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5.15 pm
Sir David Knox (Staffordshire, Moorlands): I congratulate my right hon. and learned Friend the Chancellor on his third Budget speech. It was well delivered, as were his earlier two Budget speeches, and it was commendably brief, particularly in view of the ground that must be covered in a unified Budget. I remember past speeches on Budgets that were not unified lasting for two hours or more.
My right hon. and learned Friend produced an interesting Budget, which also contained some surprises. There were no surprises in the speech of the Leader of the Opposition, however: we were told last weekend what he would say, before he had even seen the Budget. The right hon. Gentleman clearly did not wish to be confused by the facts. His speech was littered with the usual meaningless soundbites, which he mistakes for substance and which are becoming a trifle boring.
Let me make just one point about the right hon. Gentleman's speech. He said that the cost of the common agricultural policy would go up to £3 billion. That is not true; it is total agricultural expenditure that will go up to about that amount. There is rather more than CAP expenditure in the total agriculture expenditure bill.
The leader of the Liberal party did not even include any soundbites in his speech, but I found it extraordinary that he should suggest that the poor had been hurt by the Government. Let us consider, for instance, the increase in spending on the national health service since 1979--an increase of 80 per cent. in real terms. The proportion of the national income that is devoted to the NHS has increased from just under 5 per cent. to just over 6 per cent.
The right hon. Gentleman made much of education, but today we are spending 50 per cent. more per school pupil than was spent 16 years ago. That is a pretty fast rate of increase--and, if the right hon. Gentleman wishes to be realistic, he should bear in mind the fact that it is not a rate of increase that can be continued indefinitely.
In the preparation of any Budget, it is extremely difficult to get the various decisions right. The macro-economic decisions are particularly difficult, because they cannot be made on the basis of the current economic situation. Any Chancellor must try to anticipate the position in 18 months to two years, because there is a time lag between the taking of any action and that action becoming effective. My right hon. and learned Friend therefore had an extremely difficult task in that respect. Then, of course, he must weigh the desirability of public expenditure against the reduction of taxation. He must decide not only the total public spending level but its priorities.
In the past few months, my right hon. and learned Friend has been subject to widely varying advice, which has ranged from suggestions that 5p should be taken off the standard rate of income tax and that public expenditure should be slashed to suggestions that he should retain present tax rates and increase public expenditure. He has got the balance about right today. He has increased spending on health, education and the police in real terms--we will spend more on those sectors next year. At the same time, he has increased tax allowances generously and reduced the standard rate by a modest but real amount. Of course, he will not have pleased the simple souls who like extreme measures, but I have no doubt that he will have pleased the great majority of those of moderate opinion throughout this country.
Of the specific measures that my right hon. and learned Friend has suggested, I welcome in particular his decision not to increase beer and wine duty. Even more strongly do I welcome the decision to reduce the spirit duty on whisky by 4 per cent. That may show my preference in terms of beverages. The Chancellor has faced up to the cross-border shopping problem in the European Union and taken a small step towards trying to bring sense into that matter. In the not too distant future, I should like duty on alcohol to be the same throughout the EU. That would be much more sensible, but it would require some reduction on our part and some increase on the part of the other countries in the EU.
I am pleased that, in his attempt to deal with vehicle licensing fraud, my right hon. and learned Friend has managed to avoid penalising vintage car owners. In the past 12 months or so, that matter has caused many of our constituents much concern. Like most right hon. and hon. Members, I have had much correspondence about it. I am glad that he has managed to meet the fears of those people, because one does not wish to damage what is essentially a hobby.
I welcome the reductions in the general betting duty and in the pools betting duty. There is no doubt that betting and particularly pools betting have been affected adversely by the lottery. Those duty reductions should ease the problem a little. I say that as one who, for the past 40-odd years, has done the football pools with very little success.
I am pleased about the assistance for people in nursing and residential homes. At this stage, it is difficult to comment, and I await the details that will, no doubt, be forthcoming in the next day or two, but I am sure that my right hon. and learned Friend was right to deal with a problem that, again, is causing great concern to many of our constituents.
