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6.23 pm
Mr. Dennis Canavan (Falkirk, West): This is certainly the last Budget of this Parliament, the last Budget of this discredited Government and, hopefully, the last Tory Budget of the millennium.
The Government have been in power for 17½ years and, for many in this country, they have been 17½ years of lost opportunities, of decline and of economic and social disaster. Unemployment has doubled and homelessness has more than doubled. Poverty has trebled to the extent that one in six people are now dependent on means-tested benefit. Britain has dropped from 13th to 18th place in the world prosperity league and we are 42nd out of 48
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In fact, over that time, Britain's economic growth has been the slowest of any G7 member country. Our balance of trade in manufactured goods went into deficit in 1983, for the first time since the industrial revolution, and has remained in deficit ever since. Since 1979, Britain has had the lowest investment rate of the 24 Organisation for Economic Co-operation and Development countries. As my hon. Friend the Member for Newport, East (Mr. Hughes) pointed out, the irony is that the Government have accrued £80 billion from privatisation, that is from the sale of assets that belonged to the people of this country. They have also had the benefit of £128 billion in North sea oil and gas revenues.
Instead of investing that money in the nation's future, the Government have frittered it away on tax concessions for their rich friends. The Tories try to pretend that they are the party of low taxation: their rich friends may have benefited from tax concessions, but the vast majority of taxpayers have suffered an increased tax burden under this Government. There have been 22 tax increases since the last general election, which means an additional tax burden of £2,000 for the average family.
Today the Chancellor announced a 1p cut in the basic rate of income tax and some other changes to the personal taxation system. The truth is that, even taking those changes into account, the typical family in this country will still pay more tax today than they paid at the time of the last general election. If the Government were serious about cutting tax fairly, they would do as the Labour party has promised and cut value added tax on domestic fuel and power from 8 per cent. to 5 per cent. I am sure that such a move would be widely welcomed by pensioners and others on low incomes, particularly in view of the severe weather affecting Scotland and other parts of Britain at present.
Instead of lowering the rate of VAT on domestic fuel and power, the Government propose to raise the threshold of inheritance tax from £200,000 to £215,000--I think that is what the Chancellor said. He repeated the Tory party commitment to the eventual abolition of inheritance tax and capital gains tax--despite the fact that only a minority of very rich people would profit from those measures. For example, the directors and senior executives of the privatised water companies would stand to gain more than £30 million if capital gains tax were abolished, because they would not have to pay tax on share options.
I look forward to a Labour Government not simply retaining capital gains and inheritance taxes, but introducing a windfall tax on the privatised utilities in order to invest in jobs for a quarter of a million unemployed people under the age of 25. Young people should have a right to real jobs and real training opportunities. That would be a good example of using the taxation system and public expenditure to invest in the future, rather than to fritter away whatever money is in the kitty through tax concessions to very rich people.
Unfortunately, the Government do not have any effective strategy to invest in jobs or training opportunities. They are now faced with a social security
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We all agree--at least, I hope so--that people without work and people who are on low incomes need and deserve benefits. I deplore the fact that the Chancellor is abolishing the single parent premium. That will hurt many lone parents on low incomes. It is important to use the benefit system to help people most in need, but that must be combined with a more effective strategy to improve education and training and job opportunities, so that a decreasing number of people are dependent on benefits.
In his Budget statement, the Chancellor announced a modest increase in educational expenditure. Investment in education should be seen as an investment in the future of our country, but we are investing in education only 5.1 per cent. of our gross national product, compared with 5.4 per cent. when Labour was last in power. Even with the modest increase that was announced this afternoon, the Government will still not achieve the 5.4 per cent. figure that they inherited. They are going backwards instead of forwards.
The Government have strange priorities when it comes to disbursing the total amount of educational expenditure. More than £1.1 billion has been spent on the assisted places scheme to subsidise private fee-paying schools, yet local education authority schools, which educate the overwhelming majority of our children, lack sufficient resources. It is no wonder that we are 42nd out of 48 in the world education league and we have a lower proportion of young people in full-time higher education than any other western industrialised country.
