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Mr. Waldegrave indicated dissent.
Mr. Bruce: The Chief Secretary to the Treasury is shaking his head. Perhaps he would care to tell me why in the Red Book the Government forecast an increase of £900 million in council tax income. That is clearly a sign that they intend to lift the caps, and that they expect local authorities to increase council tax to close the gap.
The Government hope that somehow or other they will gain the credit for cutting taxes, and still be able to claim that they have increased funding on education, while the local authorities will have to deliver the money and put local taxes up. That is dishonest; it is a sleight of hand-- although it is probably typical of what one might expect.
Government spokesmen have acknowledged the fact that we Liberal Democrats have set out our priorities for the current year in our alternative Budget, which is more than can be said for the official Opposition. We have made clear our desire to have reduced interest rates and permanently low inflation--we agree with the Chancellor about the importance of that. We also stress the importance of bringing borrowing under control. I rather suspect that, because of the pressures that the Chancellor is under, we are now more concerned about that than he is.
We have set out our priority for an extra £2.5 billion for education, including £500 million to be spent on the fabric of our schools. We propose to take 750,000 people out of tax altogether, by introducing a 50 per cent. tax on earnings above £100,000. We would also harmonise the national insurance and tax thresholds. Disappointingly, the Government have left that area unreformed for a long time.
We would boost public transport, research and development, health, community care, overseas aid, child care and the spirits industry rather more than the Government have. We would also introduce specific measures to get the long-term unemployed back into work.
Those are costed, responsible priorities. What a contrast to the official Opposition. Both the other parties are off on the fantasy of trying to persuade voters that we can have higher spending, lower taxes, safe borrowing and a healthy economy.
The Labour party appears to have written its economic policy in Disneyland. It attacks the tax cuts on the ground that they are not enough, yet intends to abstain rather than support them. If Labour Members want tax cuts, why do they not have the guts to support them? If they do not want them, surely they should vote against them.
The Labour party explains nothing about how it proposes to cut tax, yet at the same time pledges more funding for education, health, transport and all kinds of welfare benefits. Labour says nothing about borrowing, inflation or interest rates. It wants to defy the laws of economics, and probably the law of gravity too. In its
flirtation with Murdoch the Labour party should remember Icarus, who found that when someone flies too near the "Sun" he comes to earth with an almighty crash.
Mr. John Townend (Bridlington):
The Chancellor of the Exchequer has shot the fox of the hon. Member for Dunfermline, East (Mr. Brown), who expected to be able to stand up and condemn him for a giveaway Budget and an attempt to bribe the electors in order to win the general election. Clearly the hon. Gentleman got it all wrong, because one would not get an enormous number of votes with tax cuts of £3.25 billion.
My right hon. and learned Friend has acted fiscally responsibly over tax cuts, because he has matched them pound for pound with spending cuts. That should please the markets, and it will give my right hon. and learned Friend a window of opportunity to cut interest rates in weeks rather than months.
That is vital if the Government are to achieve their target of 3 per cent. growth in 1995. Growth has slowed in recent months. The housing market is flat, the construction industry is in decline, retail business in the high street is weak, business confidence is dropping, and exports are slowing. So a boost to business confidence and consumer confidence is needed. By themselves,
£3.25 billion-worth of tax cuts are not sufficient. They need to be accompanied by lower interest rates.
The Budget should not be judged in isolation. There will be another Budget before the election, and it is imperative that the Government continue to cut public expenditure so that they are in a position to make further tax cuts next year. With regard to specific tax changes, I strongly welcome all of them. They will be especially welcomed by the public who have had to bear three years of tax increases. I should like to mention one or two of those changes.
I am particularly pleased with the help to be given to businesses and small businesses. The marginal relief on business rates is to be welcomed, although we should look at the whole basis of the calculation of valuation of small shops for rent. At present, they are disadvantaged compared with large shops and supermarkets. The lower corporation tax is also welcome, but, above all, the abolition of inheritance tax on private businesses is long overdue. When the Opposition were in power--there is no doubt about it--many fine private family businesses had to be sold because of the old death duties.
As a third-generation wine merchant, I am delighted that my right hon. and learned Friend the Chancellor has cut whisky duties. I am also relieved that there have been no further duty increases on beer and wine. But the long-term problem of higher duties will have to be dealt
with--I had hoped that this year the Chancellor might have made a start--because smuggling is increasing rapidly.
