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Column 637attractive and we can build in long-term investment opportunities. That makes it a much more sensible proposition to invest long term, not just for the teenage scribblers in the City, but for those who are producing the wealth of the country. That will help our productive capacity enormously. The key to the Budget lies in our determination to keep inflation down and the pound stable. Other advantages flow from having a stable pound. We shall be able to develop the international competitiveness of our goods and services. When we talk about inflationary pressures, we have to ask where they came from. One source is increased input costs, but one of the most significant factors in output costs is the cost of labour. We shall be forced to keep our labour costs low because we are competing in an international market, trying to match the output of factories in the tiger economies of Asia and the highly skilled, highly educated and appallingly underpaid work force in eastern Europe. Those are our competitors. It has nothing to do with Germany, France or Italy. The wage rates in countries such as those in eastern Europe and Asia will be the principal motors of our costs in terms of competitive production. That is why we shall continue to invest in industry, looking towards the high-tech industries and the development of the brain and intelligence skills required to compete. Keeping inflation low and a strong pound are the keys to achieving that.
I particularly support the development of venture capital that will provide investment in the smaller companies, which will be the real powerhouse of our recovery. I very much welcome the Budget proposals to help people wishing to invest venture capital. Those in high-tech businesses have long complained that they cannot get access to capital between £50,000 and £500,000. I hope that the venture capital trusts, which will allow people to invest and will reward them for investing, will be lean and mean enough to dodge the criticism from the larger venture capitalists, the banks and everyone else whose job it is to invest, that it costs just as much to invest £50,000 in a venture as it does to invest £1 million. We have to ensure that the venture capital trusts are sufficiently lean and mean to afford small investments as well as large ones. By encouraging venture capital trusts to be set up and encouraging the small investor who wants part of the action in venture capital, we shall have the potential to help those small businesses which so desperately need small loans. Venture capital will also encourage small businesses to start looking at equity facilities instead of overdraft and loan facilities. It is not just the City which needs to be
sophisticated--so do people running businesses who hope in the long run to make not just their own fortunes, but several other people's fortunes as well.
I come now to a national issue which is also particularly apposite in Hastings, where we have always had endemic long-term unemployment. I welcome the measures in the Budget to encourage employers to take on more of the long-term unemployed, but I should like to explore a slight tweak to the suggestion that employers get a national insurance holiday for employing the long-term unemployed. In principle, that is a very good idea, but the Confederation of British Industry conducted a survey of long-term unemployed people and one of its most significant findings was that 40 per cent. of those people are illiterate. With the best will in the world, no employer
Column 638will take on an illiterate person for the value of his national insurance. Perhaps the Treasury might like to consider a pilot scheme to see how successful the national insurance holiday could be for the long-term unemployed and for employers. It may be possible to get that up and running before the measure is introduced more generally. If 40 per cent. of the long-term unemployed are illiterate, more help is required for them than a national insurance holiday for employers.
I come to another constituency issue that has been raised by a number of hon. Members. Hastings is a coastal town with significant tourist business. Like other hon. Members, I have been approached and lobbied by those running coastal amusements and leisure parks. One company has calculated that, net of VAT, the average weekly take in video games is £10. In the cranes, redemption and novelty category it is £62.93, and for kiddies' rides it is about £4.23. Those figures give us an idea of the problem faced by people who are trying to turn piers into places for family entertainment and who do not wish to replace everything by machines with money-only prizes. They do not wish to replace all the games of skill or competition with prize-only machines. It is in their interests if perhaps the Treasury could rethink and even take on board the BACTA recommendations. Finally, because my area has a very mixed constituency, I will pick up on vehicle excise duty on farm vehicles, which was mentioned by my hon. Friend the Member for Bridlington (Mr. Townend). It will hit some of the farming community quite hard. Many of my farmers have land in different parts of a village. They need to travel on the roads and they are hard hit by the new measure.
We have a sheep farming community in Hastings. The sheep farmers are in a state of flux and ferment for all sorts of extraneous reasons and it would help if we were more sympathetic to them than imposing excise duty on their vehicles. One suggestion from a local farmer is that perhaps farmers could apply for a licence at a higher rate than currently applies, but which could be used in the same way as licences are used by garages so that they could transfer one licence from machine to machine. They would be prepared to do that. They insist on having their machines roadworthy and they are happy and proud for them to go on the roads, but if each machine has to be licensed separately it will put exceedingly great pressure on people who already feel pressured, particularly in my part of the world. I commend the bulk of the Finance Bill--it certainly is bulky--and hope very much that the Treasury will take on some of the points that I and many of my hon. Friends are making.
