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8.53 pm
Mr. Richard Spring (Bury St. Edmunds): Thank you, Madam Deputy Speaker, for giving me the chance to say a few words.
I agree with my right hon. Friend the Member for Worthing (Sir T. Higgins) that a Budget that is cheered to the rafters often looks less appetising six months on. The headline in The Sun confirmed for me that this Budget will be the opposite sort, in which my right hon. and learned Friend the Chancellor has introduced some sensible tax cuts, targeting key spending areas and producing a number of important innovations.
Bryan Gould, who has now left us for New Zealand, used to talk about the Labour party's lack of any sort of macro-economic policy in the key areas of interest rates, exchange rates, taxation and monetary policy. He said that Labour had no such policies. It was thoroughly disappointing again this evening to hear the speech of the right hon. Member for Derby, South (Mrs. Beckett), which contained no policies, ideas or opinions: just criticisms. Her performance served to show the vacuum in Labour party policy.
My right hon. and learned Friend sought to deal with many challenges in his Budget. I should like to examine two of them, the first of which is not essentially a party political issue. Ours is an aging population. An ever smaller percentage of the population works to support an ever larger element in retirement. There is no escaping that fact. The implications for fiscal policy and for public borrowing are critical. I am pleased that my right hon. Friend the Secretary of State for Social Security is paring back the increases in the billowing social security budget from 3 per cent. to 1 per cent. a year.
It has become something of a cliche to talk about global markets and communications, but the fact is that Governments' ability to control events outside their borders, if markets do not like the policies that they are pursuing, is strictly limited. We live in a time of open markets and of ferocious attacks on currencies. As an older, mature economy, it is our duty to ensure that we run a low-inflation, low-tax economy if we are to compete with the emerging economies in the far east and elsewhere. We have no option in the matter if we are to face up to the changing demographic balance in this country and in other industrialised nations.
In this respect I welcome the announcements affecting the problem of long-term health care for the elderly. Many elderly people have been very worried about the thresholds, which have now been raised from £3,000 to £10,000 and from £8,000 to £16,000. That represents a serious move on the part of the Government, who, like Governments in all industrialised countries, have had to face up to the problem and to lay the foundations for long-term care provision. That involves creating the right sort of fiscal programme.
The Government and the Chancellor have sought successfully to encourage savings, with the introduction of PEPs and TESSAs and the extraordinary increase in the number of personal pension arrangements that help people sensibly to plan for major demographic change-- in this country and across the industrialised world. In that respect this Budget marks a watershed.
Investment is crucial to our survival in this competitive world. There has been a huge improvement in manufac turing productivity and in inward investment to the UK from outside Europe. That has enabled us to compete well by attracting scarce capital. It is creating jobs, new tech nologies and industries that are extremely beneficial.
Since the end of the second world war, every time there has been economic recovery, we have had a sterling or balance of payments crisis. So many of the nationalised industries that were damp hands on the economy in the 1970s are now leading our export effort and showing the rest of British industry the way forward by creating employment, producing taxes and helping to ensure that our export performance is excellent by the standards of the past 30 or 40 years. It is interesting to see the transformation that has taken place in that respect.
To achieve our aim of being the enterprise centre of Europe, we have to continue to cut tax as a percentage of GDP. I am pleased that Government expenditure as a percentage of GDP is projected to fall to 40 per cent. in 1997-98 and to 38 per cent. two years later. Let us aim for 35 per cent.--the levels that apply in Japan and the United States. If we continue to reduce that percentage, we shall bequeath a vibrant and dynamic environment in which business will prosper.
I very much welcome the private finance initiative, which will address the enormous pressures on the social and transport infrastructure of Britain and all other mature industrialised countries.
I welcome the further expansion of the 20p tax band, which means that 200,000 lower-paid people will be taken out of taxation altogether and one quarter of all taxpayers will now pay only 20p. I applaud the fact that my right hon. and learned Friend set a clear marker to a 20p tax rate. There are no gimmicks; we are on our way to achieve that.
Those policies have produced quite exceptional results in Britain. Unlike the other industrialised countries in Europe where unemployment is growing, in Britain it has fallen by 700,000 in the past three years. In my own constituency, the unemployment rate is now 4.3 per cent, having dropped by 8.4 per cent. in one year and 35 per cent. in three years. That success is reflected in the lives and aspirations of my constituents and I look with pleasure at the effect of Government policy in the part of west Suffolk that I represent.
I should tell my hon. Friend the Economic Secretary that I personally welcome the vehicle tax exemption on 25-year-old cars. I have a 1973 Rover 3.5 litre coupe. The car looks forward to being two or three years older and escaping that taxation.
I thank my right hon. and learned Friend and the other Treasury Ministers for addressing the problem of general betting duty. I have the great pleasure of representing the world's headquarters of racing in Newmarket. The national lottery has had a serious impact on prize money in the racing industry. The cut of 1 per cent. in general betting duty will stimulate the employment gains that are already developing in the industry as a result of the VAT registration concessions given in the Budget three years ago. On behalf of my constituents, as the racing industry is the largest employer in my constituency, I thank the Treasury team for that important concession which will be highly valued in even further reducing the already low rate of unemployment in Bury St. Edmunds.
Mr. David Congdon (Croydon, North-East):
It is a pleasure to be able to take up the remarks of my hon. Friend the Member for Bury St. Edmunds (Mr. Spring), who serves with me as a member of the Select Committee on Health. I echo his comments about the growth of the elderly population and the proposals in the Budget, which I welcome, that are designed as a first stage to deal with the difficult problem of providing long-term care for the elderly.
I warmly welcome the Budget as a whole. I think that my right hon. and learned Friend the Chancellor of the Exchequer got it right. Some difficult decisions had to be taken, especially given the state of public finances.