What worries me, with my experience of the industry, is that criminal elements are becoming involved. We all remember what happened during prohibition in the United states when the Mafia got involved in the drinks industry. The Mafia did not go away when prohibition ended. At some stage we shall have to deal with the problem. We cannot have an open market. Our own industry has been put at a disadvantage. We do not need to come down to the level of duties of the continentals, but we need to halve the difference. We could do that at one stroke if we put 1 per cent. on VAT. I do not expect my right hon. and learned Friend to do that. Nevertheless, the problem will not go away.
As a Member who represents a constituency where retirement is a major industry, I agree with my right hon. Friend the Member for South Norfolk (Mr. MacGregor) and strongly welcome the changes with regard to the level of assets in old people's homes.
I turn to direct taxation, which is one of the most important aspects of the Budget. I do not think that it has got home to many people that we now have a basic 20p tax rate for all savings. On all savings--in building societies, banks and shares--people will pay only 20 per cent. tax. That is a great achievement. The widening of the band brings the day nearer when the majority of people will pay a 20 per cent. tax rate.
We have heard all about the so-called 10 per cent. rate that the Labour party is proposing. It is a confidence trick. I have been on a number of media shows--television and radio--in recent days with members of the Opposition. One member of the Opposition Front-Bench team said, when challenged about how much the rate would cost,
"Ah, but it is only going to be a band." A band can be as little as £500 or £1,000, which would produce only a 10 per cent. tax saving. The proposal is a confidence trick, and it is dishonest.
There is complete chaos in the Labour party. I was also on television with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who said that Labour should cut taxes at the low end and pay for them by increasing them at the upper end. I think that the right hon. Gentleman represents--probably--more members of the Labour party than the Leader of the Opposition.
I want to say a little about spending, because, in view of my long-expressed views, I am naturally disappointed that reductions in public spending were not greater. I am a little perturbed that the results of the very good work done by my right hon. Friend the Chief Secretary to the Treasury on cutting departmental spending were completely absorbed by increases in the priority areas of education, health and the police. All the tax cuts were financed by reductions in the contingency fund.
However, it would be churlish to ignore the Chancellor's achievements, for this is the first time since Mr. Healey capitulated to the International Monetary Fund and cut spending over two years by 8 per cent. in real terms that general Government expenditure has been cut in real terms by 1 per cent. If that was the beginning of year-on-year reductions, I would be delighted. However, I find it disappointing that, after a 1 per cent. cut this year, the Red Book shows that, in the following two years, spending is set to rise again by half a per cent. each year.
The Government must give priority to reducing taxation. If one turns to page 88 of the Red Book, which shows tax revenue as a percentage of rises in gross domestic product, one sees the mountain that we have to climb to return to a lower tax regime. In the four years to 2000-01, tax as a proportion of GDP is projected to rise to 39 per cent.
We have to kill the doctrine of the inevitability of rising public expenditure. We need to change the culture in the public sector of "what matters is what we spend"; that things will be better if we spend another £1 billion on health or on education. We should concentrate on output, and what is achieved. When one considers how much we are putting into education, some of the recent reports on the standard of reading and spelling are very worrying.
We must judge a service on its output rather than its input. In the long term, we must take a long, hard look at spending on education and the national health service, as we are doing with the social security budget. There is no doubt that, although they are priority areas, they are very big organisations. I am sure that there is as much waste and over-management in those areas as there is in any other.
We still have a few sacred cows. In overseas aid, there have been no cuts in bilateral aid, and the Red Book says that we are the fifth largest donor in the world. We are also told that we are the 18th wealthiest country. Furthermore, some of the money donated is wasted. "The Cook Report" on television last night was very interesting, because it showed that £1 billion has been wasted in Albania.
I draw my right hon. Friend the Chief Secretary's attention to the fact that he should look next year at Scotland, Wales and Ireland. We all know that expenditure in Scotland costs 30 per cent. more per head than in England. Expenditure in England is just over
£2,000 a head, in Scotland it is £2,900 a head, and in Wales it is £2,365. Yet expenditure per head in Northern Ireland is more than £5,000 a head, which is set to be increased under existing plans by adding £130 million this year and £190 million next year to the budget. There should be a peace dividend from Northern Ireland--at least they are not blowing everybody up.
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