Mr. David Congdon (Croydon, North-East):
The hon. Member for Falkirk, West (Mr. Canavan) is totally wrong. It is wrong to say that the Government offer no vision and no hope, when unemployment has fallen by more than 900,000 since its peak. He should consider comparative countries in Europe and see how well our economy has done since 1979--and even since 1992. Opposition Members should study what is happening in some European countries. In France and Germany unemployment is rising, whereas in this country it is falling. It is depressing to hear Opposition Members talk as if Government have the solution to all our problems, because in some cases they are part of the cause.
Ms Diane Abbott (Hackney, North and Stoke Newington):
Opposition Members have studied what is happening in France and Germany. We found that France and Germany had far fewer households in which no one
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Mr. Congdon:
Part of the problem in this country may be the break-up of the family structure. I did not intend to raise that subject, but I would submit that that break-up is one of the side effects of a welfare state. That is an important subject to debate. It was interesting that the hon. Lady did not mention the strikes that are taking place in France at this very moment. The lorry drivers' strike is preventing the transport of food into this country. Is that an example that this country should follow?
There is always a danger of grossly over-hyping the impact of any one Budget. We should remember that our gross domestic product is round about the £700 billion mark, and that Government expenditure is round about the £300 billion mark. No one item in a Budget--whether it is £0.5 billion here or £1 billion there--has a greatly significant impact on the real economy. The economic climate that is created is more important than the minutiae of the figures in the Chancellor's statement. Businesses want stability so that they can plan for the future, and the Government have given them that.
Last year, the Chancellor introduced a prudent Budget. Cuts in public expenditure of £3.25 billion were matched by tax cuts of an equivalent amount. I say public spending cuts, but in fact that is a misnomer. Public spending cuts are often cuts in so-called planned increases. The language is sometimes debased, because in reality public expenditure is never cut: it grows inexorably. The only issue is the rate of increase.
When I spoke in the Budget debate last year, I praised the Chancellor for his prudent Budget. I also said that it was important to see what happened to interest rates. I hoped that interest rates would fall, so I was delighted to see that in the following year they fell four times and were increased once. We now have interest rates significantly lower than they were a year ago--lower by 0.75 per cent.
The economy has improved steadily in the past 12 months. Today's Budget continues the trend that the Chancellor set last year of fixing a prudent Budget. Public spending has been reduced by about £2 billion, and taxes are down by about £700 million. As the Chancellor said, that is taking a fiscally tough stance to avoid having to introduce tougher monetary measures later. That is a prudent approach. It is a bit rich of Opposition Members to accuse the Chancellor of setting a Budget for an election when he has taken such a fiscally realistic view of the economy.
The Leader of the Opposition must have written his speech a few weeks ago, because there was nothing in it about the Budget or about the Labour party's tax proposals. The public are none the wiser. It is clear from listening to Opposition Members whenever they open their mouths that they would spend and tax more than the Conservative Government, so the public should be warned.
Much mention has been made today of our proceeds from privatisation and North sea oil. Despite the continuing pretence that somehow those proceeds have been squandered, they have in fact been spent on essential public services, and as a result taxation is slightly lower than it would have been if the money had not been raised. It is misleading to pretend that it has been squandered.
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The leader of the Liberal party, the right hon. Member for Yeovil (Mr. Ashdown), said that the Budget did not consolidate the recovery. I find that somewhat hard to understand. This is clearly not a giveaway Budget containing massive tax cuts designed--as some Opposition Members would have liked to be able to say--to bribe the electorate; as I have said, it takes a fiscally tough stance. The right hon. Gentleman said that he would have liked a greater reduction in the public debt. So would I--but, in a complete non sequitur, the right hon. Gentleman went on to say that, instead of the tax cuts announced by my right hon. and learned Friend, he would have liked the money to be spent on education. So, at the first opportunity to reduce the public sector borrowing requirement, the right hon. Gentleman has spent it. That is all too typical.
