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Mr. Ian Bruce (South Dorset): On a point of order, Mr. Deputy Speaker. May I put it on the record that, earlier today, I contacted my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor of the Exchequer, and told him how much the windfall tax would be. I seek your guidance, Mr. Deputy Speaker, about how I should proceed, knowing that that information was leaked to someone who was an adviser to the electricity industry. It was available to that person before the Budget statement. Clearly, that could give rise to criminal charges. Should I write to Madam Speaker, put the matter in the hands of the police or speak to the Standards and Privileges Committee?
Mr. Deputy Speaker: Order. That is not a point of order on which the Chair can rule. The hon. Gentleman has been here long enough to know the various avenues open to him to pursue his complaint.
5.10 pm
Mr. Paddy Ashdown (Yeovil): The right hon. Member for Richmond, Yorks (Mr. Hague), who leads the Conservative party, is new to his job and has just made what is regarded as the most difficult speech in any political year. However, his speech will not be considered memorable except in one respect: the sheer brass neck
of a representative of the Conservative party criticising someone else for raising taxes. That will remain in my mind for a long time.
I congratulate the Chancellor of the Exchequer on his first Budget statement, which was long and detailed. It contained much with which we agree. The most welcome aspect is his abandonment of the departmental spending limits and ceilings for expenditure, over next year if not this year. We have argued for that for some time. It is worth mentioning that it is easy to spend contingency reserves in that way, which may not be wise in the long term, but we welcome the outcome, although it is offset by some of the Chancellor's decisions about rises in inflation and the consequences of that for the cash-limited budgets of those Departments.
There are two immediate aims that the Budget must achieve. It must dampen down overheating in the economy and reduce upward pressure on sterling. There are also several longer-term aims: to establish a framework for Britain's economic success, based on sustainable inflation; to invest in education as the key to that success; to incorporate environmental costs into our economy and the pattern of our lives; to begin to attack social and economic exclusion; and to reverse the neglect of key public services, especially health and education, under the Conservatives. Above all, after years of broken promises, this should have been a Budget that began to rebuild people's trust in politics and taxation.
I believe that, in framing the Budget, the Chancellor probably set out to achieve very similar aims to those that I have just outlined. The question that we must ask is to what extent he has succeeded.
I shall deal first with trust. When, in last November's Budget, the Conservatives cut income tax by 1p and Labour was not prepared to oppose them, I said:
Only the Liberal Democrats were prepared to admit that, then and during the election, and to argue for an economic approach that took money out of the economy and used it for specific, targeted improvements in education and health. The Labour and Conservative parties tried to pretend that we could have both tax cuts and better public services. Today's Budget proves them comprehensively wrong.
The Budget will mean higher taxes and almost certainly, in the next year at least, worsening public services. The Labour party told us before the election that it wanted to build
One cannot rebuild trust by ruling out income tax increases for press headlines, while keeping up one's sleeve hidden taxes that will hit the ordinary taxpayer just as much. One cannot rebuild trust by saying, "Enough is enough" to 22 Tory tax rises, and then adding to them in one's first Budget. We must all learn that unless we, as politicians, can get out of the ridiculous corner into which we have painted ourselves with regard to tax, we will never recreate trust in the political process.
On the broader issue of economic management and the current state of the economy, we understand the importance of ending the pattern of boom and bust that has so often occurred in Britain. We therefore welcome the Government decision to do what was in our manifesto but not in theirs, and to give the Bank of England greater control over interest rate policy. We are less keen on the Chancellor's decision to weaken the inflation target, which was in Labour's manifesto. Similarly, I welcome the more rule-based approach that the Chancellor outlined today. We have long called for that. That thinking must be followed through in the Budget.
We warned after the Budget last November that if we did not act to cool the economy then, we would have to do much more to achieve that now. Nothing would be more damaging to our economic recovery than to let the present consumer boom increase inflation, raise interest rates and boost sterling still further. To do that would undermine industry and investment and end, once again, in a return to recession and unemployment.