Mr. Alan Milburn (Darlington): Notwithstanding the last rather more critical remarks by the hon. Member for Hastings and Rye (Mrs. Lait), she painted a fairly rosy picture of prospects for the British economy during the next few years. It is probably a picture that many of our constituents would not recognise. Some 11 million of them--that is 40 per cent. of the work force--have experienced unemployment during the past five years.
Not surprisingly, many commentators, including Opposition Members, view the Finance Bill as a measure that promises much but delivers very little indeed, notwithstanding its considerable bulk. It will do nothing
Column 639to tackle the underlying sense of insecurity that is prevalent in many of our communities, and will do little to build the partnership economy that right hon. and hon. Members in all parts of the House espouse--high investment, growth and, most importantly, employment. Some of the Budget's central measures will undermine the attainment of those objectives. It entrenches a Britain of double standards and unfairness.
The Budget does nothing to put into reverse the failures of Conservative practices over the past 16 years. I noticed from earlier contributions that some Conservative Members are apparently getting cold feet about the approach taken in the past few years. Last year, I read the interesting economic lecture given by the current Secretary of State for National Heritage, in which he criticised the free market approach adopted in the late 1980s, which he said had been built on sand and led directly to the recessionary consequences that many of our constituents are suffering.
Earlier, the hon. Member for Milton Keynes, South-West (Mr. Legg) spoke of the failures of the period when Lord Lawson was in charge of economic policy. The hon. Gentleman might have added that the current Prime Minister was at that time Chief Secretary to the Treasury and is equally responsible for the mess in which the British economy now finds itself.
During the past decade, the Government have been responsible for low investment, inadequate training, unacceptably high unemployment and, to cap it all, unfair taxation--that from a party that promised year after year, election after election, low taxation. The Conservatives have provided no long-term growth, mismanaged public finances and broken their promises. The dogma that the free market is king has produced a United Kingdom ravaged by decline, division and increasing doubts among the electorate.
When Conservative Members talk about their party being the party of financial rectitude and able economic management, they ignore the evidence of their own eyes. The past few years have been disastrous for the British economy and for the British people.
Although recent falls in official unemployment, low inflation and some evidence of short-term growth are welcome, there is no proof that Britain has secured a permanently high level of sustainable economic expansion. Continuing low manufacturing investment and its decline in the past few quarters, falling employment paralleled by falling unemployment, the emergence even now of the beginning of skill shortages, and evidence of inflationary pressures, give little ground for hope that the recovery will be sustainable at the rate that Britain needs to make good the ravages of the past recession--let alone to put it on the road to full employment.
The Finance Bill should have been geared to creating new job opportunities. Instead, it demonstrates total complacency towards the unemployment confronting 2.5 million of our constituents--1 million of them are suffering long-term unemployment. The number of very long-term unemployed, who have been out of work for two years or longer, is increasing and higher than two years ago.
One of the Chancellor's central measures--the national insurance holiday to encourage employers to recruit the long-term unemployed--does not even warrant a mention
Column 640in the Bill, and neither will it be introduced this year. The long-term unemployed must wait until April 1996 before that measure takes effect. I hope that the Financial Secretary will answer this simple question when he winds up. What is the reason for that delay? If that measure is so central to Government objectives and to tackling the problems of the underclass that the Chancellor described in his Budget speech, why not introduce it now, or at least during this year? Why wait until April 1996? The unemployed need help now. A massive waste of talents, resources and skills is inherent in unemployment, but of equal importance is that it costs the taxpayer a pretty penny. The former Secretary of State for Employment, now Secretary of State for Education, told the Employment Select Committee a year ago that it costs £9,000 a year to keep each unemployed person out of work. Every family in the country pays £1, 000 a year towards the cost of unemployment--and that, to coin a famous phrase, is not a price worth paying. It has divisive social consequences, which are to be seen in all our constituencies. Increasingly today, we see not just one generation but families in which successive generations have been out of work, which contributes to increasing inequality and growing poverty.
