House of Commons
Thursday 18 April 1996
The House met at half-past Two o'clock
PRAYERS
[Madam Speaker in the Chair]
PRIVATE BUSINESS
Bodmin Moor Commons Bill [Lords] (By Order)
Order for Second Reading read.
To be read a Second time upon Thursday 25 April.
TREASURY
Taxation
1. Mr. Pawsey: To ask the Chancellor of the Exchequer by how much tax revenue has changed since 1990. [24303]
The Paymaster General (Mr. David Heathcoat-Amory): Receipts of taxes by Inland Revenue and Customs and Excise were £174 billion in 1995-96 compared with £138 billion in 1990-91.
Mr. Pawsey: That answer underlines, if nothing else, the substantial improvement to the United Kingdom economy over the past six years, an improvement that has been fuelled by low inflation and low interest rates, which in turn have reduced unemployment substantially. Will my right hon. Friend reject any appeals to increase taxation to ensure that he is not taken short?
Mr. Heathcoat-Amory: I entirely agree with my hon. Friend. We have an almost uniquely favourable set of economic circumstances at present, including low inflation, steady growth and falling unemployment. We have recently cut income tax. We have no policies from Opposition Front Benchers on Treasury matters, but we have a hint from the Opposition spokesman on transport. My hon. Friend was probably referring to that. We all know that Labour Governments increase taxes. If the Opposition Treasury team does not know that, the hon. Member for Birmingham, Ladywood (Ms Short) obviously does.
Dr. Bray: Will the Minister say whether the receipts from value added tax, being lower in the outturn than they were in the Budget forecasts over a period of years, are due to errors in forecasting or to failures in the collection of VAT? If so, what remedial measures are the Government taking?
Mr. Heathcoat-Amory: Actually, the VAT receipts for the year just ended, 1995-96, have come in very
slightly under the Budget forecast made last November, but considerably under the forecasts made a year before that. The reason for that is not clear. If there has been an increase in avoidance schemes, that will be actively investigated by the Treasury. In the Finance Bill, which has just completed its passage through the House, we put a stop to a large potential avoidance scheme to prevent any erosion of the VAT tax base.
Mr. Michael Brown: I hope that my right hon. Friend will not be too hard on the hon. Member for Birmingham, Ladywood (Ms Short). Should we not congratulate the hon. Lady on at least being the authentic voice of the real Labour party? Will my right hon. Friend take it from me that most of us regard her as the real voice of the Labour party, whose voice would ultimately be heard if the hon. Member for Dunfermline, East (Mr. Brown) were ever to be Chancellor of the Exchequer?
Mr. Heathcoat-Amory: I agree with my hon. Friend. The hon. Lady has been hauled up and silenced for speaking the truth about Labour tax plans.
Mr. Andrew Smith: Is not the truth of the matter that the Paymaster General and his right hon. and hon. Friends have a right nerve talking about tax when it is they who are in breach of all their general election promises? They increased taxes, costing a typical family £800 extra last year. Is it not the reality that, despite those increases and impositions, tax revenues have not increased as quickly as the Government predicted, landing the United Kingdom with a £32 billion bonanza public sector borrowing requirement? That proves that, just as the public cannot trust the Tories on tax and living standards, they cannot trust them on public borrowing either.
Mr. Heathcoat-Amory: There is still no indication from the Opposition Front-Bench team of its tax plans. I remind the hon. Gentleman that we have cut and are cutting taxes. This month, wage earners and salary earners will see a further cut in their standard rate of income tax. A quarter of all taxpayers are now paying tax at only 20 per cent.
I remind the hon. Gentleman also that, when the Conservative party took office in 1979, the standard rate of corporation tax was 52 per cent.; we brought it down to 33 per cent. Small company corporation tax stood at 40 per cent., which we have reduced to 24 per cent.
Interest Rates
2. Mr. Nicholas Winterton: To ask the Chancellor of the Exchequer if he will make a statement on current levels of interest rates. [24305]
The Chancellor of the Exchequer (Mr. Kenneth Clarke): I cut base rates by a ¼ per cent. to 6 per cent. on 8 March. That cut in rates was the third in four months, and was based on the improved outlook for inflation.