At first sight, the Chancellor seems to have ignored that danger, at least in part, and to have decided instead that his first priority is to reduce public borrowing. He has chosen to do so mainly through higher taxes on business. However, as public borrowing is falling quickly in any case, that is the wrong target. Instead of shackling businesses, he should have restrained the consumer, in order to prevent the higher interest rates, higher inflation and less competitive sterling that will surely follow. He had not done nearly enough to restrain consumer spending.
Mr. John Wilkinson (Ruislip-Northwood):
For all the faults in the Budget--and there are many--it has not increased the taxation on businesses. Clearly, the right hon. Gentleman wrote his speech before he had heard the Budget statement. Reductions in corporation tax for larger companies and smaller one are very welcome, and the doubling of tax relief on capital allowances is noteworthy. It would help the House if members of the Liberal party listened before they spoke.
Mr. Ashdown:
The hon. Gentleman has forgotten such things as advance corporation tax and the windfall tax. He knows that those will have a substantial impact on business. That is the very case that his party has been making for months.
I understand why the Chancellor has not leant more heavily on the consumer and the ordinary citizen: it is because of his manifesto pledges. In that case, the country will again, I fear, pay a high price for foolish promises made in the heat of an election, which have painted the Government into a corner that they should not be in.
We warmly welcome some aspects of the Budget, such as the intention to depart from departmental spending limits. However, if one examines the increase in inflation
and the deflator to 2.75 per cent. against the cash-limited ceilings that are established, one finds that what sounds like a generous settlement for next year is in fact rather less generous. For instance, we believe that some £300 million of the £1 billion that the Chancellor announced to improve education may be lost through the effects of that increase in inflation. Similarly, we welcome the £100 disregard on child care costs and the home insulation plans that the Chancellor has announced.
We have long advocated a shift towards green taxes and we welcome Labour's conversion, however late, to that cause. We have always proposed using new environmental taxes to reduce other taxes--such as those on jobs--rather than using them to fill black holes in Government spending. It was extraordinary to hear the Leader of the Opposition complain about that when the Conservative Government used VAT rises on fuel--which they described as green taxes--to fill up the Government's coffers.
As the Chancellor knows, we have long advocated the phasing out of mortgage interest tax relief, although we have always proposed using the revenue to replace MIRAS with a fairer and more efficient system of housing finance. Unlike the Government, for seven years we have consistently advocated the phasing out of mortgage interest tax relief, although our policy was often attacked by Labour and Conservative Members. The Government, however, attacked the Tories last year and then did the same in this year's Budget.
We also support measures to help people off benefit and back to work. We set out a comprehensive range of welfare-to-work proposals in our manifesto and again in the alternative Budget that we published yesterday. However, we remain to be convinced by some of the details of the Government's plans. In particular, in concentrating on a relatively small group--those aged between 18 and 24--the Government risk letting down much larger groups of people who are also trapped in welfare dependency. They include single parents and the long-term unemployed of all ages--men and women made redundant in their 40s and 50s who see little chance of getting back into work. It is vital that in black spots where unemployment is concentrated, more is done not just to give the long-term unemployed a temporary training place, but to give businesses long-term support and incentives to create new jobs.
While we understand and support what the Government are trying to achieve in at long last tackling unemployment and exclusion, we disagree profoundly with their means of funding it--the windfall tax. I regret that the Government cannot raise money by fair, adequate and efficient taxation using the existing system--through income tax. Why do they need to hunt around for other means of raising revenue? The windfall tax is retrospective in its application, arbitrary in its effect and, in the end, I fear that it will be unfair as well.
We do not support the excess profits earned by some of the utility industries, but, if that is wrong, it should be dealt with through regulation not expropriation. If there are excess profits, they should be returned to consumers in lower prices, better services and greater investment.
It is not the Government's money; it is the customers' money, and the Government have no right to help themselves retrospectively to other people's money even for the very best of purposes.
