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Mr.nderson (Swansea, East): Does the right hon. Gentleman agree that, in so as far as the Leader of the Opposition had a catch phrase, it was, "7p up and 1p down"? Will he comment on that?
Sir Terence Higgins: The Leader of the Opposition should look at the entire period of Conservative government and, in particular, at what has happened to the real incomes and take-home pay of various individuals in different categories. One has to look at the Government's performance and, in terms of raising living standards--allowing for tax changes, inflation and everything else--it has been a remarkably good record. If I may say so, the catch phrase that has been bandied about is rather silly.
Let me refer also to the hon. Member for Dunfermline, East (Mr. Brown). The gimmick of a 10p tax band is totally divorced from the width of the band. Would it
apply to the first £1 of income or the first £60,000? The right hon. Member for Derby, South (Mrs. Beckett) is muttering to herself. Perhaps she can tell me how wide the band is. Without that information, it is a totally meaningless statement. It does not mean anything to promise a 10p band of income tax at the starting rate. In any case, that is not an efficient way of reducing tax. My right hon. and learned Friend the Chancellor has done more to help people at the bottom end of the scale by raising the basic allowance.
I happened to catch the tail end of the Budget broadcast by the hon. Member for Dunfermline, East last night. He stressed the importance of honesty in tax policies. He floated a remark about cutting VAT on fuel, but made no reference to the fact that under European legislation, the most he could cut VAT is from 8 per cent. to 5 per cent. His so-called honest broadcast gave the impression that there would be a massive cut or probably the abolition of VAT on fuel, so that did not seem very honest.
Mr. Stuart Bell (Middlesbrough):
We are interested in the speech of the right hon. Gentleman as he is a former Chairman of the Treasury and Civil Service Select Committee. However, my hon. Friend the Member for Dunfermline, East (Mr. Brown) said not that he would reduce VAT from 8 per cent. to zero, but that he wished to reduce VAT on fuel from 8 per cent. to 5 per cent.
Sir Terence Higgins:
Quite so. If that is what the hon. Member for Dunfermline, East said, I accept it as I heard only the end of the broadcast. If that is so, I apologise.
Having said that, I believe that the basic arrangements that were made for pensioners and those on social security benefit when we put VAT on fuel were beneficial. Unless the hon. Gentleman wishes to go further than he went last night and promises to reduce the rate of VAT on fuel and retain the compensation that the Conservative Government gave to those on low incomes and pensioners, his proposals were not entirely clear.
I now come to that old-fashioned expression, the Budget judgment, which has not been dealt with adequately. The PSBR has declined rather more slowly than we had hoped, because there has been some slow-down in the economy and consequentially, revenues have not risen as fast as they might have done and unemployment has not fallen as fast as we had hoped. That being so, the action that my right hon. and learned Friend the Chancellor has taken in regard to the PSBR is not inappropriate at this stage in the economic cycle. The rate of growth in the economy was lower than we had expected, so there is a case for running a level of PSBR that stimulates the economy. Therefore, I view the present level of the PSBR with relative equanimity. Inflation is clearly well under control and it is important to strike the right balance between controlling inflation and economic growth. Again, my right hon. and learned Friend got that pretty well right.
I return to my earlier point about the rate of interest. Had my right hon. and learned Friend increased interest rates, as the Governor of the Bank of England appeared to advocate some while ago, the PSBR would have been larger, so my right hon. and learned Friend was right to resist that and to emphasise the rate of interest as well as fiscal policy.
We have to put the Budget in a European context. In respect of the PSBR, I am worried about the enormous pressure to meet the convergence criteria under the Maastricht treaty. There are some real problems as they do not take into account the stage of the economic cycle in any particular country and it seems dangerous to say that it is suddenly all right at any particular moment. If the criteria are to mean anything at all, they have to be at a sustainable level, when the PSBR is consistent with moving a further stage towards economic and monetary union.
Mr. Stern:
Does my right hon. Friend agree that another difficulty is that the Maastricht criteria for borrowing take no account whatever of the national assets against which the borrowing is undertaken, so in comparing borrowing rates in different countries, they totally ignore the capacity to borrow?
Sir Terence Higgins:
Yes, indeed. It may well be that borrowing is an appropriate response at certain stages in the economic cycle, depending on the level of capital expenditure on which the Opposition are so keen.
The general pressure now being exerted in Britain and throughout Europe is extremely dangerous because it may well have a recessionary effect. Again, one has to balance the difference between the size of the deficits and the state of the cycle. I view with relative equanimity the action that my right hon. and learned Friend has taken. Of course, he is right to seek to reduce the public sector deficit. That must be appropriate, but perhaps the sense of urgency in some quarters has been somewhat overdone.
Mr. Donald Anderson (Swansea, East):
I shall give just a few reflections. I concede in a fairly broad-brush way on the Budget, and I hope that I follow in the spirit of the right hon. Member for Worthing (Sir T. Higgins), who is a distinguished former Treasury Minister and who gave a balanced view of the Budget speech.
Clearly, all Budgets are not simply exercises in economics, otherwise we would have simply a conclave of learned professors who would give us of their views. Different Budgets have different admixtures of economics and politics. I suspect that the fear of this year's Budget was that, as we approached a general election season, politics would be even more paramount than they are in most Budgets. This year's Budget has to be viewed more than most in the context of its timing, the state of the country and the state of the Government.
