[Lords] (By Order) Order for consideration, as amended, read.
To be considered on Thursday 12 January.
Mr. Thompson: Given the huge embarrassment experienced by the Chancellor last week on the 7.5 per cent. increase in VAT on domestic fuel, is he aware that the introduction of 8 per cent. VAT on domestic fuel was equally unpopular? Is he further aware that, despite the criterion set down for the annual mean temperature over the country as a whole, the temperature in the north of England and Scotland is well below that of the south, which makes the tax very unfair? As nothing can be done about the 8 per cent., will he reconsider the criteria that trigger the cold weather payments, in view of the difference in temperature between the north and Scotland and the south. And--
Mr. Clarke: I cannot congratulate the hon. Gentleman on the topicality of his question, but I appreciate that the problem is caused by our procedures, which govern when he had to table it. The financial embarrassment caused by the defeat has been closed by the revenue that I announced last week. No doubt people will be able to make some objections about some of what we did last week, but the Budget judgment remains intact and we remain on course for recovery. I am not an expert on climate so I cannot comment in detail on the differences between north and south, but it is not the case that every part of the north of England is colder than every part of the south of England. I come from the midlands so I am fairly neutral, but I believe that, although costs vary across the country, the burden of taxation is pretty fair. As the hon. Gentleman
Column 1052acknowledged, the answer is the cold weather payment scheme, which was invented by this Government and had no precedent before we came into office. We acknowledge that there are periods of severe weather when some form of compensation is called for. In two Budgets I have raised that compensation from £6 a week two years ago to £8.5 a week from now on.
Mr. Kynoch: I welcome the fact that my right hon. and learned Friend left intact the increase in cold weather payments, which is of great benefit to the elderly and those on low incomes, and that he has left intact the £30 million for the home energy efficiency scheme. Will he ensure that the Opposition, who seem intent on scaremongering and frightening the most vulnerable in society, are made aware of the free phone number that such people can call for information and help?
Mr. Clarke: I am grateful to my hon. Friend. To close this episode, let me say that, as a result of our package, the average pensioner will be fully compensated for the average VAT bill in forthcoming years. Pensioners were not being borne down on by our proposal and a small majority of pensioner households will now be overcompensated for the 8 per cent. that will remain. In fact, by its vote, the House has relieved the rest of the population of the feared burden of VAT on fuel. I appreciate my hon. Friend taking up the positive point about the home energy efficiency scheme. We doubled it last year and have now added a further £30 million. It has been a huge success and, as well as reduced fuel bills, brings to many elderly people the added comfort of having a properly insulated home. I trust that it will be backed enthusiastically by all parties.
Mr. Gordon Brown: Given the differential impact of VAT on living standards, not least those of British Gas showroom workers, who now stand to earn less in a year than their chief executive earns in a week, will the Chancellor of the Exchequer take the chance that I gave him before to condemn the 75 per cent. pay rise for the chief executive of British Gas and even, belatedly, to outline what action he proposes to deal with excesses that are both irresponsible and unfair, and an affront to decent standards in British industry?
Mr. Clarke: I do not want to talk about the affairs of individuals across the Floor of the House, but I have no doubt that Mr. Brown lives in a house whose fuel bills make him a major beneficiary of the effect of last week's vote on VAT. I should think that he was one of the big gainers from the hon. Gentleman's brave gesture when he voted on the Budget. Secondly, the hon. Gentleman shows ever-increasing enthusiasm for expressing views and striking attitudes towards the running of private-sector companies, especially in the energy sector. The background to all this is that British Gas has been a huge success since privatisation, and customers are benefiting from improved services and lower tariffs. It would be a regression to go back to the state of affairs that existed when Governments both of his party and--for a time, unfortunately--of mine, thought that somehow they could take over the supervision of the delivery of major public services such as gas.
Column 1053energy bills, not only through the cold weather payments, which have already been mentioned, but because, under privatisation, the real cost of gas and electricity has fallen? Will he continue that trend by resisting any imposition of a carbon tax?
