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5.7 pm
Mr. Kenneth Clarke (Rushcliffe): Seven months ago, I appeared in this Chamber and presented a Budget on behalf of the previous Government. The present Chancellor of the Exchequer, who was then my shadow, replied on the measures that I proposed. I produced a deficit reduction programme which was intended to ensure that we were on course to have a balanced budget by the end of the century.
I was able to make some small reduction in personal taxation. I brought down the standard rate of income tax and I brought down the small companies rate of corporation tax. That was not opposed by the then shadow Chancellor. Indeed, he committed himself to sticking to those rates and to holding down rates of income tax to the level that I had set.
I do not recall the then shadow Chancellor saying to the House that, if his party won the next election, he would introduce a quite different Budget within eight weeks of
taking office. I cannot recall the right hon. Gentleman saying that it would be a much tougher Budget than the one I had produced. I do not recall him mentioning that he thought I should be introducing a big tax hike on pension funds, on investments and on savings. I do not remember him pointing out that he thought I had not put up the tax on petrol enough or that I had not put up the tax on cigarettes enough. I do not remember his heavy words about mortgage interest tax relief and how it should be phased out. I do not remember a commitment to putting up stamp duty on the sale of houses.
The Chancellor fought the election thereafter, as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said, on the basis that Labour would do the same as we had. He did not mention an early Budget and, when we told the public, during the election campaign, that there would be an early Budget which we feared would be heavily tax-raising, we were accused of scaremongering.
I congratulate the Chancellor on his political skill. After only eight weeks in office, he has introduced a totally different Budget from anything that the British public who voted for his Government expected. I was amazed to see Labour Members cheering. It was an extremely tough Budget. It was tax raising on a grand scale and it was announced with great skill yesterday.
Order Papers were waved when I introduced tax-raising Budgets. My first Budget was tax-raising; Order Papers were waved on the day, but I knew that I was in trouble thereafter. The Chancellor will find that the same will happen with his first Budget.
The Budget was presented within eight weeks as part of a significant change in economic policy from the policy that we were pursuing successfully before the election. That change will be bad for important sections of our community. It is already beginning to prove bad for manufacturing industry and exporters. It is bad for the traded sector of the economy. It is bad for pension funds and future pensioners who had anticipated and planned the benefits that they might get from their pension funds. In the medium and long term on which the Chancellor laid such heavy emphasis, the change in economic policy, including the Budget, will be bad for jobs, living standards and the British economy.
Mr. Blunkett:
Does the right hon. and learned Gentleman agree with his retiring adviser who, only a few days ago, advocated the same measures that my right hon. Friend the Chancellor has taken in respect of tax credits, and that were started by Norman Lamont in a previous Conservative Budget, when he reduced them from 25 to 20 per cent?
Mr. Clarke:
If Edward Troupe said that, I do not agree with him. I did not always take the advice that I received, even from Edward Troupe. I shall give my reasons for disagreeing when I turn to tax credits. However, the right hon. Gentleman cannot deny that the changes to tax credits on dividends are a significant tax hike on pension funds that have affected the position of every pension fund manager in the country and the expectations of pensioners, and often their employers. They are part of raising resources and taxes on a scale that had not been anticipated.
It may seem churlish to the Secretary of State for Education and Employment, who has spoken in the debate and intervened in my speech, for me to say that I do not
altogether welcome his presence at the Dispatch Box today: that is not because of any feeling against him or his proposals for education and welfare to work. However, this is the second day of the debate on the Budget. Yesterday, £5 billion-worth of net tax increases were imposed on the economy and now we have broken with tradition. There are Treasury Ministers on the Bench, but there is no Treasury Minister at the Dispatch Box.
The Secretary of State made no mention of the Budget provisions. Instead, he took us back to education spending and welfare to work. Labour used the same tactic in opposition. Whenever we made speeches about the potential for Labour to turn to taxation and spending, Labour Members talked about welfare to work.
I agree with my right hon. Friend the Member for Hitchin and Harpenden, who was perfectly entitled to say that, in principle, we are least inclined to attack that policy because we worked on it. I used the phrase "welfare to work" in my Budget three years ago. The phrase has been lifted from our description of our policies at that time.
I worked with my right hon. Friend, now the shadow Chancellor, when he was Secretary of State for Social Security, on a package of measures based on included family credit that was designed to increase the number of young people--particularly long-term unemployed--moving from welfare into work. It was the centrepiece of our entire Budget at the time.
We hope that the measures work and have some effect, but we are entitled to point out that, because they were devised politically in opposition, the Government raised expectations far beyond what they are likely to achieve. They have taken inadequate account of displacing people from existing jobs and the temporary nature of some of the opportunities that they will provide. The idea of 250,000 young people being taken out of unemployment became rather weak when we got the number of those eligible for the scheme down to 178,000 by pursuing orthodox economic policies.
At a time when they are tightening fiscal policy dramatically and, in my opinion, making the most unwise choice of a tax base from which to raise revenue, the Government must not be allowed to avoid addressing serious economic arguments by making worthy protestations about their desire--which I wholly share--to avoid the development of an underclass in our more prosperous society and to get people from welfare to work. They are labouring that aspect of their policy because they do not wish to give further publicity to other measures that the Chancellor announced yesterday.
Fiona Mactaggart (Slough):
Does the right hon. and learned Gentleman accept that young people regularly enter the employment market, so we shall certainly have the opportunity to meet the target that we set? In addition, does he accept that the skills and talents of the British work force are at the heart of any successful economic strategy and, therefore, it is absolutely right that they should be at the heart of the Budget debate?
Mr. Clarke:
Absolutely. That is why I worked so long on education reforms and the establishment of national vocational qualifications. There is a long way to go in developing a proper system of vocational qualifications.
The scheme now being introduced was devised largely in opposition as a way of presenting the windfall tax, to which I shall turn in a moment, and is produced against the background of a change in economic policy involving a dramatic tightening of fiscal policy and a huge increase in taxation which the Government have not adequately explained or defended in the House and so far in the debate, although it may be addressed in the Minister's reply to the debate.
At various times since the election, we have been given two reasons why a July Budget was necessary and why UK Ltd. and the real economy needs such an eye-wateringly tough Budget.
First, the Government tried to soften us up with the usual line that the Chancellor had looked at the books, found a black hole and suddenly discovered that he needed to raise more taxation that he had not been able to mention at the general election. That did not run very well. The Chancellor then tried to build on understandable concerns about the overheating of the economy and the rapid increase in consumer demand and said that a tough Budget was required to slow it down and make sure that it was sustainable. In only eight weeks, the Chancellor has slipped from the first reason to the second in explaining why he is taking so much money out of the economy.
The first explanation involving the black hole is simply untrue. The second is misleading. I do not approve of adjusting fiscal policy to consumer demand in order to slow down the overheating of the economy, even if the Budget succeeded in doing that.
Yvette Cooper (Pontefract and Castleford):
I sense from the right hon. and learned Gentleman's indignant tone when he speaks about what he did in the past that he still finds it hard to accept being in opposition. I have three questions for him--[Interruption.] The third completes the first two. Is he saying that interest rates should not have gone up? Is he saying that taxes should not have gone up and is he saying that the economy is in no danger of overheating?
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