---

Mr. Heathcoat-Amory: We all look very closely at the distribution formula, and we in Somerset look particularly eagerly at the area cost adjustment to ensure that it does not disadvantage our areas. As for Westminster, we heard earlier today that the so-called over-provision for that borough has been reduced under the present Government.

Mr. David Nicholson (Taunton): May I say something about Somerset, while taking my right hon. Friend back to one of the important revenue points that he made earlier? Is he interested to know that our neighbour, the right hon. Member for Yeovil (Mr. Ashdown), said in his speech yesterday:

"The Budget should have taken a much larger step towards . . . increasing tax on the things we want less of, such as pollution, energy and the use of finite natural materials."--[Official Report, 26 November 1996; Vol. 286, c. 185.]

That presumably means that the right hon. Gentleman's party cannot possibly object to taxation on petrol--indeed, his party wants more of it--but does it not also have implications for VAT on fuel?

Mr. Don Foster: Yes.

Mr. Heathcoat-Amory: It does indeed. We all know that the Liberal Democrats are the major high tax party, and I think that we have just heard confirmation of that stance from the hon. Member for Bath (Mr. Foster).

The electors of Somerset are already delivering a message. The acute intervention of my hon. Friend the Member for Taunton (Mr. Nicholson) reminds me that, a month ago, in the city of Wells, the Conservative candidates captured both a district and a city council seat from the Liberal Democrats in a by-election. Already, the

27 Nov 1996 : Column 394

people whom I represent are delivering their verdict on mismanagement by the Liberal Democrats who control both county and district government.

Mr. Foster rose--

Mr. Heathcoat-Amory: I shall give way to the hon. Gentleman, as I mentioned him.

Mr. Foster: I am grateful to the hon. Gentleman for giving way. He asked me to explain the position; let me try to help him.

Liberal Democrats do indeed believe that the price of petrol and other fuels should be increased. We believe that we should change the tax system so that, the more a person uses his car, the more he pays, but the offsetting tax that we would introduce is a reduction in vehicle excise duty, which would make those who drive economical and efficient cars that reduce pollution and energy consumption financially better off, even if their mileage was up to 35,000 miles. As the right hon. Gentleman would be very pleased for that to happen in a rural area, perhaps he will want to support our proposal.

Mr. Heathcoat-Amory: In fact, the hon. Gentleman has delivered a terrible warning to the rural motorists of Somerset. Given their comparatively high mileage, they would find themselves paying the extra tax on petrol, for which any reduction in vehicle excise duty would not begin to compensate. I am grateful to the hon. Gentleman for confirming yet again that the Liberal Democrats are the high-tax party.

Let me end my brief speech--the first that I have made from the Back Benches for some time--by making an observation which, although it concerns the Budget, may be seen in a wider European context. My right hon. and learned Friend the Chancellor has created his success by using all the economic instruments at his disposal. In particular, he has not hesitated to use interest rates. As the Red Book confirms, it remains his policy to use monetary measures to counter any inflationary tendency.

The point about the interest rate moves is that they have been used to adjust policy to suit the very particular requirements of the British economy, which is substantially different from other economies on the continent. That is why we must never embrace the single European currency. There are other arguments, connected with loss of sovereignty, but I shall not go into them now. On strict, narrow economic grounds, it would be an enormous mistake for us to impose on ourselves a single monetary policy and a single interest rate set by and for the wider single currency zone, which would almost certainly be entirely unsuitable and inappropriate to the particular requirements of the British economy.

I want to keep my right hon. and learned Friend the Chancellor and his colleagues in charge of the British economy, so that he and they can continue to exercise their unfettered judgment on what is right, proper and good for the British economy--with the successful results that we see today.

6.55 pm

Mr. Don Foster (Bath): I hope that the right hon. Member for Wells (Mr. Heathcoat-Amory) will forgive me it I do not attempt to pick up many of the points that

27 Nov 1996 : Column 395

he made in his interesting speech, in which his direct experience in the Treasury shone through. Because of that experience, the House will pay particular heed to his warning about future inflation rates--a point to which I shall return shortly.

Anyone observing our debate closely will have been somewhat surprised, especially by the opening speeches. The Chief Secretary to the Treasury rightly chided the shadow Chancellor for having spent most of his speech not making much reference to the Budget. It is slightly odd, therefore, that the Chief Secretary himself then spent most of his time responding to the shadow Chancellor, and that he too made little reference to the Budget. Equally odd was the battle of semantics. Challenged time after time, the Chief Secretary refused to admit that this was a Budget in which taxes would rise. All that he was prepared to do was to use that bizarre euphemism "fiscal tightening"--which, for the benefit of anyone who does not know, means that taxes overall will rise.