Mr. Clarke: It is certainly true that the effect of sticking at 8 per cent. VAT is that gas and electricity prices have fallen by 1 per cent., even allowing for VAT, compared with the rate of inflation over the past two years. It is clear that the regulation imposed on the utilities will ensure continued falls in the price of gas and electricity. We must resist the attempt by the Labour party to take the affairs of such industries back into Government hands. A carbon energy tax--an alternative favoured by the Liberal party usually and the Labour party often--would impose not only a tax on domestic fuel but extremely heavy costs on British industry, and would disadvantage us in world markets. I am glad to say that at the Essen summit President Delors acknowledged as much, saying that the Commission would continue to design the outlines of a carbon energy tax, but would accept that it was for individual member states to decide whether they wanted such a tax. We shall rescue this country from such a tax, whether the idea comes from Europe, the British Liberal party or the British Labour party.
Mr. Kenneth Clarke: Taking account of the generous compensation that they will be receiving, benefit recipients will be paying much less than those with higher incomes. For the majority of pensioners that compensation will more than match the VAT that they will be paying.
Mr. Battle: Is it not a fact that the poorest households spend 13 per cent. of their income on fuel, whereas richer households spend only 3 per cent. of theirs? Does the Chancellor know that the Institute of Fiscal Studies has estimated that, as a result of VAT at 8 per cent., the poorest fifth of the population will reduce their fuel consumption by 9 per cent., compared with an average of 6 per cent? The compensation package shortchanges the people who need it most, such as the elderly and the infirm. People on disability living allowance will get nothing. Those who pay the highest price can do the arithmetic; they will go cold this winter because of VAT on fuel, even at 8 per cent.
Mr. Clarke: The hon. Gentleman is misusing a statistic that makes the obvious point that people on lower incomes tend to spend a higher proportion of their income on fuel, just as they do on food. Many of them also tend to spend a higher proportion of their income on tobacco and alcohol than other people do. [Hon. Members:-- "Oh!"] That just happens to be the case. [Interruption.] Of course it does.
The Opposition are obscuring the fact that, in cash terms, we introduced VAT in order to give cash compensation to the poorest. As I have already said, and
Column 1054as I restated in my reply, for the majority of pensioner households, the amount added to their pension will be greater than the amount that VAT adds to their bills. With the greatest respect-- this is becoming an old campaign and I have accepted the vote of the House- -I still become roused by this absurd claim that people were somehow going to die from cold and all the rest of it, when they were going to be compensated in respect of their bills. The people in the big houses will save the VAT.
Mr. Cunningham: Does the Chancellor not realise that, in the light of the statement that he has just made to my hon. Friend the Member for Leeds, West (Mr. Battle), he does not really understand the plight of old- age pensioners, the poorer families and the sick in relation to VAT? In addition, the Chancellor has been responsible for cuts in benefits.
Mr. Clarke: If VAT costs the average pensioner a certain amount, and if the compensation that we offer is equal to that amount, I cannot see how I can be accused of neglecting the interests of pensioners. The hon. Gentleman says that this is part of the fall in living standards, but fortunately I am very glad to say that the living standards of retired people have risen well ahead of inflation since the Government took office. Living standards have risen about 40 per cent. ahead of inflation in the 15 years that the Conservatives have been in power.
Mr. Allason: Does my right hon. and learned Friend recognise that pensioners in particular study his Budget statements with great care and they do not take a great deal of notice of the Opposition parties' scare stories? However, is he also aware that there is some anxiety about the position of VAT on fuel in 1996, when it is believed that the European Union will require an end to all zero rating? Can my right hon. and learned Friend put at rest the minds of pensioners, who are concerned about future VAT rates on fuel?
Mr. Clarke: I am grateful to my hon. Friend because I am aware that there are fears of that kind and I can put them at rest. Until we have a new VAT regime agreed in Europe, the present regime continues. We have always safeguarded our right to determine which goods remain zero rated. That remains the case. As we enter discussions in Europe about a possible further regime for VAT, we will ensure that we retain the right to set zero rates according to our judgment. That is one of our main negotiating aims.
