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8.33 pm
Mr. Malcolm Chisholm (Edinburgh, Leith): The Budget has already been called the "7p up, 1p down" Budget, and we shall continue to remind the people of this country that, after it, the typical family will still pay £650 more in tax than at the time of the general election.
We shall also point out that the fundamental reason for those statistics is the weakness of the economy, and the continuing high levels of unemployment. The faces on the Government Back Benches at the end of the Chancellor's speech showed that Conservative Members were not deceived about those basic facts, in spite of the Chancellor's bluster at the beginning of his speech, when he spoke of "our strong economic fundamentals", as illustrated by "consumer spending on a firm upward trend" and "our current account surplus with the tiger economies".
In his selective presentation of facts, the Chancellor omitted to say that our current account deficit was a record £1.2 billion with the non-European Union economies last month, and that our consumer spending in the most recent quarter grew by all of 0.1 per cent. That was because of continuing job insecurity, economic inequality and unemployment.
But the Chancellor could not conceal some more fundamental figures. Indeed, the public sector borrowing requirement of £29 billion is at the heart of the Budget-- up £8 billion from his prediction last year. He said that the difference stemmed from lower inflation and lower growth, but inflation was more or less what he predicted, so he really meant that the reason was lower growth.
The right hon. and learned Gentleman's prediction of last year that growth would be 3.25 per cent. this year has today been reduced to 2.75 per cent. Unfortunately, some people say that even that may be too optimistic. For example, in the previous quarter, growth was only 2.1 per cent. With the build-up of stocks, there are also worrying signs that destocking may mean a cut in output in the next quarter and thereafter.
Today, Goldman Sachs even predicted a growth rate next year of 1.6 per cent. We must hope that it is wrong, but the growth figures are certainly gloomy, and in a spiralling decline. The result of those figures is the continuing high level of unemployment, illustrated by the staggering fact that one in five non-pensioner households has no adult in work, compared with one in 12 in 1979. The underlying cause of that, and of the low growth, is the failure of investment to take off in the economy--the continuing failure of investment that we have seen for many years under the Conservative Government.
It is significant that the Chancellor did not give the investment figures in any detail today. He did not say that, over the most recent quarter, investment had increased by only 0.6 per cent., and he did not point out that business investment has increased by only 4 per cent. since the trough of the recession--less than the increase after all previous recessions this century for a comparable period.
The only figure the Chancellor gave was the better figure for manufacturing investment, on which he placed great emphasis. The only investment figure that he gave had increased by 12 per cent. However, last year's levels were absolutely flat, so the increase was from a very low base. Even that increase will probably result only in the replacement of worn-out machinery, not in creating new capacity in the economy.
The fundamental problem in the economy is lack of capacity; that is what leads to high unemployment and low growth. That is the problem, and that is the question that the Budget should have addressed. Yet there were no measures to help investment. In fact, there were several measures with a negative effect on investment, especially in connection with the training budget.
The Chancellor would have been far wiser to examine the Labour party's proposals to put investment at the heart of the Budget process--for example, by increasing capital allowances in the first year for new plant and machinery, and for new capacity in general. Our proposals for regional development agencies would bring more investment into small businesses, as would our proposals to re-examine the idea of tapering capital gains tax, so that long-term investment would be encouraged.
In fact, the Government should have dealt with the whole area of corporate taxation. Our investment has declined by almost 4 per cent. since the Government came to power, and dividend payments have increased correspondingly, from 1.9 per cent. of GDP in 1979 to 5.4 per cent. today. As I have said before, the Government were considering that problem until Lord Hanson told a previous Financial Secretary to the Treasury, now the
Secretary of State for Health, that he was a socialist. Then the whole matter was forgotten. The fundamental problems in investment have been totally ignored in the Budget today, but the Labour party puts them at the heart of its economic policy.
Unemployment would be helped by more investment, but other specific measures should have been taken. Once again, the Labour party put forward a specific proposal to fund the abolition of long-term youth unemployment through a windfall tax on the utilities. This proposal was dismissed today by the Chancellor, who showed poor reasoning in doing so.
One of the points that the right hon. and learned Gentleman made was that such a tax would result in increased prices, but there is a regulatory regime for the utilities which can fix prices. There is no reason why a windfall tax should lead to increased prices in gas or electricity. A previous Conservative Chancellor, Lord Howe, imposed a windfall tax on the banks, so there is no reason--even in terms of the Conservative party's history--why that should not be done.
