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8.45 pm
Mr. Ken Livingstone (Brent, East): I hope that the five hon. Members who made their maiden speeches will not be offended if I do not spend time praising them, but I know that other hon. Members wish to make maiden speeches this evening. I hope also that my right hon. Friend the Chancellor will not be too offended if I do not lavish much praise on him. He has had far too much praise from my hon. Friends today than is good for any human being to take in one day. Clearly, after 18 years of horrendous Budgets, it would have been a relief even if he had come here and said nothing. Many of the measures are particularly welcome, and the relief for education and the NHS will be welcomed throughout the country.
I want to focus on two or three points that cause me concern. First, I would have been happier if the relief were coming more rapidly. The crisis in the NHS this autumn and the fact that many schools need more money mean that the relief should have been provided immediately. I was particularly disappointed by the small amount of money available for council housing and modernisation. Even if we build very cheap houses, the entire sum of £900,000 means that we will be hard put to build 15,000 new homes. I know of a dozen London boroughs with waiting lists longer than that, and this matter must be looked at again. We must bear in mind the fact that even in the worst days of the last Labour Government--when the IMF was at our necks--we were building more than 100,000 council houses a year.
I am worried about my right hon. Friend the Chancellor's underlying assumptions about the global economy. In every one of the assumptions on which my
right hon. Friend has based his Budget, he has taken the most optimistic projection. That is unwise--certainly for someone who has gone out of his way to create such a dour iron Chancellor image. Life just does not work out that way--all assumptions do not come up on the sunny side. In particular, the assumptions about the global economy are optimistic. We are told in the Red Book that we expect the American economy to slow down but still grow, and that growth will pick up in Japan and in Europe.
The American economy is coming close to the end of seven years of growth--a long business cycle. The issue is how rapidly the American economy turns down and how severe that will be. It could turn out that very little good news comes out of the American economy. As long as the European Governments continue to force their economies into the Maastricht corset, I see little prospect of sustained growth in Europe to assist us. The underlying assumptions about the global economy must mean that some problems will emerge for the Chancellor as the projections become reality in the next year or two.
We are having a consumer boom in this country. It may not be on the scale of Nigel Lawson's boom in the 1980s, but it is beginning to look horrendously like it--particularly its concentration in the south-east and on those who have so much already.
The £35 billion of windfalls that will drop into people's pockets following the ending of building societies' mutual status and the insurance companies' sailing off into the new bright wonders of the entrepreneurial market--the Chancellor mentioned that--will have a horrifying impact. Again, that £35 billion will be largely concentrated on fairly well-off people in the southern half of Britain. If such people are able to shift money from one building society account to another, they are unlikely to have large debts to pay off. That money could fuel a massive consumer boom, sucking in imports, overheating the economy and causing inflation to rise. I deeply regret the Chancellor's failure to take firm measures to claw a substantial proportion into the state.
There is no justification for anyone today to receive the money. It is wealth that has been built up over generations, which people are cashing in because of the climate of greed that has become the norm. The Chancellor has missed a great opportunity to pull some of it into the Government's finances in order to reduce the scale of Government borrowing.
There is a real risk of a consumer boom that will cause severe damage, and we know exactly what will happen in such circumstances. If the economy has to overheat, one of two things will happen. Eddie George will bang up interest rates, which will massively depress the real economy and industry, and cause those who have not benefited from the boom either to lose their jobs or to suffer a decline in living standards; or the Chancellor himself will have to introduce, in a year or 18 months, measures to take the heat out of the economy--thus running the risk of precipitating a severe turndown in the economy that could lead to recession. We saw that happen in 1990. I believe that the lack of action to deal with overheating of consumer demand will return to haunt us, especially as it is so strongly led by the housing market.
Someone with half a million pounds to spend on a house will not worry about spending 1 per cent. more on stamp duty, and someone with a quarter of a million pounds to spend will not worry about another half a per cent. The measures taken by the Chancellor to take the heat out of the housing boom are entirely inadequate. I hope that those who collect their windfalls will save and invest them--that would be wonderful--but, if they cash them in and spend, we risk facing the problem experienced by the British economy at the end of the 1980s. After a recession such as that, more industries have gone, more of the real economy has been destroyed, and many people's lives are ruined.
Then there is the question of debt. For all the talk of the iron Chancellor, he strikes me as a great big cuddly toy. There is nothing threatening about what he is doing about debt. Here we are, borrowing after five years of growth. We are in the sixth year of growth, and the Government are continuing to borrow. I agree with the Chancellor about the golden rule; I just wish that he would implement it now, from day one. It is barmy to say that we will carry on borrowing for two more years, ratcheting up more debt, undermining the competitiveness of the economy and causing those who are thinking of investing in gilts to demand a higher rate of return. I am glad that the rate of return that is being demanded on long-term investment in the British economy has dropped by a few fractions of a per cent., but our level of borrowing is likely to continue to be consistently worse than the equivalent long-term borrowing rates in Germany and our other major competitors. I want much firmer action to be taken on debt.
The Opposition are making a big row about the windfall tax, but every City analyst who studied it said that the utilities could stand a tax of £10 billion without any problems, and we are taking only half that. The Tories should all be celebrating the fact that we have been so lenient. We could have taken the other £5 billion and used it to stop Government borrowing. We could have returned to the golden rule, and stopped all borrowing to cover revenue expenditure. That would have enabled us to build up the long-term strength of the British economy and to lower long-term interest rates, thus creating a better climate for investment.
I cannot believe that we are reducing corporation tax; it is almost as though the Chancellor has lived on another planet these past 18 years. Tory Governments have consistently cut the tax that the corporate sector has to pay, always saying that they were creating a climate in which people would be encouraged to invest, and it has always failed to happen. There is clearly not the slightest evidence on the basis of the past 18 years' experience to suggest that it would happen.
Mrs. Thatcher genuinely believed that, when she came to power in 1979, by slashing corporate tax, undermining trade union bargaining power, holding down wages and creating the highest profits in real terms that the corporate sector had ever had, she would unleash an entrepreneurial spirit, and British capitalists would rush out and turn us into a miniature version of America, expanding and investing; but it did not happen.
What did people do? They took the money. They paid it out in dividends, largely because our company laws leave everybody running a company in fear that Lord Hanson will come along if they do not constantly jack up dividend
payments, irrespective of the state of the company. There is no evidence to suggest that cutting corporate tax will encourage investment.
It would be much better to increase corporation tax and say to every company that we will give them 100 per cent. tax rebate on real investment. I am delighted that we are increasing tax relief for small and medium firms from 25 to 50 per cent. We should give 100 per cent. for every company in Britain, to increase our productive capacity and create real jobs to put people back to work. That cannot be done simply by dangling the carrot of further tax cuts; we need a bit of stick to wield over the City and Britain's corporate sector, to encourage them to invest.
I know exactly when things went wrong in investment. In 1955, investment was 15 per cent. of gross domestic product. It built up to 22 per cent. under the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), until his Government shifted our tax law: until 1973, there was a presumption in favour of investment, our tax laws were geared to that, and investment picked up virtually year by year; his Government removed the presumption and left the tax system wholly neutral, and we have declined back to 15 per cent.
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