. He told us how agonised he was. If, however, he were given the choice of taking agonising decisions on VAT increases or increasing indirect taxation by 1p, he would certainly take the first course. The right hon. and learned Gentleman's strategy is to build up a war chest of direct tax cuts, the contents of which will be funded by the moneys that he has taken from the British people in indirect taxation. The Chancellor derided some of the suggestions that have been made by Opposition Members, yet he constantly asks us for suggestions. He constantly demands that my hon. Friend the Member for Dunfermline, East (Mr. Brown) produces solutions, only to deride them. He derided the suggestion that the Government should impose a windfall tax only this afternoon. I recall that two Budgets ago he derided my hon. Friend for talking about loopholes. It emerged implicitly, and sometimes

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explicitly, during his Budget statement this year that the closing of loopholes has saved the Exchequer over £3,000 million. The loopholes that he claimed did not exist or could not be closed when they were talked about by Labour Members have now been closed, with a saving of £3,000 million. He claims that that is a measure of his financial prudence. The Chancellor has done nothing about taxation. What about unemployment, the second problem? Unemployment is not only a social blight but an economic problem. By referring to unemployment's economic effects, I do not mean to undermine in any way its social consequences. Unemployment cannot be described by a graph on an economist's wall or by a chart in a bureaucrat's office. It is a living tragedy. Many of us have lived among it for a decade or more and Conservative Members are seeing the problem among their constituents and in their constituencies. In addition, however, unemployment is an economic waste.

When the Government took office, there were about 1 million unemployed people. There are now more than 2 million, despite more than 30 changes in the way in which unemployment is calculated. Even more important, when the Conservatives came to power in 1979, there were 340,000 long-term unemployed people; there are now more than 1 million.

The Government tell us that they have created more than 400,000 jobs but if we consider the number of people in employment--this shows how the statistics have been fiddled--we find that, since the bottom of the recession four years ago, employment has not increased by 400, 000 but decreased by 440,000. The Chancellor of the Exchequer's genius has created a large hole somewhere in the Treasury with the disappearance of 800,000 jobs--the Government say that 400,000 jobs have been created but employment has decreased by about 400,000 according to the figures.

The Government's response to that in the Budget was a national insurance rebate of less than £10 a week. That will not begin to tackle the sort of problems faced by the long-term unemployed. We suggested a rebate of about £75 for employers who were willing to take on the long-term unemployed. The Government therefore offered nothing on employment growth, which has not increased.

What about housing and homelessness, which are not only social problems but the dynamo of the economy, especially in relation to the construction industry? No other sector of the economy would have a more catalytic effect on the rest of the economy than the construction industry.

The Chancellor's main concern during the Budget was not the fact that people were homeless and that we were not building houses but that housing benefit was out of control. Let us assume that his supposition is correct. Does not the fact that the Chancellor and his Treasury team should be surprised that housing benefit has increased because rents have gone up illustrate their naivety? Does not the fact that rents have gone up as a direct consequence of Government action explain how out of touch they are with the real world? First, the Government withdrew subsidies on social housing, as a result of which social housing rents, especially council housing rents, went up by two, three and four times the rate of inflation. Secondly, the Government deregulated the private housing market. Thirdly, they created the economic conditions whereby

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the building industry was decimated. The Government prevented either private sector building or social building by refusing to release the receipts of council house sales.

Surely the Government, who are full of Adam Smith fans--the intellectuals who have studied the market and who festoon the Conservative Treasury team- -should be able to work out that, if one reduces the number of houses, withdraws the social housing rent subsidy and deregulates private sector rents, the excess of demand over supply would probably lead to an increase in rents and, therefore, housing benefits. The Labour party recognised and predicted it. Its much maligned non-marketeers predicted exactly would happen.