With regard to pensioners in general, I agree with my hon. Friend the Member for Torbay (Mr. Allason). They follow these issues with care. I am sure that many of them noticed that, when I was able to go back to indexing the tax allowances for the general population against inflation, I over- indexed the aged person's allowance for income tax. Therefore, the tax bill of pensioners who pay income tax was relieved by my Budget. The overall effect of the Budget is slightly to reduce the burden that we impose on pensioners for revenue purposes.
Mr. David Nicholson: Will my right hon. and learned Friend continue to resist the scare claims of Opposition Members which, as usual, are designed to frighten the most vulnerable in our society? Will he also continue to
Column 1055give attention to providing funds and incentives for home insulation and energy conservation despite past and expected future falls in the price of gas and electricity?
Mr. Clarke: I undertake to do so. The good thing about the home energy efficiency scheme, to which we have already alluded, is that we have expanded it very rapidly indeed. We doubled it last year and the people responsible for the scheme have responded and have proved capable of spending that money. Sometimes one can move so fast that it becomes difficult for the administration to keep up speed and deliver the money in terms of homes insulated. One million homes have been insulated and the level at which we are now running the scheme will produce a significant difference to the comfort and fuel bills of many elderly and poor people.
Ms Armstrong: Given that many low-income families will receive no compensation for the increase in VAT on fuel, and given that we know that the gap between the rich and the poor is getting wider, why will not the Chancellor condemn the 75 per cent. pay increase for the head of British Gas? The Prime Minister condemned it; why will the Chancellor not do that?
Mr. Clarke: Carrying on about the pay of individuals does no earthly good to pensioners. It merely distracts public attention from the fact that the Opposition have no positive proposals to put forward on taxation or on public spending, or the relationship between the two. I have repeatedly made it clear that I deeply deplore, in any major company, pay increases that are not justified by performance. Shareholders should take an interest in remuneration when there is any reason to doubt that it is matched by performance. I strongly reject the idea that it is the business of Government to go back to the business of setting salaries in major companies, something that was a hallmark of an extremely unsuccessful period in running many businesses, including the public utilities.
The Chief Secretary to the Treasury (Mr. Jonathan Aitken): The Government have taken firm action to reduce public borrowing. That should ensure sound public finances and the strengthening of the UK's economic recovery.
Mr. Gallie: I thank my right hon. Friend for that answer. Is he aware of the recent successes by Jetstream Aircraft of Prestwick in selling Jetstream 41s overseas? Does he consider that the reduction in our long- term borrowings will assist future exporters?
Mr. Aitken: I am indeed aware of the considerable successes in the export market of the Jetstream company in my hon. Friend's constituency. It recently sold aircraft to South Africa and to Korea, both of which are new markets for that company. It is part of the mounting success of Britain's exports, which are at the record level of a 14 per cent. increase this year.
Column 1056Government should eliminate borrowing, or is it his and the Chancellor's intention to ensure that Government debt continues to increase even when the cycle is on the upswing? Will he make a clear statement on the Government's plans for borrowing? Do they believe in a balanced Budget?
Mr. Aitken: The hon. Gentleman should study the Red Book, where all those matters are set out in some detail. In general terms, it continues to be our policy to reduce public borrowing in accordance with the graphs and curves set out in the Red Book, and that will remain our policy.
Mr. Congdon: Does my right hon. Friend agree that only by taking a tough approach to public spending has it been possible significantly to reduce the public sector borrowing requirement and, at the same time, to achieve an impressive 4 per cent. economic growth? Does he also agree that that is in stark contrast to the Opposition, who urge more and more spending and do not have a clue how they would reduce the PSBR?
Mr. Aitken: My hon. Friend is entirely correct. As usual, the silence from the Opposition on those subjects is absolutely deafening and embarrassing. They will not say at what level they intend to reduce public borrowing or whether they intend to reduce it at all. In more general terms, sound public finances are absolutely central to the economic recovery, which is going well, with growth rates of more that 4 per cent. I am grateful for my hon. Friend's endorsement of our successful recovery.
Mr. Andrew Smith: While the Chief Secretary to the Treasury has the graphs and curves from the Red Book in mind, will he confirm that, on debt interest alone, the Government propose to spend £35 billion extra over the next five years, compared with what they spent over the past five years? Is the projection in the Red Book for 1996-97 of a PSBR of £13 billion a firm target? If that is not a firm target, what is his target?
