| Previous Section | Index | Home Page |
1.29 pm
Mr. Damian Green (Ashford): It is a privilege to speak in such a debate after so many excellent maiden speeches from hon. Members on both sides of the Chamber. It was that great and wise man Iain Macleod who first coined the nostrum that a Budget that appears good the following day will appear bad six months later. Like many such nostrums, that is now dismissed as a truism, but like many truisms, it is a truism because it is true.
I have deep sympathy with all those who have had to comment instantly on the Budget. As a financial journalist for 15 years, I know that Budget day is one of the more terrifying of the year, because one has to come up with an instant and coherent judgment on the evidence only of the Chancellor's speech and a series of Whitehall press notices. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) has already pointed out, those press notices often bear an Orwellian relationship to truth and the use of language. It is, therefore, probable that the instant reaction of the media, business and the stock market to any Budget is wrong, and it is certainly wrong in this case.
We have had a day and a half to absorb the full effect of the Budget and the reaction to it. We can now begin to see the cracks in the Chancellor's propositions. Most importantly, we can see that the Budget has put a time-bomb under the British economy. When it goes off, it will blow up the Chancellor's reputation and, more
important, it will cause enormous damage to the prosperity of the British people and the prospects of job creation in the next few years.
I shall start with the macro-economic aspect of the Budget and its overall judgment. The thrust of the Budget is clear and even Labour Members have had to admit that it will put taxation up hard. It contains 17 tax rises and will take £6 billion a year out of the hands of private individuals and companies so that the Government can spend it. The ostensible reason given by the Chancellor for his enormous grab at people's wealth is that the economy is growing too fast and overheating. He says that he wants to encourage investment and not consumption, but that is a peculiar attempt at justification.
The Chancellor's first act on taking office was to hand independence in setting monetary policy to the Bank of England. The purpose of that move must be to give the Bank of England the power to regulate the economy when it seems to overheat. This country's experience, especially in the days when Chancellors tried to use the tax system to fine-tune the economy, is that the fiscal system is an inappropriate way to turn the economy on and off. The use of monetary policy, however, is appropriate. If the Chancellor believes that the Bank of England should be independent, so that it can take a non-political and non-partisan approach to the regulation of the economy, it is self-evidently absurd to say, six weeks after that decision, that he will use the fiscal system. So we can dismiss that argument.
In the Budget, the Chancellor has fallen down a hole of his own making, because it will not reduce consumption. The hon. Member for Croydon, Central (Mr. Davies), who briefly graced us with his presence earlier, spoke about the reaction of the stock market to the Budget, and claimed it as a great sign that out there in the markets the Budget is considered a success. I suggest that he look behind what is happening on the stock market. The stocks that are going up are those of companies that most depend on consumption--the high-street stocks that depend on retailing. The manufacturing and exporting stocks are not doing well. With this Budget, the Chancellor has not reduced consumption at all.
There may be Labour Members who are more distrustful than the hon. Member for Croydon, Central of the stock market as a sign of what should be done in the economy. I refer them to the Chancellor's Red Book where, on page 59, they will find table 3.2, which gives the game away. It states that this year consumer expenditure will rise by 4.5 per cent. and after all the Chancellor's measures, allegedly to reduce consumption, next year it will go up by 4 per cent. He is not reducing consumption. Incidentally, the savings ratio is projected to fall between 1997 and 1998. This is supposed to be a Budget that encourages saving and discourages consumption. On the Chancellor's own figures, it fails to do that.
My second point is that the areas that the Chancellor is attempting to support are precisely those that will be most damaged. Because no one believes his nostrum that he is reducing consumption, the markets believe--one can see that from what has happened to the pound--that interest rates will have to go up. The next increase in interest rates, which will probably occur during the next couple of weeks, will damage the exporting sectors of the economy--the manufacturers whom the Chancellor says he wants to support. Again, on his own terms, he will fail.
The gap between what the Chancellor preaches and what he practises is huge, because his is the love of tax raising that dare not speak its name. He knows that he must raise taxes on the middle classes and the hard-working classes, but he desperately wants them not to notice. Instead of an honest tax-raising Budget, he has presented a dishonest tax-raising Budget, hoping that no one will notice. Because he is afraid to tax consumption directly, he has missed his target of cutting consumption. Manufacturers and exporters will have to pay the price.
In the years to come, the Chancellor will be seen to have taken huge sums out of the pockets of individuals, cutting growth, not consumption, damaging exporters and job prospects and putting a greater strain on the welfare state.
The failure of the macro-economic strategy is reflected by the inevitable failure of many of the individual measures proposed by the Chancellor. His actions on advance corporation tax, which will damage pension funds, and on removing tax relief on health care insurance for the elderly go against all the nostrums propounded by the Minister for Welfare Reform, in his honest and decent attempt to reform his party's attitude towards the welfare state.
It is a matter of non-partisan agreement among thoughtful Members that if we are to have a decent, compassionate welfare state into the 21st century, we need a closer partnership between the public provision of welfare and private funding of welfare. Each individual who can afford it will have to pay more towards his or her own welfare provision, especially in old age. To achieve that will be one of the most difficult tasks facing this Government and future Governments.
The one clear fact about the Budget is that it goes in the opposite direction. It discourages people from making private provision for welfare in old age or when they fall ill. That is the background against which we should judge any speech by any member of the Government over the next few years about modernising the welfare state and making it fit for the 21st century. With the first decision that the Government have taken, they have marched smartly in the opposite direction. The essential incoherence in the Chancellor's message will be seen as one of the most damaging long-term effects of the Budget.
Other aspects of the Budget also damage the desire for individual thrift. I recommend to connoisseurs of weasel words Inland Revenue press release No. 4, which says that the individual savings account
Similarly, anyone holding an endowment mortgage has just cause to feel extremely worried, because it is worth significantly less today than it was worth 48 hours ago.
That means that some people will not pay off their mortgage within the time frame that they envisaged originally. At the end of their working lives, they may have to find significant capital sums with which to pay their mortgage. It is a disgraceful measure.
The alleged spending increases for health and education have generated much enthusiasm on the Government Benches. We all know that that is sleight of hand, but we must emphasise the danger involved. It has been the practice for years to reduce the contingency reserve as the new financial year approaches. In a November Budget, the £5 billion contingency reserve for the financial year starting in the following April is reduced by about half to £2.5 billion. The Chancellor has implemented that measure six months early.
"will extend the principle of TESSAs and PEPs to encourage people, through tax reliefs"
to raise the level of their long-term savings. "Tax reliefs" is an interesting phrase to use in that context. TESSAs and PEPs are currently tax-exempt, but will they remain tax-exempt after 1999? Will the new individual savings account remain tax-exempt? The honest answer is: probably not. If they were to remain tax-exempt, the Government would say so now: they would reassure existing holders of TESSAs and PEPs that their positions would not be disadvantaged in the long run. I think that the House and the country will draw their own conclusions from the fact that the Government cannot bring themselves to say that at this stage.
| Next Section
| Index | Home Page |