For the first time this century, the gap between the rich and the poor is widening, not narrowing. One great achievement of politicians in all parts of the House in the 20th century has been the narrowing of social inequalities--until now. Today, those inequalities are growing. Sixty-eight per cent. of the work force earn less than the Council of Europe's decency threshold, and their numbers have grown by 1 million during the Tory years.
A low-skill, low-wage, no-hope economy is no future for my constituents or those of Conservative Members. When one considers that 1 million people in work are in such desperate straits that they must take a second job to make ends meet, one wonders what sort of country we are living in. The Government must take action to narrow the gap between the rich and the poor, produce a system of fair taxation and ensure that skills training is available to our unemployed constituents.
It is little wonder that there is such a sense of insecurity, even among people in work. For example, home owners face additional monthly bills of £50 on average thanks to Government policy, increased interest rates and negative equity. To heap insult on injury, home owners who become unemployed are to be stripped of their right to housing benefit. It is regrettable that that measure--one of the most important to be announced in the Budget--is also missing from the annual Finance Bill. I hope that the Minister will address that issue in his winding-up speech.
Many of the people who will suffer most grievously as a consequence of their loss of benefit when they become unemployed are precisely those whom the Conservative party claims to represent: small business men and women and the self-employed. How on earth will they take out insurance? What sort of price will they end up paying on their insurance premiums to insure themselves against the risk of being thrown out of work?
Column 641Mr. John Maples has become a friend of the Labour party during the past few months. He has become our friend because he managed to tell the truth. He said in his famous leaked memo:
"While we trumpet the recovery, the voters do not think the recession has ended. They still fear unemployment, have no more `money in their pocket' etc. What we are saying is completely at odds with their experience."
He was right. He was right to say that living standards will not only fall this year, but will go on falling next year. It is not surprising that there is an absence of a feel-good factor. The Financial Secretary to the Treasury (Sir George Young) indicated dissent .
Mr. Milburn: The right hon. Gentleman shakes his head. He should say so directly to the vice-chairman of the Conservative party, because there it is in the Maples memorandum. Advice is offered directly to Ministers and, indeed, to the Prime Minister, to tell the truth, and make it clear that living standards are falling and that there is a growing sense of insecurity in all our communities. Perhaps most important of all, the increased tax burden that has been promulgated in successive Finance Bills is now beginning to bite, and beginning to bite hard.
The extra taxes that have been introduced will mean that the net income of a typical taxpayer will be some £13.15 a week lower in April 1995 than a year earlier and £20.50 a week lower by April 1996.
Sir George Young: We keep on hearing figures about the average family or the average household. The figures that the hon. Gentleman has just quoted apply to less than 1 per cent. of households. The figure for average households is £2.30 per week.
Mr. Milburn: At least the Minister has the good grace to admit that the average family will feel the effect of tax rises and of economic failure where it hurts most--in their pockets. However, one thing is absolutely clear. The electorate understand that not only are tax bills rising but, as a deliberate matter of policy, the Conservative party is pursuing a policy of unfair taxation. In 1979, when the poorest fifth of households paid 31 per cent. of their incomes in tax, the richest fifth paid 38 per cent. By 1992, the last year for which figures are available, and incidentally, even before the big tax hikes that we have seen, the tax burden had shifted from the rich to the poor. The poorest fifth of households paid 39 per cent. of their incomes in tax compared with 34 per cent. paid by the richest fifth.
All that takes place against a background of rising public anger about perks for those at the very top. We have heard much recently about the excessive boardroom salaries and perks that have been paid out, especially across the privatised utilities. To remind the House, 50 directors of the privatised utilities have already made more than £1 million out of privatisation. Since privatisation, chairmen of utilities have seen their salaries increase by an average of 220 per cent. But that is nothing to the chairman of BT, because his salary has increased by 700 per cent. At the same time, of course, more than 160,000 jobs have been lost since privatisation began.
The Finance Bill offered Ministers an opportunity to put their money where their mouths were. It offered the Government the chance to advance a fairness agenda; to tackle those excessive rises in salaries and perks for those
Column 642serving in the boardrooms of the privatised utilities. Yet there is nothing in this Bill about such an approach. That is why my hon. Friends on the Front Bench will table amendments about executive share options and about regulators being required to disregard the costs of excessive executive remuneration when setting price ceilings in the privatised utilities.