The Government's solution in the Budget is not to build more houses, to reduce the imbalance between supply and demand or to create a catalyst in the economy by allowing local authorities to build more houses, but to penalise the victims of high rents who are suffering from deregulation of the private sector and the dearth of housing in the first place. Those people are the homeless, the about-to-be homeless and those who depend on Government benefit in the first place. It is a scandal of the first order.

Today, we had yet another budget opportunity and yet another opportunity was lost. Today, the Chancellor could and should have introduced a system of fair taxation. He should have ended tax abuse. The Government told us that there is no public interest in that or any flagrant abuse of the system on the same day as one member of Saatchi and Saatchi stands to benefit by £5 million from a share option system. The Government have a great deal of work to do to convince the British public. We should remember that Saatchi and Saatchi has presumably been paid £5 million for its tremendous foresight in declaring that, if any party other than the Conservative party were elected, we could expect tax rises. That failure of foresight while reaping the benefits of a £5 million share option only adds insult to injury.

The Government should have diminished tax privilege, abolished the tax on fuel, introduced measures to tackle unemployment and encouraged local authorities to build homes with capital receipts by phasing them in. The Government should have reformed the benefit system to encourage employers to take on long-term unemployed people and introduced a meaningful national insurance rebate. They should have changed the 21-hour rule for the long- term unemployed. They should have offered incentives for that.

The Government should have followed the policy of incentives for action and investment proposed by Labour. They should have discussed, proposed and thought about new, improved initiatives for public-private partnership. They should have tackled the real challenges and opportunities for the Post Office by developing commercial freedom in public ownership. I think that the hon. Member for Ribble Valley said that he received a letter from Norway.

Mr. Nigel Evans: NORWEB.

Dr. Reid: I beg the hon. Gentleman's pardon. At least we all have the satisfaction of knowing that we paid for the postage on the letter. Presumably he received it yesterday, but he said that it was dated 9 December. Even at the peak Christmas season, the Post Office--that efficient, publicly owned service--is delivering letters to Conservative Members within three days. If "it ain't broke", why did the Government want to fix it? Why

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could they not develop commercial freedoms and allow the Post Office to live in balanced public ownership but with private investment?

The Government should have introduced proposals to help small businesses, to promote innovation and to improve regional investment. There was none of that in the Chancellor's speech and he has had not one but two goes at it this year alone. There is nothing constructive in the proposals. I return to the quotation to which I referred earlier--that jewel from the hon. Member for Croydon, South, who said, "If it ain't broke, why fix it?" That little gem was an attempt to justify what effectively has been a do-nothing Budget or, certainly, a do-nothing-good Budget.

In my previous speech, I mentioned that this was, in a sense, a Government in waiting. I said that the Foreign Secretary was waiting for his blessed retirement, that the President of the Board of Trade was waiting for the call and that the Secretary of State for Employment was waiting for his opportunity. That is how they have appeared throughout the whole economic shambles, paralysed by inaction and inventing a new ideology based not on Oscar Wilde, who was mentioned earlier, but probably on Dickens--a Majorism -Micawberism based on the principle that something will turn up. However, nothing has turned up or is likely to turn up. If the Government continue to wait, they will become the only Government in history to have stayed a Government-in-waiting after they have been elected.

The Government may wait but they will not suffer the effects of their inability to act and their lack of strategy and economic foresight. Nor is it Conservative Members who will suffer because they are guaranteed an income for as long as the Government continue in power--but no longer. The people who really suffer are those outside, not only the unemployed, the homeless and the socially deprived but the business men and women who are prepared to play their part by risking and investing their labour and their time if the Government were prepared to do the same.

Those people are being let down by the Government more than the House has been let down. For as long as the Government continue on that path, those people will ultimately be the judges, and I very much doubt that their judgment will be other than the harshest when the time comes.

