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Mr. Desmond Swayne (New Forest, West): We were mad.
Sir Michael Spicer: Of course we were, but we did so and, as a result, we have a socialist Government who have marked out their intention to change course. The tragedy is that, as with all socialist Governments, that course will now be downhill. The Conservative Government built up a strong economy, but it is as clear as night follows day that it will now start to deteriorate. That will not happen immediately, because it is currently moving at a fast pace, and it is difficult to turn around a great economy, but it will happen in the classic way.
The Government have introduced socialist policies--they will be defined as such very quickly by commentators and by those who invest in this country and whose confidence we need to gain. As with every socialist Government we have had--the good news is that they do not last very long, but the bad news is that we have this one for four or five years--the confidence of people who bring their money to this country and who invest in jobs begins to go.
There has been much talk of subsidised jobs. My right hon. Friend the Leader of the Opposition made exactly the right point. Job creation comes through people having
the confidence to invest their money in this country. That confidence will quickly be sapped as a result of the dogmatic change of direction that we witnessed in the Budget. The precedents of previous socialist regimes will be repeated.
People who want to put money into this country will start to lose confidence, and that will put pressure on the pound sterling. At the moment, it is exactly the other way round, so there will be a period when the problem will be disguised, but a time will come when the Government will be concerned about pressure on our currency, as Labour Government always are. I cannot put a figure on the time that it will take, but in about 12 or 18 months the Labour Administration will start to panic as pressure is brought to bear and money is taken out of the country. They will scratch their heads and wonder what on earth to do.
The first thing the Government will do is to try to put up interest rates. The tragedy will be that that rise in interest rates--if it is in 18 months--will coincide with the point in our natural economic cycle at which it would be sensible to bring interest rates down. Because of the growing lack of confidence in our currency and our economy, interest rates will start to rise. The Government will consciously increase them: it happens every time. As a result, the pound will not strengthen. The reason why the pound will be under pressure at that point will have nothing to do with interest rates. We all saw what happened in the last days under the exchange rate mechanism. On that ghastly morning, we increased interest rates to 25 per cent. I think--I cannot remember the figure. [Hon. Members: "Fifteen per cent."] They were raised to 15 per cent., but it had no effect on the value of our currency. Confidence is what counts.
Mr. Hilton Dawson (Lancaster and Wyre):
Will the hon. Gentleman take note of the comments of the right hon. Member for Yeovil (Mr. Ashdown) and give us his reaction to the cut in corporation tax and the assistance given to firms wanting to invest in jobs and capital development? The clear message from small and medium enterprises in my constituency is, "Give us tax relief to allow us to invest and create jobs."
Sir Michael Spicer:
I shall come on to that point. No one disputes that it is a good idea to lower specific taxes on the industrial sector. Under a Labour Government, in the ghastly, nightmarish scenario that has precedents in history, interest rates are raised. While having no effect on the pound, that will have an impact on unemployment. An emergency Cabinet then meets and discusses the problem that is particularly painful for a Labour Government: not the falling unemployment that we had throughout the previous Conservative Administration, which will no doubt continue while our policies continue to have an effect, but a rise in unemployment.
A rise in unemployment always happens under a socialist Government as a result of a combination of high interest rates and falling confidence. It affects the economy, and at that point the Government scratch their heads and hold an emergency Cabinet meeting. They say, "We can't go on like this. We shall have to have job schemes." The Budget contains the seeds of such schemes.
Job schemes are about picking particular industries for particular treatment--in the Budget, the Government have picked the film industry--and supporting them with
taxpayers' money, whereas what industry requires is the maintenance of a general level of confidence. Higher taxes and less confidence means that the spiral has begun: that happens under every Labour Administration. Today, the seeds of a totally new philosophy have been planted which will set the country on a downward spiral, as opposed to the strong trend of the past four or five years that the Labour party inherited.
I suspect that, this time round, when job schemes do not work and confidence is lost, refuge will be sought in joining the single European currency. The Chancellor was happy to say that we shall meet the Maastricht criteria on debt. I have no doubt that, somewhere along the line in the next two or three years, as confidence is lost, interest rates go up, unemployment goes up and job schemes have been tried, refuge will be sought in a single currency. I am glad to say that my right hon. Friend the Leader of the Opposition has given notice that that will be vigorously opposed. For Britain, the single currency means not just economic degradation but political degradation.
Mr. Geoffrey Clifton-Brown (Cotswold):
My hon. Friend has already referred to the exchange rate mechanism debacle. If the scenario that he outlines continues and the pound remains at its present rate or even higher, would we not be risking a repeat of what happened before?
