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Mr. Butterfill: Does my hon. Friend agree that the principle of the proposed tax undermines the position of the regulators in their judgment about the policies that will need to be pursued in the future? The regulators must make economic judgments about the profitability of the companies concerned and the public interest, but the tax would undermine those judgments.
Mr. Willetts: My hon. Friend is right. The tax involves a fundamental transformation of the way in which we
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have regulated the utilities. Our deliberate decision when we set up the regulatory regime was not to make the mistake that had been made in America, where they have rate of return regulation. We wanted to regulate prices; if a company could do well and improve its performance, it could make better profits as a result. The proposed tax is about shifting to rate of return regulation. In the long run, that will bring back all the old inefficiencies, the gold plating, the unjustified expenditure and the excessive expenses that the American regime has inflicted on America. Sadly, if the Labour party took office, it would be the end of the basis on which the utilities have been regulated so far. There would be a reversal of our fundamental decision not to go down the American line. I do not want to detain the House for too long. The one thing that has been noticeable during my remarks about the windfall tax is that there has been no attempt by Opposition Members to answer any of the practical questions about how the tax would work.
Labour Members say that they need to raise this unspecified sum to finance an ambitious training programme to get the long-term unemployed back to work. That brings us to another element of the Budget, because it raises some important questions about how we think that we can bring down unemployment in this country. Since there are more than 4 million unemployed in Germany, more than 3 million unemployed in France and less than 2 million unemployed in this country, one might think that this Conservative Government know something about the right policies for bringing down unemployment.
I must tell Opposition Members that training for the unemployed is much exaggerated as a way of getting people back to work. Of course training is a good thing, and we need training so that people can earn high incomes on the basis of their skills. However, the best training is done in-house by an employer for a known employee so that that employee can increase his contribution to the firm's output.
Sadly, training schemes aimed at the unemployed can have the opposite result to the one intended. Unfortunately, there is evidence to show that, when training is oversold and unemployed people are told that it will transform their job prospects, they end up expecting higher pay than they will be able to command in the labour market. In an experiment in America, one group of unemployed people was offered no training and a second group was offered training. Subsequently, the group that did not receive the training did better at finding work. The training had, to use the language of economics, increased the reserve wage of the unemployed people by more than it had increased their value.
We need a flexible labour market that helps people into work and provides on-the-job training. If we have succeeded in creating such an economy, we should see that, once people find work, they will enjoy significant increases in their living standards and their pay.
Sir Ralph Howell (North Norfolk):
I am interested in my hon. Friend's argument. Will he explain why the Government's excellent scheme on workstart, which is in line with what my hon. Friend is suggesting, has not been introduced nationally? That is crying out to be done.
Mr. Willetts:
My hon. Friend has a distinguished record of proposals in this area. Project work, which is very much
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A labour market that works--ours does work and that is why we have such low unemployment levels--would be one in which we would expect people to find their jobs and then, as a result of training in work, to boost their income.
An OECD study on income mobility found that, across the whole of the OECD, upward mobility among young people was greatest in Britain, where 62 per cent. of under-25s moved up at least one income band--during the period of the study, which was 1986 to 1991. In America--we are often told how terrible things are there--54 per cent. managed to increase their incomes and in Sweden, the type of country which the Labour party likes to copy, only 39 per cent. of young Swedes managed to move to a higher income band in that period. In other words, our policies help people into work and enable them to enjoy higher incomes once they are in work.
Alongside the measures on environmental taxation, long-life assets and the elimination over time of the tax distortion of profit-related pay schemes, there are other tax measures not in the Budget to which I hope that we can look forward in future Budgets delivered by the current Treasury team. I particularly hope for further reform of capital taxation.
Capital gains tax is a classic bad tax. It is imposed at a high rate on a narrow base. Many people have complained about the effect of the 40 per cent. capital gains tax rate on incentives for investors. Following that pressure, over the past few years ingenious new allowances and exemptions have been created. I do not like a tax levied at 40 per cent. with so many allowances and exemptions that only those who have planned their affairs badly pay that rate. That is not a good tax; it is exactly how a tax should not be structured.
Mr. Robert Sheldon (Ashton-under-Lyne):
The hon. Member for Havant (Mr. Willetts) spent more time on the Finance Bill that my right hon. Friends will introduce than on that before us today. He made heavy weather of the windfall levy on the utilities. I accept the need for the kind of consultation that he had with the banking community when the banking levy was introduced, but that is a matter for a Government. No Opposition, however much advantage they may have in experience or understanding, can copy the work that is essential for a Government. The necessary consultation with the utilities and other interested parties will obviously be an essential part of the work of my hon. Friends when they form the Government. I look forward to the Finance Bill and the debates that will follow, when we shall find out how successful my hon. Friends have been in meeting some of the obvious comments that are bound to be made as a result of their initiative.
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My first thought on receiving the Finance Bill was that it was in one volume only. It is still too large, but it is more manageable than those that we have received in the past. There has been an inflation of expectation with Finance Bills and I am grateful for this year's reduction.
In Somerset House, there was--there may still be--a room in which all the Finance Bills and related regulations are set out on shelves. Until the middle years of the last century, one volume covered several years. The pace of change increased to annual volumes, then to several volumes for a year, then to whole shelves for each year. I fear to think how much space they now take.
Hand in hand with the inflation of the tax system has gone the army of accountants, tax advisers and all those who service that mighty engine of Government revenue. At some time the expansion will have to level out, but I fear that we may have to wait some time. Meanwhile, we are awaiting with great expectation, but some uncertainty, the simplification that this Government--like all others--talk about but fail to deliver.
When the combined tax and revenue Budget was introduced, the argument was that we would be able to relate taxes to expenditures and decide on the priorities. However, the Government overlooked the fact that to do that one would need to assess the priorities between taxes and spending and make decisions accordingly. More expenditure would mean more tax and less tax would mean less expenditure. Ideally, one might even have envisaged reducing a certain item of expenditure to provide a specific tax reduction, or increasing an item of expenditure and accepting a specific tax increase.
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