8.10 pm

Mrs. Jacqui Lait (Hastings and Rye): I listened to much of the debate on the Budget last week and the week before and to most of the debate this evening. The dominant impression that I received is that our public finances are in apple-pie order, so we can spend every ha'penny that we can get our hands on, a notion exemplified by many of the Opposition's contributions tonight. The Liberal party's spokesman, the hon. Member for Gordon (Mr. Bruce), seemed to think that we had plenty of money and he was planning to spend it on a range of usually woolly Liberal ideas. In fact, we have heard a list of ways to spend money that we do not have.

Only when we can make it clear to the Opposition parties that the whole purpose of the austerity that we have had to inflict in the past couple of years was to ensure that our economy grows and becomes a good solid

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basis for expansion will we be able to achieve what we happily admit is our goal--to cut taxes so that people have more choice as to how they spend their income. That is what we are all working very hard to achieve.

It was interesting to learn that the hon. Member for Dunfermline, East (Mr. Brown) clearly cannot differentiate between the increased income that is derived from income tax and value added tax in an expanding economy and increased rates of tax. That would disturb me greatly if he had any pretensions to becoming Chancellor of the Exchequer.

The hon. Gentleman set out to describe the perfect entrepreneur to be rewarded through our economic system. He said that it should be a man of vision, someone who creates jobs, is successful and who exports. He described perfectly Maurice Saatchi who, with his brother, set up and for many years ran the most successful advertising agency in the world. It went through a bad patch but has now recovered and that man should be rewarded and be able to reap the benefits of his own skills. That the Opposition are still censorious about such achievements gives me great cause for concern and reminds me of the famous saying about the Bourbons to the effect that they have forgotten nothing and learnt nothing.

One of the great strengths of the Budget this year and last year was the determination to ensure that inflation should never again ruin our economy. It has paid off. We have very low inflation and, consequently, an expanding export market and a recovery that many of us could only have dreamed of. The conditions are now parallel to those which allowed the German economy to become one of the strongest in the world after the second world war and the deutschmark to take over the dominant role in world trade once occupied by the pound. We have managed to create those conditions in the United Kingdom. It was interesting to learn that at Essen at the weekend one of the Commission's officials said that, should we ever wish to adopt a single currency, on current projections only two countries would make it--one was Germany and the other was the United Kingdom, and our finances are in better nick than the Germans'. We have created the right conditions and we must hang on to them.

We must encourage our manufacturing and export sector. Many of our services also make a great deal of money from exports and should not be deprived of the opportunity to do so. We must ensure that that sector drives our economy and continues to keep it on course. In the past, any expansion in our economy has come through the housing market. We have driven up housing prices and the demand for consumer durables, which have had to be imported. We have thereby drained any strength from our economic recovery. Sad and difficult though it might be, the housing market remains depressed. There are many reasons for that, but one that is rarely dealt with is the fundamental change in demography, which will in the long term ensure that house prices remain steady.

We have an aging population and most of us own our own homes. There is no longer such a demand for housing to buy. When parents die, the family house is no longer occupied and owned by the children, but goes on the market for sale and resale, thereby meeting the existing demand. That demand matches supply, so there will not be a significant increase in house prices for a long time. That may be difficult, but it is as it should be. It is another factor in the effectiveness of the German economy.

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I am conscious of the fact that this is the second time that I shall have detained the House on the same topic, but smuggling concerns me greatly. I shall try not to repeat what I said in the Budget debate or what some colleagues and Opposition Members have said about it. I understand entirely why the Chancellor had to do what he has done but, as someone said on the radio, we have given smugglers a pay rise. I shall consider the issue under three headings.

First, I clearly have a constituency interest in smuggling. Any Member of Parliament with a constituency on the south coast who denies that there is a problem with smuggling is not in touch with his constituents. As hon. Members have said, smuggling extends beyond the south coast, but it is having an adverse effect on many small businesses there, some of which have been struggling to keep going. The second reason why I am so concerned about smuggling is that it undermines the rule of law, and the third is related to health. Let me cite some examples, other than those that we have already heard, of the extent of smuggling.