The key to economic success is the achievement of sustainable growth. There is no doubt that in 1994-95 and beyond we have and will achieve that growth. One of the judgments of the Budget is whether we shall continue to achieve sustainable growth. I believe that we shall do so, and I think that most economists would share that judgment.
What do businesses ask of the Government in managing the economy? The answer is that they want stability. They do not want the old days of stop-go, when they boosted their production only to find that it had to come to a halt as the economy went into recession as a result of overheating. Businesses want stability. They want stable inflation, stable growth and stable interest rates so that they can plan sensibly. The Budget is prudent in its judgment on public finances because tax cuts are balanced by reductions in public spending. Surely that is the way in which to proceed.
It is important that tax cuts put money back into the pockets of the public. The cuts will have a significant impact on consumer expenditure. Despite the comments of Opposition Members, the public know better than the Government how to spend their money.
There is a danger that Budgets can be over-hyped. We heard so much nonsense before the Budget about the level of tax cuts that would be achieved. As I have said, my right hon. and learned Friend the Chancellor got it right with cuts of £3.25 billion, which were balanced by cuts in public spending. More important, does the Budget pave the way for reductions in interest rates, which would be much appreciated by businesses and mortgagees throughout the country? I believe that it does, and I urge my right hon. and learned Friend, in his meetings with Eddie George, to adhere to the tough line that he has adopted and go for interest rate cuts.
It is my view that the Governor of the Bank of England has been wrong about interest rates over the past year. The issue is crucial to understanding why my right hon. and learned Friend the Chancellor had limited room for manoeuvre this year. I spoke in the Budget debate last year, when none of us knew what growth rate would be achieved in 1994. We now know that we achieved a growth rate of 3.9 per cent. There was concern about whether the economy would overheat and whether inflation would get out of control. We have seen some increases in interest rates. If my right hon. and learned Friend had followed the Governor's lead, we would have higher interest rates.
What have we seen? In the Red Book, growth for 1995 was predicted to be 3.25 per cent. That was only a forecast. In the summer forecast it was scaled down to 3 per cent. It is now forecast to be 2.75 per cent. We know that in the third quarter it was down to 2.1 per cent. In other words, interest rate cuts have had an effect, along with the slow-down in the world economy, on the growth rate of our economy.
What has been the effect of that slow-down? Tax revenue has been reduced significantly. I understand the exact reasons for the reduction in tax revenues. It is a problem that affects other countries. We know for certain, however, that a slow-down in growth will have an impact on tax revenues. We know also that £7.5 billion is an enormous sum. The Government have had to face difficulties with the public sector borrowing requirement, but we have been extremely successful in keeping spending under control. That is a key achievement.
What better position would we have been in if tax revenues had held up? My right hon. and learned Friend the Chancellor might have been able to introduce further tax cuts. My message and plea to the Treasury Bench is that we should not be too cautious over the next 12 months. Let us see growth in the real economy. There is little sign of inflation taking off. Wage increases, for about the first time in our history, are below the rate of inflation. That is extremely good news.
At the same time, the slow-down in wage increases has had an effect on growth. In other words, there are some difficult balances. We must ensure that we achieve at least the levels of growth that are predicted in the Red Book. I would hate to have to say next year that we achieved not 3 per cent. but 2.5 per cent. I do not accept the argument that the underlying trend rate of the economy, which some say is 2.75 per cent., while others claim that it is 2.5 per cent., is fixed in stone for ever and a day. It depends on the improvements in productivity that industry is achieving, and there is no doubt that in recent years industry has become much more productive and successful. That should be borne in mind.
The debate has been fascinating. We hear a lot about new Labour and how the party has changed its ways, but listening tonight, particularly to the hon. Member for Barnsley, West and Penistone (Mr. Clapham), I thought that I must be in a time warp. The hon. Gentleman had some quaint ideas about a minimum wage encouraging investment in capital equipment. It might well do. That is not quaint. But it would have a disastrous effect on unemployment.
We also had a revelation that I have heard on previous occasions, again from the hon. Gentleman but also from other hon. Members, about Government directing investment. What a disaster it would be for Britain if the Government were to decide where investment should go. Government would never get it right when it came to deciding in which industries to invest. The only people who can judge where to invest are those in the businesses themselves.
We hear a lot about underinvestment. Investment is up, but the Opposition concentrate on public sector investment, as if that constituted the greater part of investment. I looked in the Red Book earlier to see whether my understanding of investment was correct. In broad terms, investment in Britain is running at about £100 billion a year. Of that, only about 20 per cent. is public investment. The vast bulk of investment is decided by businesses and industries throughout the land. They invest only when there is a stable macro-economic framework and they can see a demand for their product. That is why the Government are so right to have the sound economic policies that they have.
Listening to Opposition Members on public expenditure, I sometimes wonder whether they are being honest with the electorate. Earlier this afternoon we were told that we had squandered our oil revenues and privatisation receipts. But what have they been
"squandered" on? They have been spent on essential public services. Since 1979, an extra 70 per cent. has been spent on the health service. Spending on education is up 50 per cent. per pupil. There has been a £70 billion increase in real terms in public expenditure since 1979. I do not recall hearing Labour Members say that we should not put more money into health or education. Therefore, it is dishonest of them to try to pretend that that money has been squandered.
To return to the specifics on public spending in the Budget, I applaud strongly the fact that my right hon. and learned Friend has found room for extra spending on essential services. I am particularly pleased to see the £1.3 billion extra--1.6 per cent.--for health, as well as the £878 million for education. Surely those are the right sort of priorities to have. We should cut out waste and inefficiency and spend money on essential services.
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