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8.31 pm
Mr. Peter Luff (Worcester): This has been an interesting debate, and there have been some thoughtful speeches, in particular those of my hon. Friends the Members for Carshalton and Wallington (Mr. Forman) and for Fulham (Mr. Carrington). It has also been a slightly confusing debate; there has been a chorus of praise for my right hon. and learned Friend the Chancellor of the Exchequer from Opposition Members such as the hon. Members for North Durham (Mr. Radice) and for Huddersfield (Mr. Sheerman). I want to associate myself with that chorus of praise. We have a Chancellor who believes that good politics, good economics and good theatre go hand in hand. He is right.
I have been confused also because I am not sure whether the Opposition want us to believe that the economy is crawling out of a recession or is in the middle of a dangerous boom. We have heard both messages from them. Of course, the truth is that the economy is on an even and steady course, which is a great tribute to the successive Budgets of my right hon. and learned Friend.
I want to speak about three basic themes. The first is the kind of tests that we should apply to the Budget; the second is parochial, and concerns the specific benefits that the Budget will bring in my county; and, if I have time, I should like, thirdly, to refer briefly to the local authority dimension.
There are three tests that I want to explore. The first is the Liverpool test, the second is the Dunfermline, East test and the third is my own tripod test.
First, the Liverpool test. Last week, I attended the national prayer breakfast at the Queen Elizabeth II conference centre. David Sheppard, the Anglican Bishop of Liverpool, gave the address which, in many respects was unexceptional and entirely appropriate for a bishop. He applied a test to the Budget and said that we must ask how it helps the poor at home and overseas. I agree that that is a major test for a Budget. It was entirely proper for a churchman to draw that thought to our consideration, but he went beyond the bounds of what the Church should do when he added that the Budget failed both tests.
I am afraid that that just is not right. In my judgment, it is the bishop who failed the test, not the Budget, because although I firmly believe, that it is his business to bring a Christian insight to the problems of society, he cannot bring such an insight to the solutions. I do not think that there is any great gospel authority about what level the deutschmark should be set at against the pound sterling. In the absence of any such authority on the very fundamental
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The Bishop of Liverpool was also wrong factually when he said that the Budget had failed the poor overseas. I disagree. He reduced the argument to a simplistic one about aid. I should like aid to be set at a rather higher level, and I should like to see us make progress towards achieving the 0.7 per cent. of GNP target. I was delighted, however, that, according to the Budget settlement, bilateral aid--the most efficiently delivered aid--has been protected. I must remind the bishop that the United Kingdom is the sixth largest donor in the world. I also believe that our aid is some of the most effective in the world. More important, the bishop should have given credit to the Chancellor for the work that he has done in leading the world in debt reduction initiatives. That is of huge importance for the developing world. I believe that he should have given more credit to the Government for their enthusiasm for free trade, because free trade will enable developing countries to trade out of poverty.
The bishop should also have paid great credit to the Government for their peacekeeping activities around the world. Those activities have been funded from the Government's military budget--a budget that many Opposition Members would cut--and they have done much to bring stability to developing countries.
The bishop is wrong about the poor overseas. The Budget will protect their interests and build on the Government's proud record of looking after the developing world. He is also wrong about the poor at home. I do not believe that Budgets should be just about the poor. They should be about the average family, too, and those who generate wealth by running the big enterprises that create jobs.
A family on average earnings, which is about £21,000 a year, will be £120 a year better off after all the tax changes in the Budget, including the council tax changes. With earnings increases, and after tax and inflation, a family on average earnings will be £370 better off next year. They will be £1,100 a year better off next year than they were in 1991-92 and £100 a week better off than they were in 1979. That is the real measure of the success of this Budget and preceding ones.
What about the poorest members of society? Is this a Budget for them? Just this week, an interesting document was published by the Department of Social Security entitled "Households below average income. A statistical analysis 1979-1993/94". It shows that there has been an increase in inequality--something about which the right hon. Member for Kingston upon Hull, East (Mr. Prescott) spoke at great length and with great indignity during his tirade. Of course inequality has increased; it had to. Incentives had been squeezed out of the system under the Labour Government, and they had to reinstated. An increase in inequality is inevitable and desirable to help bring about improved living standards for everyone.
I shall let document speak for itself. It states:
The document concludes:
The document shows that everyone has got richer as a result of Conservative stewardship of the economy, and, interestingly, that the poorest 10 per cent. spend more than their income suggests that they can afford. Moreover, it makes no allowance for the public services that benefit the poorer members of society disproportionately--health and education, spending on both of which has increased in this and previous Budgets.
The bishop was wrong about the poor, but it is right that the unemployed did least well, as the document shows. The real test of any Budget is how it will get people back into work. Unemployment creates poverty, not the Government's failure to create a dependency culture. The Government and the Budget are getting people back into work.