The hon. Member for Workington (Mr. Campbell-Savours) gave a very elegant exposition of the problem as he sees it, and I cannot disagree with him. In one sense, I have some sympathy with the private enterprise shown by smugglers. There is a well-known character in my constituency who lives on social security benefits. Once a week he takes his backpack, gets on the ferry from Ramsgate to Belgium, goes to a tobacconist where his order is waiting for him, puts it in his rucksack, gets the same ferry home and makes a profit of £150 a week.

I do not blame him. We are handing people profits. In my heart, I find it very difficult to say that that man should not commit such an act. Indeed, there are many other cases where one has tremendous sympathy with the opportunity being presented. We wish to create a nation of entrepreneurs. We are doing it. Unfortunately, we are doing it through them having to break the law.

Mr. Thomas Graham (Renfrew, West and Inverclyde): I do not wish to take up much of the hon. Lady's time, but is she aware that, in Scotland, we have a big coastline and, not long ago, smugglers trying to smuggle in cocaine and marijuana were found? Does she also realise that the Customs and Excise service is being cut, and we shall not have the same number of people trying to defend our coast from the smuggling of cocaine and other drugs?

Mrs. Lait: If the hon. Gentleman cares to listen to the rest of my speech, he will hear that I have reached the conclusion that, fundamentally, prevention of smuggling is not the answer. When it comes to alcohol, many people have talked about the beer smuggling that goes on. In fact, Shepherd Neame, one of the Kent brewers, has told me that it is brewing an extra 1 million pints a year, which it sends to Calais--99 per cent. of which catches the next boat back. However sensible a commercial decision that is, there is something faintly ludicrous in Shepherd Neame doing that. The brewer, however, makes the sensible commercial point that, of course, its beer no longer stays in Kent. It is getting better known throughout the United Kingdom. So, commercially, Shepherd Neame is making

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a much bigger impact than it would if it remained a small regional brewer in Kent. However, is that the way in which we wish to go? I am not aware that any hon. Member has mentioned that in the UK, especially in the south, there is an increasing number--there was an increasing number--of English vineyards making increasingly better wine, which is quite drinkable and very drinkable in many cases. Those vineyards were some of the very first businesses to be hit after the creation of the single market.

One of the areas in which they specialised was vineyard-gate sales. Those disappeared because people were going across to France. I accept that the making of English wine will never be a dominant industry as it is in France and Germany, but I applaud the English vineyards and I drink their wine. It is very hard for them to have to cope with the increased amount of wine that comes into the country and hits their market quite directly. In fact, I know that they, too, have tried to set up their own wine-selling operation in France to bring wine back.

We need to look at the practicality of what is happening in the smuggling world in a legal context. One of my fundamental worries, quite apart from my parochial concern, is about the undermining of the rule of law. We find that there is not a tobacconist, a newsagent, a pub owner, a restaurateur, or a cafe owner who has not had somebody knocking at the back door asking whether he or she wanted cheap tobacco and cheap alcohol. I admire those who have the guts to say no, because they are facing commercial death. However, I have great sympathy with those who say, "Yes, I'll take it." If one is offered alcohol and tobacco at prices that one cannot match anywhere else in a recession, it is a very great temptation. We all know that human nature is fallible.

The issue goes further than that. It is easy, very easy, for honest traders to fall into temptation as well. The more available cheap tobacco and alcohol is, the easier it is to fall. I know that some of the tobacco companies are trying to make their cigarette packs smuggle-proof.

Mr. Jimmy Wray (Glasgow, Provan): Will the hon. Lady tell the House just what the solution to that problem is? The Government have had 16 years to do something about it, and they created the problem.

Mrs. Lait: I am afraid that the hon. Gentleman clearly has not been following the advent of the single market. The problem has arisen only in the past two years. If the hon. Gentleman bears with me, I shall get to the solution.

