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7.54 pm
Mr. Barry Legg (Milton Keynes, South-West): I begin by dealing with the latter point made by the hon. Member for Banff and Buchan (Mr. Salmond) on the Irish Republic. As the Prime Minister has often confirmed to the House, transfer payments to the Irish Republic from the EU amount to 7 per cent. of Irish GDP. For hon. Members to understand the scale of those transfer payments, the United Kingdom would have to receive £35 billion from the EU for it to receive the same percentage of GDP. There would certainly be an effect on the United Kingdom economy if we were to receive an injection of £35 billion. So I think that the hon. Gentleman's attempt to draw a comparison between the Irish Republic and the UK is nonsense.
Mr. Salmond: Will the hon. Gentleman give way?
Mr. Legg: No; I have only 10 minutes.
I had not intended to speak about the single currency in this debate, but today we have heard two excellent contributions on that subject--from my right hon. Friend the Member for Worthing (Sir T. Higgins) and the hon. Member for Hackney, North and Stoke Newington (Ms Abbott). She argued the dangers of a single currency on economic grounds, and her arguments were very soundly based. The issue will not go away. As she rightly
said, whether Britain joins a single currency will be the most important issue that the next Parliament must decide. Both sides of the House will continue to debate that question, and it cannot possibly go away. She made her arguments on the basis of the economic dangers, as did my right hon. Friend the Member for Worthing.
Conservative Members, however, also feel strongly about the constitutional issues surrounding a single currency, which the Prime Minister referred to at the Dispatch Box on 9 June 1995. To adopt a single currency must mean that one accepts that there will be one state. The intervention by my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) on the speech of my right hon. Friend the Member for Worthing was very interesting, because he said that one cannot have a single market without a single currency, and gave the case of the United States as an example.
Those who support the federal vision of Europe, as my right hon. Friend clearly does, cannot have it both ways. Yes, if we had a single currency, we would have a United States of Europe, and there would be one state: it would be unavoidable. My right hon. Friend the Member for Worthing also mentioned the issue of transfer payments, and said that the consequences of a single currency would inevitably require them.
Even in a free market economy, such as the United States, substantial transfer payments take place between states. There would have to be a similar system in Europe to make the European currency area viable. I do not believe that the peoples of Europe form one nation, or that they are close enough to make such payments. In the United Kingdom, people in Surbiton are happy to make transfer payments to people in Huddersfield, for example, because we accept that we are one nation, the United Kingdom.
I do not believe that the people of Europe are so close that people in Surbiton would be happy for substantial transfer payments to be made to people in Essen, Palermo or Athens, and I do not believe that people in those countries would support transfer payments to other countries in the European Union. As my right hon. Friend the Member for Worthing explained, there are great dangers in pressing ahead with the concept of the single currency.
Today we have also heard from my hon. Friend the Member for Basildon (Mr. Amess). He certainly had good news to report from Basildon; and I can report that there is also good news from Milton Keynes. My hon. Friend said that there had been 2,000 new jobs in Basildon since the recession had ended. In Milton Keynes in the past 12 months, we have had 5,000 new jobs. Milton Keynes is middle England. The economy is doing extremely well. It is based on high-technology businesses, and 5,000 new jobs have been created. That shows the success and achievement of the Government's economic policy.
We have a very good economic background, which is delivering a great deal of success for Britain. However, there is much more to do. I do not know whether many hon. Members have seen the Budget submission from the Institute of Directors, which is cogent and well argued.
One of the issues to which the institute refers is public expenditure. If we are to have a really successful and competitive economy in the United Kingdom, we need to
cut public expenditure. We need to reduce it because the most competitive economies in the world have a much lower level of public spending than we have. They are much more vibrant, dynamic and enterprising, and they are getting an increasing share of world trade. We must cut expenditure.
The analysis of the economy by the Institute of Directors looks at what has been happening to public expenditure compared with GDP. Most hon. Members know that the Conservative party has the objective of reducing public expenditure as a proportion of GDP. The Prime Minister has given a target of 35 per cent. and at our party conference, the Chancellor confirmed that the objective was to get public expenditure below 40 per cent. of GDP. That is one of our core policies.
The analysis by the Institute of Directors shows how difficult it is to make progress in achieving that key objective. The institute has looked at what has happened to public spending, as a proportion of GDP, over the past four years. It notes that it has fallen from 43.4 per cent. to 42.3 per cent.--there has been a fall of only 1.1 per cent.
Of that 1.1 per cent. fall, 0.8 per cent. has been due to a lower level of capital spending by the state. The cyclical effects on public expenditure have been positive to the tune of 0.9 per cent. Therefore, total public expenditure has hardly fallen, even though we have been trying to achieve the objective of lowering it as a proportion of GDP.