My hon. Friend the Member for Portsmouth, South (Mr. Martin) referred to economic and monetary union and the single currency. My concerns about the single currency are primarily economic. I strongly believe that a single currency would lead to significantly higher unemployment rates throughout Europe, and I think that this and other European countries would come to regret those higher rates if they joined a single currency. I also think that there is a grave danger of higher interest rates. I consider it fundamentally important for this country to maintain its freedom of action, and I welcome what my right hon. and learned Friend the Chancellor said about that yesterday.
Listening to my right hon. and learned Friend's speech, I wondered what he would have been able to do and say if, 10 years down the road, we had joined a single currency. Would he have been able to announce all those tax changes, or would his hand have been totally constrained by some other body in Brussels or elsewhere? The last thing I want is for the Chancellor of the Exchequer--whatever party is in power--to become little more than a local authority director of finance. I do not dispute the fact that the convergence criteria are good in themselves, in economic terms, but, when the chips are down, this is the acid test: if a country wanted to go outside those criteria, would it be constrained by another body? That is the danger of being involved in economic and monetary union.
Let me say a little about the general economic position. We now have lower inflation than we have had for a generation; but, equally important, we have seen stable growth levels. I was pleased to hear the latest growth forecasts in my right hon. and learned Friend's statement--2.5 per cent. this year, and 3.5 per cent. next year. Of course a balance must always be struck to avoid overheating of the economy, but I see no great danger of that, although my right hon. and learned Friend is right to take a prudent approach. As I have said, unemployment has fallen by 900,000 since its peak.
I believe that, to ensure that more people get into work and to build on the success that has already been achieved, we must ensure that the United Kingdom economy secures sustainable levels of growth, and that we do not go into recession at some future stage. We can argue about what is a sustainable level of growth; I do not believe that the level is fixed and immutable for ever and a day, and, as I have said, I welcome the forecast of 3.5 per cent. for next year.
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I said just now that a good deal of nonsense was spoken about public expenditure. In fact, whatever Chancellors say, public expenditure goes up in real terms in the long run, for a variety of reasons. One of those reasons is the existence of a growing elderly population; another--rightly--is the rising expectations of the public. The fact is--it is contained in the public expenditure statements--that public expenditure in real terms has risen from £219 billion in 1978-79 to £295 billion in 1995-96. That is an increase of £76 billion.
We are often told by Opposition Members that that is to do with unemployment, and that much of it is connected with the fact that the economy was in recession. Again, however, the figures are in the Red Book. Cyclical social security costs about £14 billion a year. In fact, most of the growth is to do with such factors as the growth of £16 billion, in real terms, in the health service over that period. There has been growth of £4.8 billion in real terms in health since the last general election--and that excludes the extra growth announced today. Education has grown by £8 billion over the period, and law and order by £6 billion.
The reality is that public expenditure goes up over time. I do not regret that; the challenge to the Government is to try to ensure that the rate of growth is sustainable, because otherwise the growth in public expenditure crowds out private expenditure.
A good deal of nonsense is also talked about public expenditure as a percentage of gross domestic product. The figures show that, when Labour left office, the figure was 44 per cent. For 1997-98, it is planned to be 40 per cent., which is a reduction in anyone's book. The public sector borrowing requirement is lower as well. I think that that is all good news, and I would have expected Opposition Members to welcome it.
The crucial question, however, is this: what is the overall judgment of the Chancellor? What I liked about this and, indeed, the last Budget was that, along with comparatively modest reductions in taxation--I welcomed those, including the reduction in the basic rate of income tax by 1p in the pound--there was sensible extra investment in the key public sector services. As a member of the Select Committee on Health, I particularly welcome the extra money announced for the health service today--£1.6 billion in cash terms. That is good news, which will be welcomed.