The Government's failure to act has obviously incurred a huge political cost. John Maples again made it very clear when he said: "Although in the 1980s the Conservatives seemed to promise a classless society of opportunity, the reality is now that the rich are getting richer on the backs of the rest, who are getting poorer."
That recognition is shared by constituents up and down the country. There is political damage for the Government in that widening gap between rich and poor.
However, there has been a far more damaging social and economic cost. The Government have failed to create the social partnership essential if everyone is to pull together for economic success and, indeed, share in its benefits. The Government could take a lead in ensuring that people become stake holders in their communities. They could take a lead in overcoming the divisions between rich and poor, between employers and employees. I take the view that Britain works best when it works together. But working together is inhibited by bumper pay and perks for the few and falling living standards for the many. The Government have done precisely nothing to tackle executive perks and pay.
The Finance Bill is a missed opportunity. I very much hope that, during our deliberations not only this evening but in Committee, we shall put the Finance Bill on the right track and accommodate the concerns of all our constituents.
Mr. Hartley Booth (Finchley): If I cannot intervene, perhaps I can put my point in the following short speech. First, I apologise for not having been present for the entirety of the debate. That has not been possible, but I have been present for the past few speeches, and I have heard how Labour Members have berated our mismanagement of the economy and said that we have not addressed a fairness agenda when we could have done.
Of course, Labour Members have totally forgotten, in looking at this new, unified Budget and the economy overall, that Britain's economy at this time is more successful than it has been at any time during the past 30 years. Economists who lecture at university talk about two sorts of recovery. They talk about the recovery that we see on the high street, led by a boom, with endless spending and doubtless the spin-off of a feel-good factor, and they also speak about the holy grail. They talk about the export-led recovery. That commodity has very rarely been seen in the economic history of Britain over the past 50 years, but our current economic recovery is led by exports, and that is to be commended. The Government have achieved that through tough decisions, and the manufacturing and service sectors have combined to back the economy.
Column 643As my right hon. Friend the Chief Secretary to the Treasury said, backed by foreign investment, we have achieved what is, after the recession in recent years, a miraculous recovery. I commend the 348 pages of the Finance Bill, because it is built on the back of our current economic success, with its low inflation, low interest rates and falling unemployment.
The hon. Member for Darlington (Mr. Milburn) was derogatory about our unemployment figures. When Opposition Members talk about the unemployment statistics, they always forget that huge force of people--which it is difficult to describe--known as the black economy. Those people are employed. They may not be paying taxes, but they are employed.
If there is a fudge or a mistake in the official statistics, it goes the other way--in the direction that is inconvenient for the Opposition's arguments. There are probably far more people employed, as a result of the black economy, than people believe. The unemployment statistics have been miscalculated since 1945 and the Attlee Government. Until 1984-85, the unemployment statistics did not include the self-employed. Opposition Members who continue to berate us for fudging the unemployment statistics seem to be unaware that, for 30 or 40 years, those statistics were inaccurate, as they did not include reference to the black economy or the self-employed. Reference has been made to the absence of a feel-good factor. The hon. Member for Darlington referred to the fact that my right hon. Friend the Financial Secretary to the Treasury indicated dissent earlier. However, in economic language, there is no feel-good factor at this stage. We hope that the feel-good factor will return to our constituents--certainly before the next election.
The hon. Member for Darlington referred to the gap between the rich and the poor. Opposition Members often raise that point. It appears from the statistics that the gap has been widening, but what kind of nation are we if our thoughts and debates are constantly driven by jealousy? That is the only reason for failing to deal with the appropriate factor--absolute poverty.
Conservatives are concerned about absolute poverty. Absolute poverty has not been increasing. Over the past few years, poverty has been eliminated in many parts of the country. That is the quotient we should consider. We came to this House to ensure that absolute poverty was eliminated from all our people.
We are concerned about poverty, but we are not concerned about mere gaps between one set of people who may have been fortunate and others who have not been fortunate. We want to ensure that the less fortunate are helped; that is why the Budget pinpoints the creation of jobs, particularly in relation to small businesses in respect of the work incentive initiatives.
As a result of the prudent management of the economy, and despite the undeniable difficulties that we are experiencing in many parts of Britain, we have been able to raise spending on targeted items in the Budget. We heard from the Dispatch Box today how £1.3 billion extra has been found for the national health service. More spending will be forthcoming for local authorities, the police and law and order. More resources have even been found for European spending, but perhaps I will refer to that in a moment.
