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8.31 pm
Mr. Geoffrey Clifton-Brown (Cotswold): It is a great privilege to have been here this evening to hear five such excellent maiden speeches. It was a particular privilege to hear the speech made by my neighbour, my hon. Friend the Member for Witney (Mr. Woodward), from whom I am sure we shall hear many excellent speeches in the future. I was also particularly pleased to be here for the maiden speech of my hon. Friend the Member for North Norfolk (Mr. Prior). He represents a constituency I know well, having been constituency chairman of his excellent association for five years. I completely agree with his comments on his forebear, Ralph Howell, who I am sure would have been pleased to hear my hon. Friend's maiden speech this evening.
This is a Budget like the house of mirrors--what we see on first impression is the obverse of the reality. It is also premature and unnecessary. I was surprised not to hear anything today about the biggest technical revolution in the way we present public finances, which is about to occur in the next two years: the change from cash accounting to an accruals basis of accounting. That will be an extremely important change and it will, among other things, involve individual Departments' producing their individual accounts, including valuations of their assets, so we will begin to see the total assets that are used by the Government and whether they are used effectively.
The Chancellor was able to present such a glowing picture this afternoon because of the superb economic situation that he inherited. The combined picture of growth, inflation and interest rates and unemployment is probably the most favourable that Britain has seen since the second world war. It is a tribute to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) that he has presided over such a successful economic phase in this country. His particular success has been his judgment in setting the base rate. He has been able consistently to set a rate which keeps inflation at the target level. For that, a great tribute must be paid to him.
If we have a Chancellor who can exercise that judgment, it is much better left in the hands of the Chancellor and the Treasury than in the hands of an independent panel comprising the Governor of the Bank of England and other experts. On the other hand, if we have a Chancellor who is not sure of his judgment, the decision will be handed over to the Bank and an independent panel of experts.
Another reason for today's glowing economic situation is the fact that the incoming Government have been able to rely on probably one of the tightest two-yearly rounds of public expenditure since the second world war. Tribute must be paid to the previous Member for Bristol, West, Mr. Waldegrave, and his intellectual rigour in controlling each Department's expenditure. This is a fiscal tightening Budget, which is probably correct in the current situation. It overcomes the problems that have begun to emerge of broad money expanding too fast, interest rates having to be put up, too strong a pound and the danger to our balance of payments thereby. This is probably the right sort of level of fiscal tightening and it will be marginally reduced next year.
However, I am much less happy with the reduction in reserves of some £2.2 billion. Whereas the previous Conservative Government managed to put an extra £1.6 billion into the schools budget without raiding reserves, the present Chancellor has been able to put in only £1.3 billion while running down the reserves, which is not particularly satisfactory.
The Chancellor referred to reducing the trend rate of growth to nearer 2.4 per cent. because, as I say, the economy shows some signs of overheating. The critical factor in that reduction will be the rate of inflation. It was a retrograde step to allow the Bank of England to set the rate of inflation to plus or minus 1 per cent. above or below the Government target rate of 2.5 per cent., which shows that the Chancellor is prepared to see the inflation rate slip up to 3.5 per cent.
The Red Book predicts growth of 3.25 per cent. in 1997 and 2.5 per cent. in 1998, with inflation at 2.5 per cent. and 2.75 per cent. in those two years. That is an excellent picture because on only two occasions since the war has growth outstripped inflation, one of which was last year. If the Chancellor manages to achieve that target this year, that will be very satisfactory. That tends to be the trend in the major industrialised nations, as shown in table 3A.1 in the Red Book.
I was also particularly pleased to see in the Red Book that the rate of debt is coming down. It is predicted to come down as a percentage of gross domestic product from 53.75 to 53 per cent. next year and 51.5 per cent. the year after. That is particularly welcome because, as the hon. Member for East Londonderry (Mr. Ross) said, we pay £25 billion a year to service that debt. That is a huge on-cost which we would do well to try to reduce in the longer term.