Mr. Winterton: When my right hon. and learned Friend visits Macclesfield tomorrow, a borough whose Conservative-controlled council manages its affairs as prudently as he seeks to run the national affairs, will he listen to the views of local business men and women, whose views I share, who believe that low interest rates
and low inflation are essential to the future success of our country? Will my right hon. and learned Friend accept from me that, although there has been a modest improvement in the housing market, a further improvement, which would also enhance the opportunity of the Conservative party being re-elected at the next election, would be gratefully assisted if he were able to reduce interest rates by a further ½ a per cent. as soon as possible?
Mr. Clarke: I am looking forward to hearing the views of the business people of Macclesfield tomorrow, as they are usually so forcefully put by my hon. Friend. As he will know, Britain has the lowest interest rates--the best run on interest rates--that we have seen for 50 years or so. Business expects to see a combination of low interest rates based on sound management of the public finances and low inflation. The combination of circumstances that we have now produced is the best of that kind that we have seen for a long time.
The housing market is beginning to show the first encouraging signs of some improvement. It is--I agree with my hon. Friend--small at the moment, but it is encouraging that house prices are beginning to go up and that turnover appears to be improving. I trust that, if we keep the present conditions in place, housing and construction will recover and begin to enjoy the increased prosperity that other sectors of the economy are obviously now feeling quite strongly.
Mr. Sheldon:
Is the Chancellor aware that one of the few encouraging aspects of his chancellorship has been that he has been winning the battle with the Governor of the Bank of England? Given the extremely high level of the public sector borrowing requirement, will he adopt an even more robust attitude in his meetings with the Governor to ensure that interest rates do not rise?
Mr. Clarke:
The Governor and I are joined in battle, side by side, to achieve the Government's inflation target--which we plainly will achieve--of 2½ per cent. It is that which is giving Britain the best inflation record that it has had for a generation and more, and it is that which is making the present recovery so strong and likely to be sustained.
The Labour party cannot even say what inflation target it would set if ever it got into government, and that is because the whole history of Labour Governments, including the one in which the right hon. Gentleman served, has been one of taking inflation through the roof--which has been destructive of all industrial recoveries in recent times.
Lady Olga Maitland:
Is my right hon. and learned Friend aware that, with the lowest mortgage rates in 31 years, the property market in my constituency in Sutton is undoubtedly shifting and, with that, the morale of property owners is going up? Is that not good news for his policies?
Mr. Clarke:
It is very good for the people in my hon. Friend's constituency and in mine, and throughout the rest of the country. I am extremely glad that the number of people suffering from negative equity is now plainly on a downward path, but I am sure that my hon. Friend and I are both agreed that that must continue. Those are the
3. Mr. MacShane:
To ask the Chancellor of the Exchequer what is his estimate for the PSBR for the rest of 1996; and if he will make a statement. [24307]
6. Mr. Austin Mitchell:
To ask the Chancellor of the Exchequer if he will make a statement on the change in the level of Government borrowing over the last financial year. [24313]
The Chief Secretary to the Treasury (Mr. William Waldegrave):
The provisional outturn for the 1995-96 PSBR is £32 billion. Excluding privatisation proceeds, that is £8 billion lower than the previous year.
An updated forecast of the 1996-97 PSBR will be published in the summer economic forecast in a couple of months' time.
Mr. MacShane:
Is not that answer proof positive not just of the ideological disarray on the Treasury Benches but of technical incompetence? In the Red Book for 1995-96 we were promised a PSBR for this year of £21 billion, yet in the press release issued today that has increased to £32 billion. The Treasury was not able to account for £10 billion, which now has to be found. If any company were responsible for that, its finance directors would be sacked. I suggest to the Chief Secretary that perhaps Sir Richard Scott should be asked to set up an inquiry into where that money has gone.
Mr. Waldegrave:
The expenditure controls have come in exactly on target yet again. For every year in which we set a new control total, we have hit it exactly. I do not think that there was any year under the previous Labour Government, except when the International Monetary Fund was running things, of which that could be said.
The Labour party has voted against every one of the expenditure control measures that we have taken. It has voted against them, lobbied against them and gone into the outside world and argued against them. Under Labour party policies, and under what it would have done if Labour had been in power, borrowing would have been much higher, as it would be if ever Labour got to power.