Column 644There have been prudent cuts, for good reason, in parts of the expenditure--for example, on housing. Before Opposition Members intervene to claim that that is simply terrible--the Financial Secretary to the Treasury, a former Housing Minister, is to respond to this debate--I must point out that there are 750,000 empty properties in Britain. As a party and a Government, we are interested in using the national assets and resources of this country efficiently. We want to ensure that houses and other property are used for the benefit of all our people, and particularly the homeless.
I am happy that we have cut some aspects of housing expenditure, providing that, down in Marsham street in the Department responsible for housing, there are endless initiatives to harness the unused properties, particularly for our homeless people. I offer qualified support for that policy.
I referred to European spending in the debate on the Queen's Speech, and I do not apologise for raising it again. When my right hon. Friend the Financial Secretary replies to the debate, I hope that he will respond to an issue that is close to my heart. I am concerned about the fact that this country contributes £200 million to overall European spending of £1,000 million on black tobacco.
Black tobacco is part of the common agricultural policy, so it is perhaps not directly related to this debate. However, I would argue that it is legitimate for me to raise the point today. The black tobacco regime is a heinous waste of £200 million of our money, which could be spent on no fewer than three hospitals in this country. That money is also spent wastefully and cruelly, because only about 40 per cent. of it is smoked in Europe. The balance is smoked in the developing parts of the world, and it kills people there because there are no warnings against its use.
I hope for a specific response from the Treasury about my point. I understand that we are bound by European spending rules, but I hope that, the next time that Finance Ministers from this country go to the Council of Ministers on our behalf, they will raise that point about black tobacco. I hope that the table is punched, as we should not be wasting £200 million of British taxpayers' money in that appalling way.
The hon. Member for Darlington said that this Budget was not a Budget for employment, but I believe that employment is at the heart of the Budget.
The Budget package helped by giving £680 million over the next year for work incentives. There were four measures to encourage employers to take on the unemployed. Employers' national insurance contributions will be cut by 0.6 per cent. for people earning less than £205 a week from April this year. Employers who hire someone who has been out of work for two years or more will be able to obtain a full NIC rebate for that person for up to one year, again starting in April. The work trial scheme is being expanded to 150,000 places. A further workstart pilot scheme will be developed, thereby helping 5, 000 people.
Four measures are introduced to ease the transition from unemployment to work. In last week's debate, there was an analysis of and support for them. There are two measures for people who want to find full-time work, and three measures to keep unemployed people in touch with the labour market.
Column 645Last week, I visited the employment office in Finchley, and I was pleased to hear of local people's success in going back to work. I am pleased to know that, time and again, through the host of initiatives in the Budget, including other initiatives, people are helped to get back to work. The hon. Member for Darlington asserted that we are not concerned about employment. On the contrary, at the very heart of the Budget is concern about and spending on unemployment, in a host of imaginative new policies.
I also commend and support the widening of the 20 per cent. band. The second rise in VAT on fuel was not proceeded with. Opposition Members berated us for not conceding that point sooner, but that was yet another example of the democratic process working. Many Conservative Members loyally supported the Government's attempt to raise VAT on fuel. Indeed, the hypocrisy of Labour Members and of the Liberal Democrats was exposed because, for greenhouse, environmental or whatever reasons, they too would have taxed heating.
Finally, when, as a democratic voice for people, Conservative Members rejected the second round of that VAT rise, I for one supported that rejection, as did many of my constituents. Far from a concession, that was a victory for democracy.
The hon. Member for Darlington mentioned privatisation. Privatisation is not to be characterised just as a way in which the incomes of a few senior executives reach international standards. That is not the true test of privatisation in historical terms. We must look at how--I nearly said "curmudgeonly"--solid, old-fashioned national utilities are suddenly becoming sparkling young companies with a worldwide horizon.
British Gas, electricity companies and water companies are looking around the world for new markets. I have been heartened by the activities of British Gas in Kazakhstan, where I was last summer. Such companies are now doing things for all of us that they would never have dreamt of doing before. They have been freed, thanks to our privatisation policies. We will not have Opposition Members saying that it is yet another excuse for the few to gain too much income.
What is the Labour party's comment on the Bill? I was happy to go on television to make my modest contribution to supporting the Government's proposals in the autumn, and the Labour party spokesman, who was with me, could say nothing except that the Budget was against investment. Time and again, the Labour party spokesman said, "This Budget omits and ignores investment."