I am not particularly in favour of the windfall tax because it is a one-off tax and once the utilities have been taxed they cannot be taxed again. On the other hand, I am pleased with the welfare-to-work programme that the Chancellor endorsed today. As my hon. Friend the Member for North Norfolk said, it is, in essence, a form of workfare, which I have long championed. If the public purse is paying people, particularly youngsters, a benefit because they are unable to work, society should be able to request them to participate in some social scheme, education or community work. It is high time that we came round to that way of thinking.
The real betrayal of all betrayals in the Red Book is in table 4.9, which shows us that the Chancellor predicts that, over the lifetime of this Parliament, unemployment will remain at 2 million. That is a shocking admission, because throughout the five years of the previous Parliament we were constantly criticised by the Labour party for tolerating that level of unemployment. The prediction is a disgrace and if the Labour party cannot get unemployment down, they ought to resign and let us have another general election.
The trend rate of growth depends critically on three factors--on trends in the labour force and on levels of unemployment and productivity. I have already referred to the rate of unemployment and I am pleased to see that productivity and investment are likely to grow. In that respect, I pay tribute to the Chancellor for having reduced the rates of corporation tax for both larger and smaller firms.
That was a great surprise to me, because it was one of the great successes of the previous Administration that we managed to reduce the rate of corporation tax so much. That is especially important in today's fast-changing world. Large multinational corporations can shift great chunks of capital and even their corporate headquarters or their research and development around the world at short notice.
By keeping corporation tax at what is--as the Chancellor said--the lowest level in the G7, we shall retain such world-beating companies as Glaxo, which has both its research and development and its corporate headquarters in this country. The substantial amount of corporation tax that that company pays will therefore keep coming into the United Kingdom Treasury, and I pay tribute to the Chancellor for that shrewd move.
I also welcome the measures affecting capital allowances for small businesses. It is helpful to have a short-term boost for capital allowances and that will help to increase our investment.
However, I criticise the Chancellor for his failure to contemplate any changes in the uniform business rate. Many small businesses, especially in rural areas such as my constituency, are suffering because the rate is too high.
I visited many post offices, village shops and other, similar, small businesses during the election campaign. Their proprietors were pleased to see our proposals for reducing the uniform business rate valuation by £1,000. I urge the Labour Government to consider that idea for a future Budget. It would be most welcome and it would not be hugely expensive.
I welcome the environmental measures in the Budget, although I do not think that they are imaginative enough or go anything like far enough. One subject on which the Chancellor has listened to the environmentalists is improving the insulation of houses for the lower paid through the home energy efficiency scheme. I know that the previous Government were constantly asked to do that and I am glad that it has now happened.
I must tell the Labour party, however, that if we are to meet our international environmental targets, especially the reductions in CO 2 levels, we shall have to go much further with the type of environmental and fiscal measures that have been so successful in the past. One example is the conversion to unleaded petrol. Ten years ago, unleaded petrol accounted for about 10 per cent. of the market; now, it represents about 90 per cent. Through fiscal incentives, we can do a huge amount of good for the environment.
None the less, I echo the comments made by various hon. Members to the effect that we cannot go on taxing the car out of existence, especially for poorer people in rural areas, for whom the car is a lifeline. They often live in isolated areas, or in villages without a shop or a reasonably regular bus service. If they are to have any standard of living at all, they must rely on the motor car.
I caution the Government about going too far towards taxing the car out of existence, but of course we shall have to find ways to reduce the rate of growth in the number of cars in the nation.
I was unhappy to realise that there was little really new thinking in the Budget. Given that a new Government have won an election with a big mandate, I thought that we might see some really imaginative thinking, such as the reform of capital gains tax.
Speaking on the previous Conservative Budget, I advocated different rates for short and long-term capital gains. It seems to me that if people hold a gain on an asset for more than five years, they should pay a rate of capital gains tax lower than their marginal tax rate. That is only reasonable. As things are, many people are locked in to long-term gains, which does not benefit their business or their savings. Some good research has been carried out in America on this subject, showing that the business increase by a fiscal reform of this kind over five years is almost neutral. I urge the Government seriously to consider that.
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