The Budget speech, which now seems so long ago, met with rather different receptions on both sides of the House. I concede straight away that the dominant response among the Opposition, including myself, was relief because we have a keen appreciation of the Chancellor's political skills and, right until the end, we assumed that something dramatic would be pulled out of the hat, which might rescue the fortunes of his party and begin to restore a feel-good factor, even at this relatively late stage.
Our relief was expressed by, "Is that all?" There was certainly a feeling of relief on the Opposition Benches. We have, of course, respect for the Chancellor of the Exchequer as a political animal. We recognise also that he is a moderate man in a party that is becoming increasingly immoderate. The Conservative party is becoming increasingly hostile to Europe. We know that the right hon. and learned Gentleman has great experience and relative wisdom and seeks to avoid the essays in populism that the Home Secretary is wont to take.
I suspect that there was disappointment on the Government Benches. There was probably a feeling of great gloom. Drowning men and women were hoping that a lifebelt would be thrown to them. At the end of the Chancellor's statement, they realised that it would not be forthcoming.
In reality, we were presented with a relatively prudent Budget. Perhaps that was necessarily so. However great the temptation to be reckless, the Chancellor was mightily boxed in by economic realities. He was, for example, boxed in by the less buoyant revenues that he had not anticipated. He was boxed in also because the public sector borrowing requirement was greater than had been forecast and anticipated. His room for manoeuvre was far less than he would have wished at this stage of the political cycle.
It is only fair to say that there were a number of positive elements in the Budget. For example, it was relatively green in that it was to some extent environmentally friendly. Some of the key concerns of the average citizen were at least recognised, if not addressed. I am thinking of the priorities of public expenditure, including education, to which the right hon. Member for Worthing referred. On the basis of, "Now you see it, now you don't," I suspect that much of the so-called increased expenditure on education will evaporate rather rapidly when the figures are examined in detail.
We know that there is a crisis within the national health service. Only about 10 days ago the local newspaper in my constituency, which is not a traditional Labour party supporter, carried a headline to the effect that there is such a crisis. The article set out a series of major failures in health provision. The people know that and they recognise it. We know, of course, that there are some objective factors and increased pressures, which we all face. Many of the problems, however, result from the Government's ideological frolics.
Most Members recognise that law and order comes high on our constituents' agenda. We ignore the issue at our peril. It is suggested that an additional 5,000 police officers will be made available. That increase is only to be welcomed. Training will take some time, however, and there will be no immediate effect. There will be no political effect, apart from the declaratory effect, before the next election. There will be no fifth cavalry appearance out of the sunset to help the Government.
The Budget statement contained the recognition at last that something had to be done about the costs incurred by those who move into long-stay residential homes. Most of our people recognise that there is gross unfairness in the system. The Government's recognition of the problem must be welcomed.
Unfortunately, there were several regressive elements in the Budget. I have in mind the overall impact on the richest 10 per cent. of the population and on the poorest
10 per cent., and the punishing of victims in our society-- for example, the swipe at single mothers and the reduction in housing benefit payments for those under 25 years of age. It is clear that the Government are labouring under a misapprehension. It seems that they think that youngsters leave their homes because they want to or because there are bosoms of families to which they can return if housing benefit is reduced.
The reality is that we live in an increasingly fragmented society. Much social distress will be caused by the reduction in housing benefit for the under-25s. I do not make the dramatic claim that we shall see a great expansion of cardboard cities. It is true, however, that young people at a vulnerable age, suffering from a lack of job opportunities, will find it increasingly difficult to find the few jobs that are available if they do not have steady addresses. The Government's action is deplorable. They may try to justify it according to their preconceptions, but their action does not tally with social and economic realities. I hope that they will reflect on the way in which the vulnerable are being penalised.
There are evasions within the Budget. It is clear that council tax will increase. The Government will seek to throw the blame for policy failures on local councils. After the previous round of local elections, councils are under the control of the Labour party or Liberal party, or in some instances there is mixed control that has resulted in Lib-Lab coalitions.
The electorate will not fall for the blame that the Government will throw on councils. The Government may wish to make local councils unpopular by causing them to increase council tax in the next settlement. That is the assumption in Wales, but there is hardly a Conservative councillor left in Wales. A few years ago, Cardiff city council had a Conservative majority. It now has only one Conservative councillor. Swansea has only one Conservative councillor, as has Newport. If, as is assumed, council tax had to be increased by about 11 per cent., it would be easy, with an unsophisticated electorate, to point the finger of blame at the councils. The Government will not succeed in that approach, however hard they try.
The Budget contains wrong priorities. I shall not repeat what I said yesterday about the World Service. It is a unique service. Its capital budget has been reduced by 20 per cent. It is clear that the Government have not appreciated the value of the service. Not too many years ago, I was sitting on a one-to-one basis with the President of a major African country. He told me that he listened to the World Service for his news. He relied on the service for that information. So many opinion formers, people whom we need to address and cultivate, rely on the quality of the service. The Government's cutting of capital provision is bound to have an adverse effect on quality of service at a time of much greater competition.
The Government say that there will be a 20 per cent. reduction in funding, but that that may be compensated by the private finance initiative. They say that the private sector may be able to move in to fill the gap that has been left by the withdrawal of public expenditure. That is no more than a hope. It may happen or it may not. Everything depends on the private sector's response.
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