Mr. Aitken: All targets are intended targets, and we are aiming for them, so there is nothing different about that. I am delighted that the hon. Gentleman is at last taking a serious interest in reducing public debt. The cost to the taxpayer of gross debt interest payment is almost £1,000 a household. Therefore, at long last, after the embarrassing silences from the Opposition, we are glad to have a signal that they are interested in reducing public borrowing. That is a first for Labour.
Mr. Brazier: Will my right hon. Friend confirm that the welcome reduction in borrowing will help to ensure that we continue to have one of the lowest absolute levels of borrowing as a percentage of gross domestic product of any country in the developed world? However, at a time when private sector borrowing is falling, I urge my right hon. Friend to be very chary about further rises in interest rates.
Mr. Aitken: My hon. Friend is quite right to commend Her Majesty's Government for their good record on steadily reducing public borrowing, which has halved in two years and which is exemplary compared with that of many other nations. As he knows, Treasury Ministers do not comment on rises or falls in interest rates, but I have listened carefully to his advice.
The Financial Secretary to the Treasury (Sir George Young): The Budget reinforces our strategy of ensuring sound public finances and low inflation, providing a good climate for investment. We expect investment to grow strongly in the coming year, with whole economy investment increasing by 5 per cent. and business investment at nearly 11 per cent.
Mr. Miller: That strategy has resulted in Britain coming 22nd out of 24 countries in an OECD survey of investment as a function of gross domestic product, and it has resulted in a steady decline in manufacturing investment in plant and equipment since 1990. Will not that strategy continue to undermine Britain's manufacturing base?
Sir George Young: I do not see how the hon. Gentleman can claim that 11 per cent. growth in business investment next year is in any way disadvantageous. What would damage investment in this country are the Labour party's proposals to help itself to substantial sums of money from industries which were nationalised--money that it would find only by cutting investment and infrastructure and thus creating unemployment. We will listen to no lectures about investment from the hon. Gentleman.
Dr. Jones: The Minister talks about business investment, but surely he is aware that even the most optimistic forecasts do not predict that it will reach the level it was before the recession. Therefore, he will not be surprised to learn that at a recent meeting with the West Midlands Engineering Employers Federation I was told that, apart from a little help that will be provided to tiny businesses, the Chancellor's Budget will do absolutely nothing to secure the long-term sustained growth in business investment that is necessary if we are to reach the investment levels of our competitors to which my hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller) referred.
After 15 years of Tory Government, is the Minister not ashamed of that record? According to an answer from the Minister of State to my hon. Friend the Member for Great Grimsby (Mr. Mitchell)-- [Interruption.]
Column 1058Members who have questions listed further down the Order Paper and who can reasonably expect to be called. I want brisk questions and answers.
Sir George Young: The hon. Lady is not correct. A recent Confederation of British Industry survey, published in October, showed that the balance of firms planning to spend more on plant and machinery is at its highest level since April 1989.
Mr. Mandelson: Will the Minister congratulate those in the north- east--notably those in my constituency of Hartlepool and those in the Northern Development Company--who have worked so hard to secure the recently announced investment by Samsung Electronics in Teeside? Does that not demonstrate a very powerful case for a close partnership between the private and public sectors, as well as the importance of effective regional policies and Government incentives for investment? Will the Minister therefore repudiate the Employment Secretary's demand that such essential industrial assistance be cut?
Sir George Young: Of course I pay tribute to those who have won the orders. One reason why the north-east has done so well is that the Government have consistently supported that area through development corporations, city challenge and enterprise zones, and our policies are now paying off.
Mr. Renton: I congratulate the Financial Secretary on what he has told us. What budgetary measures does he think need to be introduced in order to maintain--let alone increase--investment levels if serious suggestions were made by serious people that Britain should leave the European Union?
Sir George Young: My right hon. Friend is right. Many investors, particularly international companies, want to invest in a country that is at the heart of Europe, and that is a key part of our selling strategy. A healthy economy, sustainable recovery, low inflation and rising profitability are what matter, and we now have them.