One of the most encouraging of the developments that affect the British economy has been the pattern of wage settlements in the past year. Whereas during the 20-odd years after the war the main constraint on the British economy was the balance of payments, since the mid-1960s the main constraint has been the level of wage and salary increases and, consequently, the growth in earnings.
For most of the period from the mid-1960s until recently, wage and salary increases have been well ahead of inflation and of the rate of growth. Except when there have been short-term incomes policies or when unemployment has been very high, wage and salary increases have been at levels incompatible with low inflation. Consequently, over the past 20 years, under Labour and Conservative Governments alike, one of the main weapons to constrain wage and salary cost inflation has been a reduction in the demand for goods and services, to effect a reduction in the demand for labour to produce them and so a reduction in increases in the price of labour--in other words, a reduction in increases in wages and salaries.
Although that policy has been effective in preventing higher inflation levels, it has never been completely successful in eliminating inflation, even when unemployment has reached the 3 million mark. Moreover, its impact on inflation has been limited when unemployment has been below the relatively high level of 2 million. I have always found that policy unacceptable and I have been astonished that the British people have put up with it for so long. Whether they will continue to do so is a moot point.
In the past year, however, there has been an unexpected, but welcome, development in pay bargaining as wage settlements have been running behind the inflation rate. Moreover, there is no evidence of the build-up of a pay explosion that could reverse that development. That runs against all recent experience. It is especially encouraging because the recent inflation increase, which in any event seems to be falling back sharply, has had no effect on the position.
Of course, that may merely be the short-term consequence of recession, but that is doubtful because we have been moving out of recession for more than three years. It may be that it is due to the fact that unemployment is still more than 2 million, but that is also doubtful, because the pressure of demand in the labour market today is higher than it was last year or the year before, and in both years wage and salary settlements were ahead of the inflation rate. It may be that we are at long last experiencing some of the benefits of greater labour market flexibility.
Whatever the reason, for the first time for many years we are experiencing a more sensible attitude about pay bargaining. As a result, wage and salary increases are being determined much more realistically. If that continues, there is even greater cause for optimism about the economy than at the time of last year's Budget. Then, we had controlled economic growth, a much-improved balance of payments position, low inflation and falling unemployment. Today, the economy is still growing and the balance of payments, although not quite as strong as it was a year ago, is still much stronger than in most years in the past decade. Despite the pressures generated by a further year's growth, that development concerning pay bargaining means that the prospects for inflation are much better than last year, whereas we would have expected them to be worse.
Realistic pay bargaining also means, however, that the demand for goods and services, and so for labour, can be increased to a significantly higher level without provoking wage and salary cost inflation and bringing the expansion grinding to a halt. Consequently, realistic pay bargaining means that the prospects for further reductions in unemployment are much better than they were last year. Of course, at this stage, we cannot be certain that the pay bargaining pattern will not return to previous bad practice. There have been some ominous signs in the motor industry, but I hope that that will not happen, because the reduction in unemployment to levels that we have not experienced since the mid-1970s is vital for social and economic reasons.
First, unemployment is a severe affront to human dignity. The fear of not being wanted is an insult to the great majority of those without work, whose only wish is to have the opportunity to earn their living and support their families. Secondly, unemployment hits the good worker just as it hits the bad worker; it hits the hard worker and the lazy worker and the skilled worker and the unskilled worker alike, because unemployment does not discriminate. The great majority of the unemployed lose their jobs through no fault of their own.
Thirdly, the effects of unemployment on our society are very serious. It undoubtedly embitters those affected. It undermines their belief in our democratic system. It adversely affects the quality of their whole life, and not just during the period when they are out of work. Fourthly, of course, unemployment is economically wasteful. If the unemployed were in work, they would be producing more goods and services and so adding to our national wealth. There would be more for all of us to share in the form of higher real incomes and better social and public services.
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