Sir Michael Spicer:
As I am sure my hon. Friend knows, my view is that we should not enter the single currency as a matter of principle. There is no such thing as a right rate for the single currency. The single currency is, by law, for ever, and what is the right rate on day one might be the wrong rate on day two. The whole point about the exchange rate is that it reflects the economic circumstances at any one point. That is the essence of the argument against the single currency. However, the House will not wish me to detain it on that. No doubt, we shall have another opportunity to debate the single currency and Europe, and other wonderful things.
Mr. Alan W. Williams (East Carmarthen and Dinefwr):
The Budget analysis of the hon. Member for West Worcestershire (Sir M. Spicer) is very different from my own. I want to correct him on two factual points. He said that we would be spending all the continency reserve, but in fact the majority of that £5 billion is, in the Chancellor's words, to be retained. The hon. Gentleman also said that we would be profligate with public
If I have one criticism of the Budget, it is that it is far too restrictive or deflationary in its second year. I cannot quite understand why we need a PSBR to be that low. I hope that the Chancellor may have in mind that next year it will allow him some slack for additional public expenditure in the services that desperately need such spending.
My only other comment is that the hon. Gentleman seemed to anticipate a terrific run on the pound at some stage in the next 12 or 18 months. He was full of the doomsday scenario now that we have a Labour Government with a huge majority. To be honest, I wish that there would be a run on the pound, given its tremendous appreciation in value in the past year--up 26 per cent. against the deutschmark and the French franc. It is dramatically overvalued. The backdrop to today's Budget is the stupendous rise in the Financial Times index yesterday of over 100 points. That does not tally with the kind of scenario that the hon. Gentleman presents.
Sir Michael Spicer:
So that there is no confusion here, I said clearly that, as a result of the previous Government, we now have a strong economy. What I am worried about is that being tossed away in the next two or three years.
Mr. Williams:
I do not think that that will happen, certainly not while it is in the hands of our present Chancellor. He is extremely competent. He has shown great ability in opposition during the past five or seven years in his handling of the various economic groups. The basis that he has laid this afternoon in his Budget speech will see us very well over the next several years.
The Budget tallies with what we promised the electorate during the election campaign in April. I am particularly delighted with the windfall tax. It was worked out over many years and any complaints that the Opposition or shareholders may have about it have been discounted in share prices over many years. American companies have in no way been dissuaded from coming in and picking up the electricity companies one by one, despite their full knowledge that the windfall tax was coming.
The windfall tax will raise about £5 billion and is thoroughly justified. The electricity, water and gas industries were sold off at a terrific discount and the profits that they have made at the expense of the ordinary consumer have been a rip off. Anyone who invested £1,000 in those companies on privatisation will have seen their money treble over the years. If anything, the £5 billion is modest in terms of recouping some of the windfall gains made by investors in the privatised industries.
That money will be magnificently redistributed to the unemployed. It will pull people from welfare into work. It will reach every deprived community in Britain, whether they be in old mining valleys, as in my constituency, or in the regions, in Scotland, the north-east or wherever. The poorest parts will benefit the most because that is where unemployment is highest. Therefore, the social justification of the windfall tax is absolute.
I acknowledge that there are tax increases in the Budget. They are necessary because, as the hon. Member for West Worcestershire said, the economy is booming. The curious thing is that the previous Chancellor put in train a pre-election boom, but, because confidence was so low, it took two or three years for the economy to kick off in any kind of way. The pre-election boom, has landed about six months too late for the Conservative party.
There is far too much money around in that boom and it had to be taken out of the economy. House prices are up 10 or 11 per cent. in the past year and retail sales are up about 7 per cent. The building society pay-outs from demutualisation mean that about £30 billion will be coming into the economy to be spent. With such pressure, it was necessary to take money out of the economy. My hope was that this afternoon's Budget would take about £7 billion out of the economy. As I understand it, about £5 billion is being taken out. That is justified for the sake of the economy's long-term health. It will largely be used to cut borrowing.
I was pleased that the Chancellor, towards the end of his comments, told us that next year there would be more money for the health service and education--£1.2 billion to patient care, and £1 billion to schools. That £1.2 billion means an additional 3 per cent. for the NHS budget. However, I think that a crisis is coming in the NHS this winter and we may well find that, as we approach November or December, our trusts and health authorities will need some extra money.
I shall make a few comments about the value of the pound. The massive appreciation in the past year has made it unsustainable at its present level. The pound has risen 26 per cent. against the deutschmark, which means that our goods in Germany are now 26 per cent. more expensive, whereas German and French products in our market are that much cheaper.
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