Mr. Jenkin: Why does Britain have the most punitive rate of capital gains tax in the entire developed world? Would not it boost investment if we were to reduce or even abolish CGT? Japan has no CGT, and it works perfectly well.
Sir George Young: There will be opportunities as the Finance Bill goes through Committee to develop at length the subject of CGT. It is worth recording that 99 per cent. of taxpayers do not pay CGT, so one must put the problem in perspective.
Mr. Quentin Davies: Is not the 11 per cent. projected increase in business investment exceptionally high? Although the Labour party--for obvious reasons--does not want to acknowledge that fact, is it not irrefutable evidence of the confidence that the Government's policies have engendered in the economy?
Sir George Young: My hon. Friend is right. In the past few days, a decision has been taken by London Underground about the Northern line, and the go-ahead has been given to the Croydon tramlink and the midlands
Column 1059metro. Investment decisions are now being taken, jobs are being created and we are making progress in modernising the infrastructure.
Mr. Darling: On Tuesday, the Chancellor said that the timing of interest rate rises depended on, among other things, political events. Who will decide the timing of interest rate changes as we approach the general election--the Governor, acting in the interests of the economy, or the Chancellor, acting in the interests of the Tory party?
Mr. John Marshall: Will my right hon. Friend comment on the levels of investment by British Telecom, the gas industry and the water industry? Does he believe that the rise in their investment is due to the fact that they are now in the private sector and are not nationalised industries?
Sir George Young: My hon. Friend is quite right. It is exactly those successful investment programmes that the Opposition seek to damage with their proposal for a windfall tax, which I hope has now been abandoned.
Sir George Young: Household income after tax and inflation is expected to rise next year to be almost 50 per cent. higher per head than in 1979. Our policies of sound finance and low inflation have created the prospect of sustained growth and of further increases in living standards.
Mrs. Jackson: Do not the averages mask the differentials? Is it not true that since 1979 half the tax handouts from the Government--£16 billion--have gone to the top 10 per cent. of the population and that, since 1992, £2 billion has been taken from those in the bottom half of the household incomes table? Is the basic unfairness of that Tory tax policy an unfortunate mistake or part of a deliberate policy?
Sir George Young: What really matters is that the real incomes of vulnerable groups--pensioners, the unemployed and the low paid--have all gone up. The burdens of the 1993 and 1994 Budgets are spread fairly across all income groups.
Mr. Ian Bruce: Has my right hon. Friend noticed that whenever Opposition Members quote statistics on the amount of tax that is being taken from the average householder, there is always an assumption that the living standards of that average person have gone up well ahead of the rate of inflation? Would not it be sensible for them to look at what sums people take home? Have not living standards risen year by year for the average householder?
Column 1060As I said a few moments ago, real income per head has risen by nearly £50 per week since 1979. That is the figure that really matters.
6. Mr. McGrady: To ask the Chancellor of the Exchequer what consultations he had with the Northern Ireland Office in drawing up his public expenditure allocation to Northern Ireland for the fiscal year 1995- 96.
Mr. McGrady: I thank the Minister for that reply. May I draw to your attention, Madam Speaker, and that of the Minister, that the announcement regarding public expenditure in Northern Ireland was made on Monday, not to the House or to Members of Parliament who represent Northern Ireland but to the press? Notwithstanding that, I am sure that the Minister will agree that the advent of peace in Northern Ireland has created new public expenditure priorities. Expenditure on security is being reduced, increasing the need for further expenditure on other parts of the public sector and, in particular, on job creation. It is estimated that peace will mean the loss of more than 25,000 jobs in Northern Ireland, and that vacuum must be filled. Will the Minister assure me that the financial benefits gained from spending less on security will be used in the public sector on job creation and not clawed back into the Treasury? That money should be spent for the benefit of Northern Ireland to enhance its future chances.