Bizarrely, and uniquely, the Labour party is approaching a general election with specific promises that everyone knows--I believe that "any damn fool knows" were the words of the right hon. Member for Kingston upon Hull, East--will increase unemployment. Labour promises a minimum wage, the social chapter and windfall taxation on successful companies.
Mr. Eddie Loyden (Liverpool, Garston):
I do not wish to defend the Bishop of Liverpool--he is quite capable of doing that himself--but if the hon. Gentleman was as involved as the Bishop of Liverpool in the interests of the people of Liverpool, he would understand the bishop's compassion for the unemployed, for example, in whom he has taken a great interest over the years.
I do not believe that the bishop is a card-carrying member of the Labour party. His responsibility may not be in the world of politics, but he has an overview of many of Liverpool's social problems. The House should praise the bishop's comments, which reflect real social
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Mr. Luff:
I am afraid that I shall disappoint the hon. Gentleman. I would wish to condemn the Bishop of Liverpool for suggesting that he has insight into the solutions to the problems. However, I agree with the hon. Gentleman about the bishop's compassion, his identification with the problems of his flock and the practical work that he does to help them. The problem is that his solution is wrong. The test that he set for the Budget is the wrong test. The best way to help the people of his diocese is to create jobs. That is what a free market economy does, against the type of economic background that the Chancellor of the Exchequer has successfully created.
What of the second test, the Dunfermline, East test? The shadow Chancellor wanted us to judge previous Budgets by their effect on unemployment. I suspect that he would like us to forget that test now. Now he wants to judge this and preceding Budgets by the number of tax increases that he alleges the Conservative party has introduced.
The scale of the dishonesty is breathtaking. Labour Members allege that there have been 22 Tory tax rises since 1992. The alliteration is what they are working for. In reality, there are not 22. Some of the alleged 22 are not rises, but failures to index taxation. That is not a rise; it is a failure to give a reduction. Some taxes, such as insurance tax, are counted four times. Looking at it objectively, there are probably about 10 genuine tax rises in the list, not 22, but even if we accept 22 as the figure, on the same basis we have managed 25 reductions in the past two years--a net gain of three to us.
What really matters, and the test that the right hon. Member for Dunfermline, East (Mr. Brown) should apply, is personal disposable income; I gave the figures for that earlier.
If the Labour party is so anxious about tax increases, what public expenditure would it have cut to avoid them? I regret the tax increases that we have had to impose, but it was the thing for a compassionate Government to do, and I entirely support that policy.
My fears are compounded by the Labour party's dishonesty. We saw a very impressive document produced by my right hon. Friend the Chief Secretary to the Treasury; I think I got that right, unlike the deputy leader of the Labour party. The Labour party wants to increase spending by £30 billion; we have seen it itemised. We have vague hints about reductions in taxation. Reducing VAT on fuel would cost £500 million. Changes in upper-rate tax thresholds would cost £1.4 billion. A 10 per cent. starting rate of tax would cost £8 billion.
The increased borrowing that all that implies--spending up £30 billion, taxes down £10 billion--is £40 billion. We cannot take lectures on the lack of financial rectitude from Labour Members if they propose to increase borrowing by £40 billion. Either they mean it or they do not. I am afraid that I am forced to the conclusion that they are trying to be all things to all people, saying to interest groups, "We shall give you what you want, don't you worry," and hoping that they will not notice the grand total that is building up. All the little
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If we had been discussing a Labour Budget today, there would have been no tax reductions. A windfall tax, whether it raised £1.5 billion, £3 billion, £5 billion or £10 billion, would go nowhere near meeting the bill of a new Labour Government. The right hon. Member for Dunfermline, East is as wrong as the Bishop of Liverpool.
We should test the Budget as though it were a tripod, because three-legged objects are the most stable. A Budget should take as little as possible of our money as fairly as possible--one leg. It should maintain excellent public services--the second leg. Thirdly, it should create the conditions for economic success. The Budget passes all those tests with flying colours.
First, the way in which the tax cuts were introduced--thresholds as well as the basic rate--ensures that the first leg is strong. The 20p rate is effectively the basic tax rate now, given that it is now the top rate of tax for 7 million people.
Secondly, the priority for health, education and law and order exactly reflects what my constituents are asking of the Government. I am delighted that those sectors receive priority in the Budget.
Thirdly, the reduced borrowing profile and general prudence offer the guarantee of continued economic success. That can be seen in the international judgment of the foreign exchange markets and international economic analysis day after day.
All three legs together will help the poor most, because they will combine to create the conditions for falling unemployment. The Chancellor is right to remember with nostalgia the unexciting Budgets of his childhood--modest, sensible Budgets, set against a strong economic background. That is what we have now.