Labour Members were unable to count the fact that, through our sensible management of the economy, we have attracted, like a magnet, investment from around the world, and that 40 to 50 per cent. of Japanese and American investment has come to this country. I have heard of double counting, but I have never heard of subtraction counting, which is what the Labour party is into. Labour Members would subtract such investment from around the world from total investment in the United Kingdom. That is wrong, and it should be exposed. I hope that the message will go out from the House tonight. What is the rest of the Labour party's opposition to our proposals and to the Bill? It is a Trojan horse. Labour Members wish to push their smart- looking wooden edifice into the heart of our citadel. At the heart of their horse
Column 646they have "spend, spend and spend again" shock troops, who will jump out of the horse at the appropriate time if the electorate ever give them the chance.
On Monday morning, I read an interesting article by the former editor of The Times , Lord Rees-Mogg, in which he explained the nature of the dilemma under which Opposition Members labour. Their dilemma is that they have a certain constituency--the welfare constituency--which would drive them onward because it needs public expenditure. Opposition Members may keep their shock troops hidden in their smart-looking horse, but pressure from their constituency is so great that there will be more spending.
That was exemplified in the recent curious happenings in the Labour party over education. While many hon. Members were enjoying their short Christmas break, it was suggested that the Labour party would abolish the VAT concession on education. That suggestion was withdrawn with alacrity, which raised several suspicions among Conservative Members, and not surprisingly.
If the VAT concession was removed, what would happen? If we do our sums, we know that there would be an extra burden of £120 million on the Exchequer, because some people would find it impossible to pay private, broader education bills on top of their taxes. Probably about 20 per cent. of private schools would close. It was not surprising that, just days after it was uttered by the education spokesman, the word was withdrawn, so sincere are Labour Members in wanting to maintain their stance as the Trojan horse for spending. I know that a number of hon. Members wish to speak, so I shall conclude. The Government's handling of the economy is exemplified by the Bill, by falling unemployment and by export-led recovery. It is to be commended.
Mr. Malcolm Chisholm (Edinburgh, Leith): It is a curious and perhaps unique feature of the Bill that so many of the tax increases that will be introduced in the next financial year are not contained in it. It is bizarre that the tax increases announced in December are not yet included in the Bill.
Many of April's tax increases were legislated for in previous Finance Acts, which is unusual. They include the reduction in the married couple's allowance, which will mean that a couple paying tax at only 20 per cent. will be £86 a year worse off after April, and the reduction in mortgage interest tax relief, which will mean that a family with an average mortgage will be £10 a month worse off after April.
Other harsh Budget measures have not been included in the Bill, notably the stripping away of mortgage assistance for those on income support, which will mean that a family with an average mortgage will have to pay £20 a month more in insurance.
Throughout proceedings on the Bill we shall remind Conservative Members of the broader picture and of the many tax increases that those on middle and low incomes have already had to endure. In our campaigning as we approach the general election, we shall remind people--not that they need much reminding--that under Finance Acts since the last general election they have endured the equivalent of a 7p increase in income tax. It is no use the
Column 647Conservative party expecting people to be grateful when the Government give back a proportion of that 7p in tax bribes over the next two years.
Looking back, we shall remind the public that since the Tories took office almost 16 years ago the richest 1 per cent. of the population have cumulatively gained £75 billion in tax cuts, while the poorest fifth of the population have suffered a rise in their tax contributions from 31 per cent. of income in 1979 to 39 per cent. in 1992. That percentage has risen since, although we do not have a recent figure for it.
Looking ahead, we shall remind people that next year they will be worse off when housing costs are taken into account: they will not need much reminding of that. We shall also drive home the point that next year those on low and middle incomes will have to pay a higher percentage of their income in tax than those on the highest incomes. The Institute for Fiscal Studies has said that the middle deciles of the population will have to pay another 1.4 per cent. of their income in tax increases while the top decile will have to pay only 0.7 per cent. Indeed, for some of the super-rich in that top decile, the figure will be even lower because of the tax loopholes in the Bill. Before Conservative Members become too excited about the term "tax loopholes", I should point out that I am drawing from an editorial in the Financial Times , which described venture capital trusts and the new arrangements for the enterprise investment scheme as tax loopholes.