I do not think that hon. Members have yet appreciated the damage that smuggling is doing to the body politic and to the health of the nation. My hon. Friend the Member for Chislehurst (Mr. Sims) defended the high taxation of tobacco. I have every sympathy with that, as I pointed out to him at the time. I am a non-smoker. I loathe smoking and I find it exceedingly difficult when I address the problem. I also find it very difficult when I deal with people in the health industry--I use that term in its wider sense--because I do not think that they have yet realised the nature of the problem. General practitioners have not yet seen the increase in the number of patients with respiratory diseases. It is too soon. They have not seen the increase in the number of patients with alcohol-related problems. Also, we are not yet finding schools picking up on youngsters who have access to cheap tobacco.

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Research needs to be conducted in those areas. We need also to change the mindset, to take into account availability and the damage that, in the long run, could be done by the excessive provision of cheap tobacco and alcohol.

So one of the things that the Department for Education and the Department of Health should do is institute research plans to check where the effects of that excessive provision are evident. I am sure that it will not be long before we start to pick up through GP surgeries signs of greater access to cheap tobacco and alcohol. We need to work closely with the medical profession to ensure that its mind-set is changed to take into account the damage that is being done, because there is no point in having a policy of high taxation on tobacco if it is being undermined by easy access to much cheaper stuff.

Opposition Members have been encouraging me to come up with the answer. I have already told them that prevention does not work. I come from the historic smuggling area of the Romney marsh, and the figures from the 18th century that I have discovered so far showed that the cost of prevention far outweighed the cost of any of the goods captured. We are seeing precisely the same happening today, even with the recent successes in Eastbourne and with the South Yorkshire miners. Prevention is not the most cost-effective way in which to deal with the problem and, while every little helps, it does not answer the problem.

I also endorse the remarks about the European Union tobacco subsidies. I take issue--slightly--with my hon. Friend the Member for Colchester, North (Mr. Jenkin). We had a debate in the House about whether Community tobacco was even used. I have to tell him that 100, 000 tonnes of tobacco produced in the Community is being smoked in the Community. As we are all agreed that it is pretty poor stuff, think of the lungs of the people who are smoking it. We cannot glibly say that we do not use that tobacco. We do use it and we are spending about £1 billion a year on subsidising its production. I was glad that, in Essen, it was agreed that the entire common agricultural policy should be looked at. I hope that the first thing that is done is to get rid of that tobacco subsidy.

We also must take into account the point made so effectively by my right hon. Friend the Member for Shropshire, North (Mr. Biffen) about the clash of cultures between ourselves and the other members of the European Union. We have always had a policy of high taxation on tobacco and alcohol and low taxation on food. The opposite has been the case on the continent. It is too easy to say that we must harmonise. Those of us who believe in subsidiarity would never suggest that harmonisation is the answer. My right hon. and learned Friend the Chancellor used the term "approximation". I would say, "Take the profit out of smuggling." That is the way forward. I accept that that is a long-term business because we must persuade countries that cheap tobacco and alcohol are bad for their populations. The medical profession in this country must work much more closely with its colleagues on the continent to make them recognise the damage that is being caused to the lungs and livers of the populations of those countries. That is a long- term proposal because we all know how resistant the medical

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profession is to change. However, I believe that the medical profession has a real responsibility to work with its colleagues on the other side of the channel.

Will the Treasury please stop considering excise duty as the milch cow from which it can solve any problem? For the reasons that I have cited, for my constituents and anyone on the south coast, for the rule of law and the continuing good health of our population, I urge the Treasury to take its responsibilities seriously and to stop using excise duty as a way of solving all its problems as that wrecks the health of more people than I, and many hon. Members, would wish to take responsibility for.

Mr. Graham rose --

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): I call the hon. Member for Londonderry, East (Mr. Ross).

8.31 pm

Mr. William Ross (Londonderry, East): I apologise for speaking ahead of the hon. Member for Renfrew, West and Inverclyde (Mr. Graham), as I always like to listen to him. I promise to try to be around to hear what he has to say.