The aspect of the Budget that I most welcome is what is not in it, the so-called windfall tax--or is it a utilities tax? I am confused about the nomenclature. We hear a different definition every time a Labour party spokesman--the right hon. Members for Derby, South (Mrs. Beckett), for Kingston upon Hull, East or for Dunfermline, East--opens his or her mouth. There is a spectacular lack of detail. Sometimes they seem to imply that the tax will be imposed in one year only. I do not understand how they can sustain that against their spending commitments.
Will the tax be imposed on utilities or on all privatised companies? Is British Airways a utility? Is British Telecom a utility? Perhaps it is. Is the British Airports Authority a utility? Is Cable and Wireless a utility? I do not know. I wait to hear from the Labour party which is and which is not.
I predict that, if ever we had the misfortune to have a Labour Government, the European Court of Justice might become almost popular with Conservative Members as the windfall tax was tested there. I do not believe that the tax will stand that test. One thing is clear: ordinary people will pay it--in increased prices, job losses or pension fund losses. It will impact on ordinary people.
I do not often draw the attention of the House to remarks of Labour prospective parliamentary candidates, but the Labour prospective parliamentary candidate for Worcester has
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I have done some calculations. By the end of 1994, we had privatised about 42 companies. Each company had an average of five executive directors--210 directors in all. If the shadow Chancellor wished to raise £1.5 billion from them, he would have to send a personal tax bill of £7,140,000 to each of them. At £3 billion, the tax bill would be £14,280,000. At £5 billion, which we believe is the correct figure, it would be £23,800,000. If the figure of £10 billion is correct--still only one third of Labour's spending plans--the tax bill would be £47,600,000. That destroys the preposterous claim that there is magic money there, waiting for Labour to get hold of it.
There are only three ways of paying for a windfall tax: increased prices, with a heavy burden falling on those with low incomes, who depend on the utilities disproportionately and spend a disproportionate amount of their household income on them; reduced investment in the utilities--Labour claims to want to increase investment--with a fall in employment in the industries that would have helped to provide the investment; or reduced balances and increased borrowing by the companies, leading to a reduction in share values, a reduction in pension funds and so a reduction in pensions. That is the choice: price increases, job losses or falling pensions. That is how a windfall tax would be paid for.
I shall briefly draw attention to the impact of the Budget on my constituency and county. First, I should like to single out the increase of £1.6 billion in health funding. That significant real-terms increase, as promised by the Chancellor, will give the best guarantee that our new district general hospital will be built, using the private finance initiative.
Secondly, I welcome the increase in expenditure on the police, which has not received enough attention locally or nationally. The West Mercia constabulary will get a 4 per cent. increase this year, on top of a 5.9 per cent. increase last year. An extra 41 officers were recruited this year, even though there was funding for only 21. With funds allocated to enable the force to have 42 extra officers next year, perhaps the number it will be able to recruit will be nearer 60. That increase in the number of police constables was promised by the Prime Minister and is being delivered.
On a more parochial note, may I express one caveat about the Budget? I should like a significant continuing investment in local bypasses. I hope that the Department of Transport budget can afford that. The Wyre Piddle bypass is a priority in my constituency, and I hope that the money for it will be forthcoming.
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"All economic status groups"--
in households below average income--
"have shown increases in average income since 1979.
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All of the in-work groups and those aged 60 or over showed large real increases of the order of 40-50 per cent.
after housing costs and more before housing costs.
The unemployed showed a small rise in average household income of around 8 per cent."
"'Other' non-employed average income was up significantly, by around 30 per cent."
The document then states that the results from the bottom 20 per cent. of households were not quite as good, but still showed some real increases. It states:
"Income of the bottom 20 per cent. of unemployed showed a slight increase"
before housing costs
"on central estimates, but was lower"
after housing costs. That is a subject to which I shall return later.
"Households' standard of living will be influenced by their possession of consumer durables. Access to consumer durables in the lower half of the income distribution has generally increased faster than for the whole population;
It is also interesting to note that the document states:
The bottom decile of the income distribution has higher median expenditure than the second decile, suggesting that the bottom income deciles are not the most constrained in their living standards".
"The rise in housing costs over the period from 1981 has been accompanied by a rise in quality."
That should be welcomed by hon. Members on both sides of the House.
"called on 'fat cat bosses' to bear the brunt of his party's proposed windfall tax on privatised utilities."
I quote from an article by Shaun Connolly in the Worcester Evening News. The prospective candidate says:
"There is no reason to believe it will be passed on to customers. People have seen the salaries being paid to fat cat bosses and are not happy about them. They have seen the cash literally pouring out of the taps and going into Severn Trent Water."
I draw only one conclusion from those remarks--that the prospective parliamentary candidate for the Labour party in Worcester believes that the fat cat bosses will pick up the bill personally.
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