A broadsheet published by BESt Investment called "Tax Shelter Service" is well worth reading. It was quoted by my hon. Friend the Member for Dunfermline, East (Mr. Brown) in an earlier debate, but it is worth repeating. That company gives advice on tax shelters and it cannot contain its joy about the measures in the Budget that will help those on high incomes.
I shall quote a couple of sentences from the broadsheet. It states:
"The Budget may have been regarded as `boring' by most commentators but for the Tax Shelter business it contained arguably the most exciting combination of measures ever seen . . . investors will have no less than four opportunities for sheltering tax: EIS, Enterprise Zone Property, Reinvestment Relief and Venture Capital Trusts. As a result we cannot see why anyone should choose to pay CGT in future."
Thereafter, it goes into the details. There is a liberal spraying of exclamation marks. I do not think that the company can believe its good fortune in having been given so many opportunities to shelter tax.
Apart from the surprises mentioned in the broadsheet, it does not mention measures that have surprised some of us, such as the abolition of the interest-in-land rule for enterprise investment and other schemes. People put money into property under the business expansion scheme and made a killing, but we thought that at least that had now gone for ever. It appears that it has come back through the abolition of the interest-in-land rule. I hope that the Minister will respond to that point when he replies.
Other measures in the Budget will help those at the very top end of the tax scale. For example, inheritance tax allowance has been fully uprated. The rate for those eligible to tax relief on private medical insurance will be maintained at 25 per cent., while the married couple's
Column 648allowance and mortgage tax relief have gone down to 20 and then to 15 per cent. There are new tax opportunities for those with PEPs and TESSAs.
As the vice-chairman of the Conservative party said--it has been quoted many times before and will be quoted many times again: "the reality is now that the rich are getting richer on the backs of the rest, who are getting poorer."
The same man invented the phrase "killer facts". I remind Conservative Members of a killer fact that, unfortunately, is quite literally true in some cases. It is that 14 million people in this country live on incomes of less than £115 a week. I am referring to one in four of the population, a rise from one in 10 in 1979. The problems of that group are not addressed by the Bill or by the other Budget measures that are not included in it. Those people are crying out for employment measures to help them into work or tax measures if they work and pay tax. The Budget contained only marginal employment measures, which are more than outweighed by the Budget's negative features.
The Budget offers only crumbs in tax measures. The hon. Member for Finchley (Mr. Booth) spoke about the widening of the 20 per cent. band by £200; even in last year's vicious tax-increasing Budget it was widened by £500. Many people do not benefit from that anyway. Those earning £6,000, £5,000 or £4,000 a year do not gain any advantage from the extension of the 20 per cent. band.
What would have helped the poor people in society who pay tax would have been a very large increase in the personal allowance. The Government are proud of the fact that they have increased it by £80 this year. I suppose that that is an improvement on the last two years. The Government actually had to include clauses in previous Finance Bills to break the law of the land--the Rooker-Wise amendment--that laid down that personal allowances had to rise by the rate of inflation. Therefore, I suppose that this year we should be thankful for small mercies.
A person paying tax at the 20 per cent. level will be £20 a year better off following the uprating of the personal allowance, but that does not compensate for the fact that he or she will be £86 a year worse off by the change to the married couple's allowance. The widow's allowance and the additional personal allowance will be cut, which will affect lone parents. The allowance for the blind has been frozen. The Budget contains no measures to help people on low or middle incomes. I was going to say that we were all grateful that the proposed increase in VAT to 17.5 per cent. was scrapped, but people's campaigning, led by the Labour party, achieved the change. We are pleased that that increase will not be enacted in April.
New measures were introduced to replace the VAT proposal in the mini- Budget. I presume that they will creep into the Finance Bill in Committee. They will lead to increases in indirect taxes, which, again, will have a disproportionate effect on people on low incomes. I shall not go into details today but, as a Scottish Member, I am especially concerned about the extra tax on whisky. A nip of whisky contains the same amount of alcohol as a glass of wine, yet twice the amount of tax is charged on it. I hope to speak about that matter next week. It was scandalous that the price of beer and whisky went up but that the price of champagne went down. Those
Column 649matters must be dealt with in Committee, as must the increase in hydrocarbon oil tax, which many people have discussed in relation to making car ownership more expensive.
