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8.34 pm
Mr. Bill Etherington (Sunderland, North): When the Chancellor of the Exchequer made his statement yesterday, I took particular note of two sentences that he uttered early on. He said that he would seek
- "greater wealth and personal prosperity in which all can share"
- "give the weak and the less fortunate a helping hand."--[Official Report, 28 November 1995; Vol. 267, c. 1055-56.]
Another illuminating point, which the plethora of media publications since the Chancellor's statement do not seem to have picked up on, was that the Chancellor mentioned that tax receipts last year were lower than expected. I was alarmed to hear that he is looking for more privatisation of public services and more private investment in public services. I think that the Government were the first to use the term "double whammy". That is a classic example of a double whammy because it can be guaranteed that the pursuit of those philosophies will mean that the public will have to pay more for services, not less.
I was intrigued by the Chancellor's section on transport and I praise his nice attitude on the treatment of veteran vehicles. I think that they are veteran vehicles when they are over 25 years old, but they might be vintage. Certainly people treasure such vehicles. If people do not have a vehicle on the road, they should not have to pay tax.
I was somewhat beguiled by the idea that one can somehow improve things by increasing the tax on fuel for road vehicles and the road fund tax--presumably to try to cut emissions, although the only way to do that is to reduce the number of miles that are run. At the same time, however, we are led to believe that there will be a considerable reduction in public expenditure on transport, especially public transport. Albeit on a small scale, there will be an increase in the cost of motoring. Many people have no choice but to use a vehicle--and they are not all well off--yet there is no credible alternative in the way of a well-integrated public transport system with proper investment. I found that strange. It is a short-term policy.
I had the dubious pleasure this morning of listening to the Secretary of State for Social Security on Radio 4 after the 7 am news. For once, he sounded uncharacteristically unconvincing when speaking about the Government's policies on single parents. The reason that he sounded unconvincing might be to his credit because he was, after all, trying to defend the indefensible. We should take the attitude of the Secretary of State in conjunction with the proposals on housing benefit. We are talking about two of the most vulnerable sections of society, but where is the helping hand for them? They are not getting the helping hand; they are getting the reverse.
Do the Government really believe, after years and years of under-investment in housing and the rise of private landlords brought about by their deregulation policies, that people on housing benefit are in a position to negotiate with their landlords to get a reduction in rent simply because the Government think that it is possible?
Does anyone really believe that that is a credible proposition? My experience suggests the opposite.
Recently, one of my constituents was being threatened by her landlord. If she was not to be out on the street, she had to give him £10 a week in addition to the housing benefit that he received directly. He would not give her a rent book or a receipt. That is the sort of behaviour that is bred by the Government's present housing policy. I will say a little more about that later.
We are also led to believe that the reduction in tax on savings to 20p in the pound is a wonderful thing. What about investment income? We are told that the Chancellor wants to reward hard-working people, but I do not think that he rewards them by taxing what they earn at a higher rate than he taxes investment income. A millionaire who
has invested £1 million can get away with paying tax at 20p in the pound, yet people on relatively moderate incomes must pay tax at a rate of 40p in the pound. That does not seem very satisfactory.
The Chancellor said that he believes that the Government can afford a 1p reduction in tax. That is notwithstanding the fact that the education budget has been cut consistently for many years. The council in my constituency is so strapped for cash that it has had to cut many education services and it is dreading--as I am-- tomorrow's statement. It has also closed welfare rights agencies because of chronic underfunding through the Revenue support grant. I hope that, tomorrow, my local council, Sunderland city council, will be allocated the same amount of money as Westminster city council. That would solve all of my problems.
If the Chancellor can afford the 1p reduction in tax, which advantages those on high earnings disproportionately, why can he not afford to reduce value added tax on fuel? That would have given a helping hand to those in need, but there was nothing of that nature in the Budget.
I welcome the fact that tax on beer is not to be increased. I am fairly neutral on the subject of duty on whisky, but I am intrigued about why the duty on strong cider must be increased. If the tax increase is based on alcoholic content, why are spirits and wine--which are stronger than cider--not taxed in the same manner? I am still trying to work it out; it does not seem very logical.
On housing, I must declare an interest. I belong to the Durham Aged Mineworkers Homes Association, which comes under the auspices of the Charities Commission and is involved with the almshouse legislation. There will be 51,000 new social lettings this year, which is 9,000 fewer than the Government's lowest estimate. The cut from £1.5 billion to £1.1 billion will feed through into 18,000 fewer jobs next year--almost 10,000 fewer in the construction industry--and 30,000 fewer in the following year.
That will have a drastic effect in the northern region, where next year the number of homes that housing associations can start will fall from 3,097--which was the figure first promised--to only 1,670. That is a reduction of almost 50 per cent. Yet the Chancellor says that he is trying to do something about the housing sector. The only thing that he has done is introduce the spectre of more private landlords--and anyone who has studied history dreads that.