The Government claim that the windfall tax is a tax on fat cats, but it will be nothing of the sort. It was the most bizarre moment in the Chancellor's otherwise well- constructed and well-delivered speech when he said that the money could be raised without anyone feeling the effect. He claimed to be able to find £4.8 billion in tax without anyone having to pay for it in the long term and that it could be plucked out of thin air. It is impossible to find billions of pounds in tax without millions of ordinary people having to pay the price. Where else will the money come from? It is not the fat cats but the 19 million ordinary people with money in pension funds and the millions of others with savings and endowment policies who will be hit as hard as anyone else.
The Prime Minister claimed in the House on 21 May that
I cannot put it better than the Institute for Fiscal Studies, which stated:
I am delighted that the Chancellor has found an extra £1.2 billion for the national health service next year. I welcome the fact that pragmatism has replaced dogmatism and the release of the ceilings on next year's expenditure, but what will happen this year? Over the past 18 years, the average rate of growth in health spending has been 3.1 per cent. a year. This year's average planned rate of growth is 0.15 per cent. a year. That represents one twentieth of the average annual increase during the Thatcher years, when the health service was brought to its knees, and an even smaller proportion of the average Tory increase over the past few years, which has brought the NHS to its current crisis.
Is it the Chancellor's case that by giving the NHS an extra £1.2 billion next year, it will be able to borrow more to help it through this year? If so, next year's NHS budget will be further depleted. It is simply unsustainable, not next year but now. Incidentally, the Chancellor's decision to cancel tax relief on medical insurance will undoubtedly place a greater burden on the NHS.
We must address the crisis this winter when Labour Members will have considerable arguments with their constituents. Waiting lists are rising now, the number of cancelled operations is increasing and NHS trusts are sliding further into debt at a rate of £1 million a day. The crisis in our wards this winter will almost certainly be worse than in any year under the Conservatives. What will that do to the trust of millions of people who voted Labour at the general election in the belief that they had, in Labour's own words,
The Government are right to say that education is the key to Britain's long-term economic success, but a Budget that claims to be for the long term fails if the Government fail to understand the need for immediate investment in education if they are to preserve an education service for extra investment in future. That failure, more than anything else, makes it necessary for us, however reluctantly, to vote against the Budget.
"Both . . . know that it does not matter which of them is in government, the tax cuts that they both agreed today for the sake of the election will have to be put back some time after the election."
I went on to warn that if that happens,
"the British electorate will feel that they have been lied to . . . trust . . . in politicians will diminish, and again everyone in the House will wonder why the people of this country do not believe a blind thing that we say."--[Official Report, 26 November 1996; Vol. 286, c. 183.]
It gives me no pleasure to say that in the intervening months, that is exactly what has happened. We all knew then and throughout the election campaign that whoever was in power, this Budget would have to contain measures for fiscal tightening and for taking steam out of an economy that had become dangerously overheated.
"a new trust on tax with the British people."
I agree with that, but it cannot be done by saying one thing before and during an election, and doing exactly the opposite afterwards, even if that is necessary.
"the windfall tax will not harm pensioners at all."--[Official Report, 21 May 1997; Vol. 294 , c. 703.]
That is not true. A windfall tax that raises around £5 billion will cost the average person in a pension fund £79 or £80 a year.
"Penalising an arbitrary group of shareholders who own utility shares in the mid-90s on account of windfall gains enjoyed by their predecessors in the 1980s is difficult to reconcile with any principles of equity in taxation".
The windfall tax is one reason to oppose the Budget, but perhaps the biggest one is its failure to tackle this year's crisis in education and health.
"fourteen days to save the NHS"?
The same is true in education. I welcome the extra £1.1 billion for next year. During the election campaign, the Prime Minister said:
"Labour will never put dogma before children's education".
2 Jul 1997 : Column 328
Yet that is precisely what is happening as this year the Government stick doggedly and dogmatically to the Conservative's education spending ceilings. That will mean fewer books, less equipment, more teachers sacked and larger classes in the year ahead.
Under a Labour Government, my county of Somerset will have to sack 90 teachers this year. Labour councils are having to do the same, if not more. The Budget will bring no succour to the parents, teachers, governors or pupils who looked to the new Government to make a difference after years of cuts and neglect. They will be bitterly disappointed.
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