Mr. Mitchell:
Is the Minister aware that, as a proportion of gross domestic product, the national debt is now more than 50 per cent., which is about the same as it was in 1979-80, despite the fact that he has had more than £100 billion of revenue from North sea oil, plus all the revenue from privatisation? This year's PSBR will cost about £3 billion, and every year into the future, just to pay the interest on it. That is accumulating deadweight debt. Is that responsible finance?
Mr. Waldegrave:
It is extremely helpful to have support for Conservative economic policies from anywhere in the House and it is wonderful to hear Opposition Members arguing in favour of lower spending,
Sir Peter Hordern:
Does my right hon. Friend agree that it is important to keep the PSBR as low as possible to keep interest rates low, otherwise it would be impossible to have tax cuts, but is it not pretty rich for the Opposition to talk about the PSBR when, as a proportion of GDP, the PSBR was so high under Labour that the Labour party collapsed into the arms of the IMF on two occasions?
Mr. Waldegrave:
I agree with my right hon. Friend. He is clearly right. Many people are asking--many supporters of the Labour party are asking--what on earth is the point of a party of, allegedly, the left that argues the same case as the Conservatives? Where has the dialectic of politics gone? The truth is that it has not gone at all. If the Labour party ever got back into power, we would have higher spending, higher borrowing, higher taxes, as we always do under a Labour Government, and higher unemployment, too. There has never been a Labour Government who did not leave unemployment higher than they found it.
Mr. Legg:
Will my right hon. Friend accept my congratulations on the progress that he has made in reducing the PSBR over recent years? Is he aware, however, that if Britain were part of a single currency, the current deficit would be unacceptable, the United Kingdom would be subject to fines, and the timing of tax increases and public expenditure reductions would no longer be a matter for the Chancellor and the approval of the House? Does he accept that such a reduction in the powers of Her Majesty's Ministers and the authority of the House would be unacceptable?
Mr. Waldegrave:
We are doing what we believe to be right for this country, and we would be doing it in any circumstances and shall continue to do it. It is noticeable that the debt to GDP ratio in the United Kingdom has fallen since 1979, whereas it has up to doubled in the other big countries of the EU. The sensible policies followed by the Conservative Government over the past years, which will be continued whatever happens, seem to me to stand on their own merits.
Sir James Molyneaux:
Will the Chief Secretary consider recommending raising the retirement age and thus make a big contribution to reducing the public debt?
Mr. Waldegrave:
The right hon. Gentleman makes an interesting point--which, incidentally, is referred to in the IMF world report which was published today. That report reveals the long-term strength of the United Kingdom's position, thanks to our funded pensions. We have almost no "contribution gap"--if I may use the jargon--whereas a number of other countries, especially those that follow the Opposition's policies of implementing the social charter and high social spending, among others, now face severe difficulties.
Mr. Gallie:
Will my right hon. Friend tell us how important the recent successes of the car industry have
Mr. Waldegrave:
We seem to have witnessed the shortest ever half-life of a Labour policy. Yesterday, a policy relating to punitive taxation of company cars was leaked; it has already been withdrawn today, in the Evening Standard.
My hon. Friend makes a good point. We are now a major car manufacturing and exporting country again: we are exporting and producing as many cars as we were in the early 1970s. The proposals advanced by Labour's transport spokesman would damage that position.
Mr. Charles Kennedy:
In an interview with Sir David Frost in September 1994, the Chancellor of the Exchequer said that a public sector borrowing requirement of £30 billion was no basis for cutting taxes. Where does that leave the Government's tax-cutting strategy today, given that we now have a PSBR of £32.2 billion? Has the Chancellor abandoned his previous position, or has the Government's strategy collapsed?
Mr. Waldegrave:
The hon. Gentleman is labouring under a misapprehension. The figure that has just been reported relates to the last year; the taxes that we have introduced will affect next year.
Mr. Jacques Arnold:
Would not the PSBR forecast for this year have been much lower without the costs of the bovine spongiform encephalopathy scare, stoked up so disgracefully by the hon. Member for Peckham (Ms Harman)?
Mr. Waldegrave:
I suspect that my hon. Friend is right. [Interruption.] Opposition Members laugh; they are laughing at the damaging of livelihoods by the scares caused largely by Labour's health spokesman, which I do not consider a laughing matter.
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