As I have said, there has been significant extra investment in the NHS since the last general election and, indeed, since 1979. Of course demands increase year on year as people get older--and people are living longer than ever before--but it is a fact that we are spending £80,000 a minute on the NHS. The hon. Member for Falkirk, West (Mr. Canavan) mentioned education spending as a percentage of GDP, but the number of youngsters in education has dropped over that period. That is one of the reasons for the figures, although they are increasing again now.
Interestingly, the percentage of GDP being spent on health is up from 4.7 per cent. to 5.8 per cent.--and that excludes the figures announced today. That is why the NHS can treat more patients than ever before, and why the number of patients treated in the last financial year was up by 6.5 per cent. We do not hear much about that from Opposition Members. I do not regret public
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I believe, in principle, in low taxes. I think that it is far better to allow people to have more money in their own pockets, to spend as they wish. Of course taxes cannot be reduced to zero; we must have public expenditure. The challenge is, can they be kept at a comparatively low level as a percentage of GDP?
My hon. Friend the Member for South-West Cambridgeshire (Sir A. Grant) mentioned the iniquitous selective employment tax introduced by a Labour Chancellor in--if memory serves me right--the 1960s. The danger is that, if taxes must be raised, some Governments--particularly Labour Governments--want to raise them on businesses, as if they were a soft touch. They are not, because taxes on businesses destroy jobs. That is why it is important to keep taxes as low as possible.
I am getting sick and tired of hearing Opposition Members criticise previous tax increases when, in practice, they have opposed each attempt to rein back public spending. Unless the state borrows ever larger sums, taxes have to equate to public spending. It is dishonest to the electorate to pretend otherwise.
I support the moves in the Budget to reduce taxes. I have mentioned the changes to income tax. I am pleased that there have been further attempts to plug loopholes. I noticed that hon. Members were jumping up and down and saying, "We told you that loopholes needed to be plugged," but it is a continual battle to plug such loopholes. As we plug one, another opens. Therefore, it is not a battle that suddenly ends. It is a battle that must be continued for a long time--probably for ever.
I welcome the changes to the uniform business rate, particularly to help small businesses, and the proposals to consider how to redistribute the UBR burden. I have received representations from smaller businesses that the burden bears down excessively on them. It is important to ensure that it is fair.
One Opposition Member said that taxes were a higher percentage of GDP than when the last Labour Government left office. I could not believe those figures, so I checked them in the Red Book. Having done so, it is clear that the percentage is marginally lower than in 1978-79--it 38 per cent. of GDP as opposed to 38.75 per cent. More important, in 1978-79, the public sector borrowing requirement was 5.5 per cent of GDP; in 1997-98 it is 2.5 per cent. Therefore, in 1978-79, the total amount that was being spent was 44.25 per cent. and it is now down to 40.5 per cent. It is misleading, therefore, to pray in aid the argument on the size of the PSBR, which is, in effect, what was being done.
Another story keeps being trotted out that misleads everyone--that the Conservative Government have introduced 22 tax rises. Last week, the Evening Standard, which I do not often pray in aid in any argument, kindly published the list of the 22 rises, which include interesting items that have been counted not just once, but on a number of occasions.
Fuel duties that have increased more than the rate of inflation and car tax increases, all of which would have been supported, I should have thought, by Members who profess to be concerned about the environment, account for five of the 22. Alcohol duties account for one of them.
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We also hear much from Opposition Members about the need for more investment. I agree with the need for more investment, but where I part company with Opposition Members is that I do not believe that Government can decide where investment should be made in the economy. The only people who can decide that are those who invest--Britain's businesses. If they believe that an investment is worth while and that there is a market for the product, they will invest. All experience shows that, when Governments say, "We should invest in this and we should invest in that," the investment is doomed to failure.
What is the one proposal we have from the Opposition that would have a negative effect on investment? It is the windfall tax. What would that do for investment in the privatised utilities? What incentive do they have to manage their businesses properly when they think that a Government might snaffle any money that they manage to raise as a result of that successful investment? What a message to consumers, who will undoubtedly end up paying those higher prices.
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