We also saw the strange battle of the league tables. When the shadow Chancellor attempted to explain the position of this country's economy in the world economic league tables, the Chancellor said from a sedentary position what many schools would like to be able to say--"Oh, no, not the league tables; don't let's have the league tables." Interestingly, the Chief Secretary refused to comment on our position in Europe in relation to our inflation rate, yet spent much of the rest of his speech using one set of tables after another to try to illustrate the various points that he was attempting to make.

Perhaps the most bizarre aspect, from the point of view of those paying close attention to the debate, was the battle over predictions. We heard reference to Cassandra, and we were reminded that Cassandra made correct predictions, to which no one listened. No one made the point that the Chancellor himself is in perhaps the rummest position of all in relation to predictions: he is the one person I know who makes predictions that even he does not expect to become reality.

Just over a year ago, in his 1995 Budget speech, the Chancellor made it absolutely clear that he was keen not to be over-ebullient about, for example, the public sector borrowing requirement. He said:

"I have therefore been cautious and prudent this year in setting out the latest projections for the PSBR."--[Official Report, 28 November 1995; Vol. 267, c. 1057.]

We all remember that, in the 1995 Budget, he was projecting a PSBR for 1997-98, for example, of £15 billion. As we all know, yesterday he announced that he had not been cautious or prudent enough, because he is now saying that the PSBR will be £19 billion.

My concern about the Chancellor's predictions caused me to prick up my ears when the right hon. Member for Wells started mentioning his concerns about inflation. We all know that the recovery that undoubtedly is taking place is fairly fragile, and that it will depend very much on the three key factors of the inflation rate, the borrowing rate and the Chancellor's growth predictions. There will be real cause for concern if any of the three factors is reduced. Given the Chancellor's success in predictions, I do not have a great deal of confidence in his predictions in last year's Budget statement.

It would, however, be unfair not to point out that there are one or two measures in the Budget that I hope that all hon. Members will welcome. Some of those measures

27 Nov 1996 : Column 396

have already been mentioned, with both sides of the House trying to claim credit for them. I shall simply say that it is important that we crack down on benefit and tax fraud, and I welcome the Chancellor's measures on those matters--particularly his statement that, this time, additional staff will be made available to make that work possible. However, I think that his belief that spending £1 will bring back to him £8 is a little over-optimistic. Nevertheless, I welcome the measures.

Although they are very small, I welcome the Chancellor's measures to reduce the burden of the uniform business rate on small business by imposing a freeze. The measure will be helpful in my constituency, and I welcome it on behalf of the small businesses in Bath. I also welcome--although I do not believe that it goes anywhere near far enough--the small respite offered in the additional funding for education.

Overall, however, it was an extremely disappointing Budget. It was a tired Budget from a tired Government, and it really missed so many golden opportunities to do something and to ensure that the recovery was made sustainable. It could have been a Budget that truly made an investment in education and training. We kept hearing the right words from those on the Treasury Bench, but, if--as I shall in a moment--one analysed the figures, the words rang very hollow.

It could have been a Budget in which, for the first time, we said that we would remove the possibility of short-termism and fiddling around with the inflation figures at short notice, and take interest rates out of politicians' hands by establishing a UK reserve bank, as my party would like to do. We could have had real measures that would have started to create jobs by providing a proper and effective benefit-transfer system and reducing significantly--not in the small manner done in the Budget--taxes on jobs as part of an environmental tax-switching exercise. We could have had much more effective measures to start to reduce the debt mountain.

My key point--it is important that it is made very clearly--is that I worry enormously about the way in which the Chancellor seems almost to believe that he has got away with it for a second year running through slick presentation. Words have been used about the "Houdini Chancellor". Yesterday the Chancellor performed magic tricks, but, unfortunately, they were much more of the style of Frankie Howerd's magic tricks. As the debate has progressed, we have seen what lies behind the tricks, which have begun to unravel before our very eyes.

The Chancellor has pretended--he should not be allowed to get away with it this year--that he has managed to do a number of things: to reduce taxes, to reduce borrowing and, at the same time, to raise spending on essential services. In all those areas, that simply is not the case. I shall briefly take the example of local government--as we are meant to be concentrating predominantly on the issue of local government in this debate--to explain why I believe that that is so.

The first matter to consider is the three factors that I mentioned earlier. As I said, the fact is that borrowing forecasts are much higher than they were even in the previous Budget. We also now know--regardless of the language of "fiscal tightening"--that the total tax package in this Budget will mean a tax increase. I think that most people would now accept the estimated tax increase next year of £41 for the average taxpayer.

27 Nov 1996 : Column 397

Those who believe that there will be real spending increases on essential services are relying on smoke and mirrors, because there is no justification for such beliefs. It is like a parent saying to his child, "I'm going to increase your pocket money by £5 a week," the child looking excited and then being told that the parent will not fund the increase. That is what is happening in local government. The hon. Member for Sheffield, Hallam (Sir I. Patnick) laughs.

---