Mr. Aitken: As today is the first anniversary of the Downing street declaration, I am glad to join the hon. Gentleman in welcoming any proposals that will strengthen the prospects for peace, prosperity and investment in Northern Ireland. It may be premature to speak about a large peace dividend, because it is too early to lower the guard on security. I emphasise, however, that prospects for investment, as highlighted by my right hon. Friend the Prime Minister at yesterday's meeting of the Investment Forum, are excellent. The Government have no intention of taking money away from Northern Ireland--far from it. As we made clear in the announcement at the Essen conference, we have shown our good will by ensuring that any new investment money from the European Union or from other sources will be considered in addition to the Government's planned spending growth and investment in Northern Ireland. The prospects therefore look good for a new era of better investment in Northern Ireland.
Column 1061paid to the unemployed and the cost of redundancy payments in many cases, which bring the cost of unemployment to a total to £9,000 a year for anyone unemployed. That is why another member of the Cabinet, the Secretary of State for Education, went along to a Select Committee and used that very figure. On top of that, miners who have been thrown out of work and who receive money from the Department of Energy--there are more than 100,000 of them--are not included in the unemployment statistics. The truth is that if the Government got rid of mass unemployment in Britain, they could wipe out the public sector borrowing requirement for next year.
Mr. Aitken: The hon. Gentleman is always full of instant solutions and wrong figures; today is no exception. The figure he has quoted is wrong. Successive Governments have declined to make estimates of the kind that the hon. Gentleman has made because they require all sorts of arbitrary assumptions and guesses to be made about the potential earnings of unemployed people and their spending patterns. It is safer to say that the implied costs of an unemployed person are about £3,500. That is why the figure that I gave in my original answer stands.
Mr. Garnier: Is my right hon. Friend aware that the costs of unemployment in the constituency of the hon. Member for Bolsover (Mr. Skinner) fell last month because the unemployment rate there fell by more than 2 per cent.? Is my right hon. Friend further aware that the cost of unemployment in my constituency has fallen consistently since the general election? What lessons has he learnt from the overall unemployment figures throughout the country?
Mr. Aitken: Unemployment is falling all over the country at the extremely satisfactory rate of more than 1,000 a day. The hon. Member for Bolsover (Mr. Skinner) may not be aware of the interesting phenomenon in his constituency known as the "Bolsover diamond"--that is not a reference to the hon. Gentleman when he is in one of his rougher moods but a £35 million investment project under the single regeneration budget, £5 million of which came from the Government, the rest being raised in partnership with the private sector. That project will create nearly 3,500 jobs and train more than 1,000 people. That is the kind of employment advantage that the Government are creating through their excellent policies and the sound Budget of my right hon. and learned Friend the Chancellor.
The Minister of State, Treasury (Mr. Anthony Nelson): The competitiveness White Paper made it clear that, although the United Kingdom has world-class skills in some areas, further progress is needed in others. The Government have introduced major reforms to improve outputs from education and training.
Mr. Clapham: I am rather surprised by that answer because the Minister will be aware that a great deal more needs to be done. Yesterday, the Trade and Industry Select Committee visited Glasgow, where we spoke to
Column 1062IBM, Stevensons and Hoover, who told us that they were having extreme difficulty in finding the skilled labour that they required. Britain obviously needs far more skilled labour if we are to compete with our main competitors. What resources will be made available, and over what period of time, to lift skills in Britain to the level of our major competitors?
Mr. Nelson: The hon. Gentleman makes a fair point on behalf of the Trade and Industry Select Committee, of which he is a member. This country lags behind some others in technical and intermediary skills, which is why considerable extra resources are being made available through the advanced and apprenticeship schemes, which should provide some 70,000 extra people with national vocational qualifications over the next five years.
Miss Emma Nicholson: Does my hon. Friend agree, however, that even the most skilled workers cannot compete and get jobs in a negative industrial environment where minimum wages and social chapter restrictions are the order of the day?
Ms Hoey: We shall have to wait and see on that. As a special Christmas gift to women, will the Minister consider zero rating something that is not a luxury but a necessity--sanitary towels and other sanitary apparel? Will he give the matter serious consideration because those items are a necessity and women should not have to pay VAT on them?
Mr. Heathcoat-Amory: We have no plans to reduce VAT on the items mentioned by the hon. Lady and we cannot introduce zero rates for reasons, of which she is aware, connected with rules under the European Union.