We are not constricted in this debate as we were in the last Budget debate when speeches were restricted to 10 minutes. For much of this afternoon, when I looked around the Chamber, I was reminded of the hymn which states:

"The tumult and the shouting dies;

The Captains and the Kings depart".

There is not the pressure to be present today to make our case. The bite has gone out of the debate. As a result, we have ventured into some very interesting highways and byways.

I listened to most folk this evening with a fair degree of interest. I was particularly interested in the Chancellor's comments. At one stage, he told us that the Government had taken the necessary steps to restore the nation's finances. When I think back to the absolute essential, which was September 1992, I recall that the Government were dragged kicking and screaming to the point where the necessary step was forced on them. Without that, we would still be in the dreadful situation that had pertained for a year or two before then.

I also listened with interest to the comments of Opposition Members. It appeared to me that, on occasion, there was a germ of convergence on the view that public debt had to be kept under control. When I think back to the debates to which I listened when I first became a Member, I believe that that convergence of view is very welcome.

This is a particularly interesting debate on the economy of the entire nation in view of what is happening in Belfast today and what is going to happen tomorrow with regard to the investment forum for Northern Ireland. I hope that that will have considerable effects down the years for my constituents.

I am grateful to the hon. Member for Redcar (Ms Mowlam), who kindly let me have a copy of the Labour party's views on what should be done in Northern Ireland. I assure her and her colleagues that we will read that document with great care. Whether or not we agree with it is a different matter, but we will read it with great care. The mere fact that we can think about such things is a sign that, even in Northern Ireland, we are approaching

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what passes for normal politics in the rest of the United Kingdom. That is a welcome change from that which normally gives us cause for concern.

With regard to the Northern Ireland economy, we are promised money from many sources in the coming months. My view is simple: those who call for that money to be spent on good works, community relations, training and all the rest of it should be told very quietly, "No, this is one off." When the money is spent, we want to see something on the ground. Whether that is a bridge, a new school or a new road is immaterial to me; we want something permanent in the infrastructure, or possibly in education in Northern Ireland, even at the level of primary or secondary schools, where much rebuilding is needed.

That money will not last. It is not normal government expenditure which will roll on for many years into the future. It is a short-term, one, two or three-year process and the money will then be gone. We want something permanent when the money is spent. We do not want it to be frittered away on projects which, no matter how worthy in themselves, should be met from normal government expenditure over a longer period. My party will give the Government its views on how those extra sums should be spent on very worthy things which should be done and which we believe should be carried into effect as speedily as possible.

In the first Budget debate, I referred to the consequences for rural dwellers of the rising cost of motoring. I suppose that I could do worse than repeat what I said then. However, I must add to what I said by saying that, as so many people have no real alternative and are absolutely stuck in their homes from morning to night if they do not have a vehicle and as the social and economic life of the countryside depends totally on the ownership of a car, and the more remote one is from a large conurbation the more essential that vehicle becomes, the further increase in the cost of transport fuel in this mini-Budget is most unwelcome.

Under the Rio convention, the Government have already committed themselves to steadily raising the cost of fuel for transport. That cannot be allowed to pass unchallenged and it cannot go on. If we allow it to continue, we will so damage the social fabric of our rural areas that social life as we know it will simply cease to exist. There is no alternative, whether we like it or not, to personal transport for much of the United Kingdom and for many millions of people who live here.

Where alternatives exist, such as the transport systems in large cities and suburban areas, let us by all means promote them and use them. Let us make them attractive to the people who use them and try to cut the number of personal vehicles that enter towns and cities every day. However, we must not forget the very real problems and concerns of rural dwellers in that respect.

The hon. Member for Hastings and Rye (Mrs. Lait) and others referred to some of the problems that have arisen as a result of the increase in duty on alcohol and tobacco. Our experience in Northern Ireland, especially with regard to the tobacco and cigarette manufacturing industry there, is that increases in taxation on tobacco have the unwelcome effect of sucking in legal imports, never mind the illegal imports which are exercising the minds of hon. Members who represent the south-east of England and further afield.