The Bill affects public transport and, therefore, members of society on low incomes. In last year's Budget, the fuel rebate for public transport was frozen. This year, the price of diesel has gone up by 5 per cent., to which will be added inflation, plus the extra penny imposed in the December Budget. That will mean more expensive public transport. That will have to be dealt with in Committee. The Chancellor of the Exchequer said in his mini-Budget statement that there was no alternative, echoing one of his predecessors, but we know that many alternatives exist. A simple alternative for his extra £1 billion would have been a 45p tax rate for income of more than £50,000. Even that, however, would not have been necessary if he had gone much higher and taken money off the super- rich, which would easily have raised the necessary revenue.
Labour Members have raised the issue of a windfall tax on the utilities, which since the beginning of the recession have made profits of £45 billion. The Chancellor somehow thought that that suggestion was unheard of, yet one of his predecessors, Lord Howe, imposed such a tax on banks in 1981. The same argument applies to the utilities today as applied to the banks then.
The Chancellor said that a windfall tax could be only a one-off, so it would not do. We all know that the Conservatives' strategy is based on cutting taxes next year and the year after, so a windfall tax--a one-off for one year--would have adequately covered the shortfall in the Budget.
Labour Members raised the executive share options issue. Share options are not taxed as income. Mention has already been made of the way in which capital gains tax can be avoided--the experts are saying, "Who needs to pay it anyway?" It is even more important, therefore, that executive share options are taxed as income. When shares that have been acquired in that way are sold on, they are liable to capital gains tax. When options are exercised, they should be taxed as income. People sitting on those executive share options are like people who fill in their national lottery card with a special dispensation to score off every single number: they cannot lose. Many examples have been given. For example, 63 electricity chairmen have £29 million worth of executive share options. The amount of money involved is massive. We know that it is a scandal and action should be taken.
Mr. Booth: Will the hon. Gentleman explain why, time after time, when share options have been given to the work force, the performance of the company involved--National Freight comes immediately to mind--has improved dramatically and obviously?
Mr. Chisholm: That may be true in certain examples, but we know that, in the vast bulk of examples, no relationship exists between the performance of the company and the share option issue. It may be possible to
Column 650consider the matter and to make a connection between the two, but in general I am against the principle of share options.
There are other examples of how money could be raised. Last year, during discussions on the Finance Bill, Labour Members raised the issue of tax relief on private medical insurance. I am sure that we shall do so again: it is an easy way of raising £80 million or £90 million.
The Conservative party, however, always looks after a certain section of the population. Nowhere was that made more clear than in the investigation into corporate taxation and how industry was to be financed, which was started by the previous Financial Secretary. Everyone knows that he was acknowledging a problem that we all know exists--the massive increases in dividend payouts. In the mid 1980s, they amounted to only £11 billion but now they amount to more than twice as much. They kept on increasing, even throughout the recession.
Lord Hanson said that such an investigation was unacceptable and made the staggering accusation against the previous Financial Secretary that he was some sort of socialist, but the review of dividend taxation was dropped. There is nothing in the Bill about that crucial matter. As someone has said, it is the dog that did not bark. Something must be done about it and that is why the Labour party is urgently investigating the issue. It is connected with this country's poor investment record in the past year.
Conservative Members have made glowing references to figures that suggest that the economy is doing well. It is certainly doing better than it was, which is not difficult. Last year, however, business investment was only 2 per cent. and, even this week, the Select Committee on the Treasury and Civil Service, which has a Conservative majority, told Labour's Treasury spokesmen that it cannot accept the investment predictions for next year.
It is being suggested that I finish my speech, so I shall omit certain things that I wanted to say and raise them in Committee. I want briefly, however, to mention one other disappointing omission. Once again, the Bill says nothing about child care. We introduced a new clause on that matter last year. I notice that the industrial building allowance has been extended to new road building, which I am not happy about. We introduced a new clause last year to extend the industrial building allowance in relation to the provision of child care facilities in workplaces. The Government must certainly deal with the issue of the supply of child care. We shall return to it in Committee.
I shall not go into details on the general economic situation because time is running out. The country's economic position has improved but there are still serious problems. Further problems for the economy are on the horizon because of rising interest rates, increased taxation and reductions in capital expenditure. Many problems exist that should have been dealt with, but unfortunately the Government do not have an economic strategy; they have only an election strategy. The Financial Times stated that
"preparation for the mother of all bribes is well in hand." Everyone can see it but the British people will see through it and the Government will not be the Government much longer.