I believe that the Budget is based on economic failure. The hon. Member for Brighton, Kemptown (Sir A. Bowden) described it as a prudent Budget which was not quite what was expected. I agree that it is a prudent Budget in some respects, but it does not address any of the problems that I face in my constituency. It will not alter society for the better--indeed, I believe that it will have the opposite effect.
Mr. Matthew Carrington (Fulham):
At the outset, I declare my interests as they appear in the Register of Members' Interests--although I do not think that they will be very relevant to my speech tonight.
It is a great pleasure to support a very cautious and prudent Budget. The last few Budgets were necessary, but I cannot say that they were altogether pleasant. It is never pleasant to be forced to raise taxes but, coming out of a recession, it was necessary. For a party that is always strongly committed to reducing the tax burden, it was an unfortunate necessity.
The medicine has worked, however, and the economy is now doing extremely well. Our inflation rate is low-- historically, it is at a very low level--and there are very few signs of inflationary pressures in the economy. Unemployment is decreasing, and it has been doing so consistently for a long time. Even the public sector borrowing requirement is decreasing fast--it decreased by
£7 billion last year. The only problem is that it is not decreasing as fast as was projected originally and we are contemplating being one year behind the initial predictions.
Nevertheless, growth in the economy has been good. Last year, at 4 per cent., economic growth was too good as such a level is unsustainable in our economy. This year, the growth rate has reduced to a very healthy 2.75 per cent. That is still well above the economy's trend rate, which is some 2.25 per cent. With a rise expected next year, I think that we can be content that economic growth is very strong and not leading to inflation.
We are seeing signs of long-term, sustainable growth and that means that the supply side reforms for which the Government fought over 16 years are at last having an effect. All of that good news led my right hon. and learned Friend the Chancellor to produce a cautious Budget in which he did fundamentally very little. Although the economy is doing well, the recovery is still patchy.
The outlook is favourable for exporters, but two sectors of the domestic market--the retail sector and the housing market--are not doing well. I believe that it is correct to put money back into the pockets of individuals who can then spend it as they wish. That boosts retail sales directly and the building and housing markets indirectly. Tax cuts are the most effective way of putting money back into people's pockets and, as such, are entirely justified. They are a very sensible way of helping two sectors of the economy that have been in serious trouble.
However, I do not believe that tax cuts by themselves are enough. We now need substantial cuts in interest rates. Such cuts will not do very much for industry directly-- after all, interest rates are at historically low levels and industrial investment decisions are unlikely to be influenced by further reductions in interest rates--but investment decisions are likely to be influenced by demand in the economy for the goods that industry can provide.
I do not believe that interest rate cuts will assist the housing market. House prices are now very low and houses are extremely affordable in income terms. Interest rate cuts will put more money back into people's pockets. They will have the same effect as tax cuts to--increase demand and, in turn, increase investment in industry. They will also increase people's willingness to spend money on their houses.
I should like base rates to be cut by 0.5 per cent. before Christmas, followed by another 0.5 per cent. cut fairly soon after that. I believe that a 1 per cent. cut in interest rates is entirely sustainable and I do not believe that it would adversely affect our exchange rate--particularly as German interest rates are now on a downward trend.
I must, however, mention one or two matters about which I am less happy. The first is the uniform business rate and its effect on London. My right hon. and learned Friend the Chancellor said in his Budget statement that, in parts of the country where rateable values are increasing, the uniform business rate is to be phased in more slowly than originally intended. In London, we suffer from the reverse problem. When the uniform business rate was introduced in 1988, property prices were extremely high. The revaluation that followed was done when property prices in London had come off the peak, and many businesses found that the notional reduction in their uniform business rate was phased in very slowly.
There should be a better balance between the phasing in of increases in parts of the country that are suffering them and the phasing in of decreases in London. Business in London, especially retail business, is in very poor shape at the moment and would benefit enormously from a reduction in rates.
My final argument is more technical. The Budget will lead inevitably to a very complex Finance Bill. There are technical changes in the tax structure that will be hard to put into a short and easily understood Finance Bill. As a veteran of many Finance Bills, and having sat on many Finance Bill Committees, I know the problems that confront the Committee when it has to examine highly technical clauses. There is neither the time to examine them in the detail needed nor, occasionally, the expertise in the Committee necessary to give them the scrutiny they deserve.
That problem should be tackled and there are several ways in which it might be done. The most obvious way, as several of us have suggested for some time, is to separate the technical taxes management aspects from the tax changes and put them into a separate Bill, which might be examined by a Committee that had the time to examine them thoroughly.
Alternatively, expert evidence might be taken on the highly technical clauses. That might be done by a Standing Committee with a dispensation of the House, or the Bill might be passed initially to the Treasury and Civil Service Select Committee to pre-vet those clauses, take evidence if required and produce a report for the Finance Bill Committee to consider.
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