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A balance must be struck in the new borderless Europe. The right hon. Member for Shropshire, North (Mr. Biffen) drew attention to the underlying reasons for some of the problems. However, we simply cannot go on allowing important sectors of the economy to be undermined or destroyed because we are so out of step with other countries. We need to exercise control over those matters to protect government revenue and the income and jobs of our constituents throughout the kingdom.

Much has been said about the smuggling of alcohol. I am one of those who believe that far too much alcohol is consumed in the western world, anyway, not least in the United Kingdom. Those of us who have encountered the effects of the excess consumption of alcohol and the utter misery that it has caused for many people would normally welcome the fact that it had become so pricey that most people could not afford it. I used to have a very simple view of pubs. I thought that they should be nationalised and then they would be bound to go broke and fail. Unfortunately, no Government have had the guts to go down that road, so a lot of people drink a lot of alcohol.

Mr. Graham: Hear, hear.

Mr. Ross: Scotland is infamous in that respect, but it is not the only place in the United Kingdom where alcohol is used to excess. The subject of alcohol and tobacco smuggling draws my mind back a few years. I am sure that the Chief Secretary to the Treasury will recall the immense problem from which people in the car retail business in Northern Ireland have suffered for many years. I refer to the enormous problem of huge numbers of vehicles being imported from the Irish Republic on such a scale and for such a period as to wreck many legitimate businesses in Northern Ireland. The problem arose because of the manufacturers' pricing policy. They changed their prices to sell cars in each nation state. Different prices were paid for the same car in each nation state. Once one was able to import a car, one was able to reap the benefits. Manufacturers' pricing arrangements arose largely because of the different taxation arrangements.

The Government should explore whether they can persuade the manufacturers of beer and other alcoholic drinks to alter their prices in order to bring the matter under control. However, I suspect that, like the efforts to control the importation of cars and the resultant damage in Northern Ireland--they were quite ineffectual, and whatever the Government did was soon circumvented--anything that the Government do in respect of the importation and smuggling of alcohol and tobacco will be a waste of time.

The money is available, but, unless the Government are prepared to close the borders and to control them, they simply cannot control or destroy the trade which has been built up. The hon. Member for Hastings and Rye has told us the reason for that trade--there is money in it. Therefore, a lot of people will do it if there is a lot of money in it. Some of them must think that they have drawn six lottery numbers every Saturday, judging by the way that they are behaving. The other matter to which I draw the attention of the Treasury team yet again is the tax on heavy fuel which is used for electricity generation. The Chief Secretary to the Treasury will recall that I mentioned previously that, until the Budget, Northern Ireland was paying 30 per cent. of the total tax on heavy fuel for electricity generation in the

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United Kingdom--£11.67 million last year. The increase in the Budget brought about an increase of £4.82 million, so we are now up to £17 million.

That is an extremely heavy burden on the small generation capacity in Northern Ireland. It must be dealt with, if not in the short term, certainly in the long term. I understand that that burden alone amounts to roughly 1p a unit on electricity in Northern Ireland. That is only one of two or three such measures in the pipeline. Bearing in mind that there is a forum and various efforts to increase investment in Northern Ireland, when we tell people that electricity there is the dearest in the United Kingdom, it is a bit off-putting. The best interests of the United Kingdom are not served by such a burden on generation costs. Although I welcome the two interconnectors--one has been constructed and another is being constructed- -they are only a help. In the long run, we must bring down our generation costs, and there is no short-term way of doing that other than by doing something about the tax on heavy oil. The main matter is the amount of money that is raised by indirect taxation in the United Kingdom. The right hon. Member for Shropshire, North drew attention to the difference between our view and that of the rest of Europe. He said that there was a limit beyond which people simply would not go. I must tell the Treasury team that we have reached the limit of the money that we can extract from the population by means of indirect taxation. Indirect taxation is much beloved by the Conservatives, and one can understand why. It is like a banker's order; once it is in place, it is very hard to remove, and one never thinks about it while paying it every day of one's life. But it is an onerous tax, because it applies to everyone. Of course, people on low incomes pay a larger proportion of their income in indirect taxation than do those on higher incomes. The Government have had to resort to increased benefits for those people, thereby increasing the social security bill.