The reason is that so much of the culture of the public sector is still geared to spending ever-increasing sums of money. One has only to take an interest in our national accounts to see that, towards the end of financial years, we still get a higher level of spending than is normal on a month-by-month basis. There are still too many incentives within the system for spending more. The Red Book shows that, although the Government have had the objective of reducing public spending in real terms, public spending comes in at a higher level in real terms year after year.
There must be structural changes within the public sector to get spending down overall. Those structural changes should be directed towards the civil service and towards bureaucracy. We have been pioneers in privatisation, and we need to carry that forward. We need to have plans to privatise the Benefits Agency; we need a lot more imagination in our delivery of social security.
The Secretary of State for Education and Employment has plans for pilot schemes to get the private sector involved with helping people to find jobs. One of our objectives should be to privatise much of the social security delivery system. We should be looking to privatise jobcentres, which are among the most depressing public sector organisations. We need to privatise them and to bring the free market in, so that we can help the economy to be more dynamic and help people to depend less on welfare.
Mr. Ian Pearson (Dudley, West):
On 8 October, coincidentally during the Conservative party conference, the Government announced a U-turn. It did not receive
The story behind the U-turn, however, is an all too familiar one, of Government dithering, denial and delay, followed by a climbdown and belated action. That would be pretty much par for the course, but what marks this case out is that the Government's negligence has cost the hard-pressed taxpayer an estimated £1.5 billion in lost revenue at the very minimum--probably more.
To put the matter another way, that amount is the equivalent of a penny off the basic rate of tax or about the total given out in grants to good causes since the national lottery began. It is money that could have been spent on improving education and the health service.
Basically, we are talking about an abuse of the tax system or, in other words, a tax loophole--something that the Chancellor always denies exists, but which Labour has pointed out consistently. In this case, a range of smart schemes have been drawn up by corporate financiers which have favoured the big pension funds at the expense of other shareholders, cost the taxpayer millions each time, and distorted competition in takeover situations.
The loophole was becoming known by the time the 1995 Finance Bill was passing through the Commons, and it was glaringly apparent well before the drafting of the 1996 Finance Bill. Selective share buy-backs were increasingly used by large companies throughout 1995, and the use of special dividends was commonplace in the water and electricity industries. Special dividends were also used in other situations, such as Lloyds bank's bid for the TSB and, more recently, Granada's takeover of Forte.
What is more, respected financial commentators, such as Lex in the Financial Times and Graham Searjeant in The Times, pointed out the abuse. On 10 January this year, the Financial Times talked about
The Government's response was to deny the problem. The Financial Secretary to the Treasury, in a parliamentary answer to me, said:
Exasperatedly, Graham Searjeant of The Times expressed the hope during the summer that
An Inland Revenue press release quoted the Chancellor as saying:
Who will take responsibility for losing £1.5 billion of taxpayers' money? The Chancellor? The Financial Secretary? Nobody, it seems, but there again, that is no great surprise. If a financial director of a public company was so incompetent in managing his business's finances, he would be dismissed as soon as his blunder came to light.
"the special dividend wheeze and its close cousin the share buyback",
expressing the view that
"no public interest is served by a loophole that involves taxpayers subsidising corporate raiders."
Labour, both here and in the other place, highlighted the abuse. I tabled a number of parliamentary questions on special dividends, and raised the issue on Second Reading of the Finance Bill last year. I even tabled an amendment to the Bill.
"The payment of a special dividend does not involve a tax loophole."--[Official Report, 1 February 1996; Vol. 270, c. 862.]
The result of that dithering and denial was that the use of share buy-backs and special dividends escalated. Figures from Kleinwort Benson show that quoted companies cut their equity capital by £3 billion from the start of this calendar year to the end of July through selective buy-backs. The cost to the Exchequer of just that is an estimated £750 million, but it could so easily have been avoided by a half-competent Government. So too could the £50 million or so that the Inland Revenue has
had to pay out to subsidise Granada's takeover of Forte, not to mention the money paid out in other special dividends.
"even at this late stage, the Chancellor might be stirred from his supercilious lethargy to take some action in his autumn Budget."
If the Chancellor read that article while he was on the beach, it took him until the week of the Tory party conference to act, and then, typically, he blustered through the climbdown, conveniently forgetting his culpability.
"We have seen recently companies buying their own shares or paying special dividends in such a way that the proceeds end up almost entirely in the hands of those who are entitled to payment of a tax credit. This has costs for the Exchequer, and if action is not taken soon that cost would escalate."
The Chancellor went on:
"we will not hesitate to take any necessary further action should further evidence of abuse appear."
At least he finally admitted that it was an abuse--a tax loophole being exploited by companies and their advisers--and in so doing he directly contradicted his Financial Secretary, who all along had said that it was not a loophole.
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