Labour sees the evil of unemployment--I mention again the staggering fact that one in five non-pensioner households has no adult in work--and that is why Labour has prioritised an attack on unemployment with the first tax gains through the windfall tax. We will carry forward the proposal, so that no young person is without a job, a training opportunity or the right to full-time study after being unemployed for six months. I would have to emphasise that there are four options, and that all four will be made available to all young people.
The Government should have looked at many other measures proposed by the Labour party, from whom all the creative thinking on the economy is coming. Another aspect of unemployment is the question of how much people earn when they get into work. The minimum wage is one of our central policies, but we also propose in the long run to have a starting rate of tax of 10p rather than 20p. Anybody earning under £7,000 a year will not be helped in any way by the widening of the 20p band. But if that widening of the 20p band was replaced--for the same amount of money--by a 10p band, it would give a great incentive for many people to go into work at that end of the income scale.
Let us remember that people at the bottom end of the income scale are being taxed most heavily by the Government. The bottom 20 per cent. of people are now paying 39 per cent. of their income in tax, while the top 20 per cent. are paying only 35 per cent. I would have liked to see more measures in the Budget to help people at the bottom end of the income scale.
One measure I welcomed was the extension of the child care disregard. There is a slight improvement there, but it does not address the fundamental problems that the child care disregard has thrown up. I asked a question which referred to Scotland, and was told that only 2,000 families had benefited in the first year of the scheme. The problem is that many people cannot get the benefit of the disregard if they are on maximum family credit or anywhere near it. That problem has not been addressed by the extension of the disregard from £40 to £60. Some of the poorest people on family credit will still not be able to get the advantage of the disregard.
There are many other problems with the disregard. For example, it only applies to children up to the age of 11-- I wonder why that is? It also applies per family rather
than per child, and it does not cover the full costs of child care. Nevertheless, I welcome the extension, which is a slight step forward.
Unfortunately, it was outweighed by the fact that the Chancellor could not resist making an attack on single parents in his speech today. I suppose that we should be thankful for small mercies--he did not abolish the lone parent premium or the single parent benefit paid when single parents go into work. Full details will be given tomorrow, but I understand that the Chancellor has frozen those benefits.
But he did so by talking about "closing the gap" between single-parent families and couples, as if single-parent families were somehow advantaged. I could not believe my ears when I heard that. Single parents have a slight additional premium of £5 because of their additional costs. An obvious example of that is fuel bills. The same fuel bills have to be paid, whether by a single-parent household or by a couple.
The Chancellor's rhetoric, that somehow single parents were advantaged, was pandering to the lowest prejudices of certain people, and I was very disappointed by that. I would have liked to see measures to help far more lone parents into work. Some 40 per cent. of lone parents have incomes of less than £100, while the figure is 4 per cent. of families that are couples.
Perhaps the Chancellor should remember that before he makes any more remarks about the so-called "privileged position"of lone parents. If the benefit is being frozen, I certainly hope that Labour will unfreeze it, because the single parent benefit is a work incentive for lone parents. The lone parents premium is also related to in-work benefits.
Another group picked on in the Budget--equally disgracefully--were asylum seekers. The measure had been announced before, but it was repeated by the Chancellor. Some of the most vulnerable people in society will be deprived of benefit in January to provide some meagre savings to the social security budget. That measure will, of course, be vigorously opposed by Labour in the new year.
I agree heartily with the hon. Member for Eltham (Mr. Bottomley), who pointed out that there was to be a cut in the overseas aid budget. I know from my post that that cut is objected to by a large number of my constituents, and the Government are underestimating people if they think they can get away with such a cut without increasing their unpopularity.
The priorities of the Conservative party have been shown most clearly in the proposals on inheritance tax, and the repeated intention to do away with capital gains tax in time. The Government are giving money to some of the richest people in society by raising the threshold for inheritance tax. Only 16,000 families at present pay inheritance tax with the threshold at £154,000, and that threshold is now being increased to £200,000.
Millions of pounds are to be given away to some of the richest people in society, while VAT on fuel--which affects the poorest members of our society--is left at 8 per cent. What kind of Government put more emphasis on giving extra money to people who inherit £200,000 than to pensioners and other people on low incomes who need reductions in VAT?
The Government should bear in mind the whole question of home heating, particularly at this time of year. I would have liked to hear something about the home energy efficiency scheme, which I hope is being continued. In his Budget speech last year, the Chancellor said that funding for the scheme would be increased by £10 million a year, and I hope that that is the case. The funding should be increased by far more, and the all-party warm homes group--of which I am a member--proposed that the present budget be doubled. That would help not only people living in cold homes, but the economy as well.
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