I should have thought that it was self-evident that, whenever taxation reached the point at which the Government had to compensate from tax, something was going far wrong and it was time to go back to basics and take a long, hard look at how they were trying to raise tax. Therefore, we need to reconsider the relationship of high taxation to the social security benefit entitlement system; we might then discover that lowering such taxes will lead to a lower bill for social security benefits. That would always be a help.

In the previous debate on such matters, I drew attention to my party's view that, although we should be absolutely adamant that we will not tax essentials that people need every day--fuel is clearly regarded by the population as one of them--that is not the whole story. We have a high public sector borrowing requirement. It is coming down again. Much of the drop in the requirement this year is as a result of more people being back at work, the fall in inflation and the fall in interest rates. That is very welcome, because it lays a long-term, sound foundation. However, if there is a sudden large rise in the public deficit for a year or two, surely the only honest way to deal with that is to put up income tax. It is the most flexible tax of all.

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If, instead of trying to put 17.5 per cent. VAT on fuel, the Government had stuck 3p on income tax, that would have been mighty unpopular, but it would have been honest. The Government would have received the revenue immediately, and that would have been welcome. The pain would have been felt immediately, and people would have said, "You are the lot who did it, and you promised not to do it." Perhaps that is a good reason for not doing it, but the alternative has turned out to be even worse. Furthermore, there would have been no recycling of the complaint; the matter would have been over and done with.

Surely one of the great lessons of VAT on domestic fuel is that, if the Government are going to tax, they should get it over and done with, instead of having six or seven bites at the bitter lemon. It does not get any nicer; it just allows people more time to think about how they will beat the Government, as they will eventually do. An increase in income tax is over and done with in one fell swoop and can be easily reversed when conditions allow.

I wonder whether the Government have pondered in the last week or two what the situation would have been if, instead of putting 3p on income tax to raise the £5 billion they need, they had put on 4p or 5p. They would have been in a wonderful position come next December. They could have taken 4p from income tax without being any worse off and they would have received the plaudits of the entire country for fulfilling their election promises by reversing unfortunate taxation measures.

The Government could have been in a much happier position in the run-up to the next general election. As a result of the decision taken in the House on VAT on fuel, the Chancellor was freed from that massive millstone. I suspect that, when he looks back in three months or six months, he will realise how fortunate the Government were to have been defeated. The matter will not return to haunt them. Tax that is imposed to meet an immediate need should be able to be reversed easily and quickly. That leads me to question why the Government tried to increase VAT on fuel. It can only mean that they believe that they will need considerable revenue for a long time. They opted for a tax with long-term consequences which is difficult to reverse. For that reason, I fear that the Government do not expect to be out of the woods for some time; therefore, they are laying the foundations for sound public finances at the time of the next election. When that time comes, I hope that we will have seen a huge reduction in the PSBR, and that we will be close to repaying public sector debt.

8.51 pm

Mr. David Lidington (Aylesbury): The test for this Budget is the extent to which it equips the British economy to cope with the dramatic and turbulent changes being experienced not just by the United Kingdom but by the entire industrialised world. The pressures on our economic policy making derive from two immensely powerful forces: technological change and international competition. The hon. Member for Londonderry, East (Mr. Ross) began his speech by quoting from Kipling's "Recessional". If my memory serves me correctly, a later verse reads:

"Lo, all our pomp of yesterday

Is one with Nineveh and Tyre."

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