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1.56 pm
Mr. Howard Flight (Arundel and South Downs): I will be brief. My hon. Friend the Member for Ashford(Mr. Green) has it. The Budget has been greeted well by the markets and got quite a good reception in the House, but in time it will be seen to be extremely bad. It cannot meet its objectives of stimulating investment or, despite the good intent, of increasing employment. Investment is
about whether companies are cash rich or not, and the Budget will take cash from companies. There is no problem with the British mechanism for organising investment for British companies.
The unspoken objective, on the advice of new-found friends from manufacturing industry, was clearly to try to tighten the economy fiscally and reduce the extent to which interest rates would need to go up or the exchange rate would depreciate. I argue that the Budget will not influence those at all. Not only is an independent body fixing those rates, but as was pointed out, the Budget will not slow consumption in the next year. To slow consumption, one should stimulate savings, and the Budget has done the opposite.
I am most worried about the reversal of the most successful trend that this country has had. Why do taxes here take only some 40 per cent. of national income, when it is 50 per cent. in Europe? It is because we deliberately gave tax incentives to accumulate the pension funds. What will be the reaction of taking those incentives away? It is not merely the money. I anticipate that companies will put in money-purchase schemes and will look to saving the costs that they would otherwise have to increase as a result. We will move to less generous pension provision, which will result in lower accumulation for the future.
How will people behave with their portfolios? The incentives are to increase holdings in bonds and to forgo the equity benefits of long-term, prudent, equity investment. It is a time-bomb. The demographics of society argue for continuing generous pension provision. If we do not change this measure, the taxation demands on the state for pensions will gradually rise and we will slip down the same mistaken path as continental Europe.
Was the advance corporation tax change really motivated yet again by the European Union? Was it because of the court cases and claims that are coming up, because EU corporate investors feel that they too should participate in ACT refunds?
Mr. John Redwood (Wokingham):
We have had an excellent debate and I pay tribute to all the hon. Members on both sides of the House who have made their maiden speeches: my hon. Friends the Members for Bromsgrove (Miss Kirkbride), for Bognor Regis and Littlehampton (Mr. Gibb), for Epping Forest (Mrs. Laing), for Buckingham (Mr. Bercow) and for Mid-Dorset and North Poole (Mr. Fraser) and the hon. Members for Dudley, North (Mr. Cranston), for Exeter (Mr. Bradshaw) and for Brent, North (Mr. Gardiner), all of whom made superb contributions and observed most of the maiden speech traditions, most of the time.
I am worried about only one contribution--that of my hon. Friend the Member for Epping Forest. She seemed to imply that my heroine, Elizabeth I, should be
investigated by tabloid newspapers on some kind of sleaze charge. I should like to assure her that nothing untoward happened in Epping forest, but I was not present at the time to be absolutely sure.
I also pay tribute to all hon. Members who, in good spirit, paid fine tributes to their predecessors in the House.
My hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith), the shadow spokesman on social security, raised some crucial questions, which have of course, as so often, gone unanswered. There will not be time for the Paymaster General to answer all the detailed points that my hon. Friend rightly raised, but I hope that the Secretary of State for Social Security will do him the courtesy of writing with detailed replies to his fundamental points.
I hope that, in the few minutes that remain in the debate, the Paymaster General will pause to answer a question on a fundamental problem that Labour faces with its combined Budget strategy and other policies: how can it be right for the Treasury, through the Budget, to try to cut the costs of employing people to promote more employment, while, at the same time, the Department of Trade and Industry proposes regulations and legislation to raise the costs of employing people in all sorts of ways? Will the Paymaster General tell us why the two different Departments responsible for the economy are pointing in two different directions? What will be the net result of all their changes? Our calculations imply that it will be dearer to employ people, so the impact on employment prospects is bad rather than good, if we consider the Government's overall record.
It is sad that the President of the Board of Trade cannot be with us today, or indeed on any other day, during this crucial Budget debate. That is why I am replying to the debate, rather than having the opportunity to debate with my opposite number, the President. It is a disgrace that DTI Ministers are not present and that the President will not come to the House to defend the Government's lamentable record, already manifest in the Budget, on industry, commerce and trade.
The Chief Secretary to the Treasury (Mr. Alistair Darling):
Silly ass.
Mr. Redwood:
The Chief Secretary to the Treasury dares to say from a sedentary position, "Silly ass." I hope that he will withdraw that remark. It was not gracious or sensible and it shows how little he understands the courtesies of the House or the importance for business of this Budget. Surely, when at the heart of the Budget there is a massive tax attack on British industry and commerce, a DTI Minister should explain the Government's conduct to the House and how it is that business can be raided for all this money without any damaging consequences--in the Government's view.
As my hon. Friend the Member for Ashford(Mr. Green) rightly pointed out, the City has said clearly that this Budget, coupled with the Government's economic policy, is extremely damaging to exporters, manufacturers and industry. Today's Financial Times says:
The Budget does not give money back to business. It is idle to pretend that, because corporation tax has been lowered a little, business will be better off at the end of the Budget. The Paymaster General should come clean with the House and explain how much of the massive extra taxation will come from industry and commerce. He should comment on the impact on manufacturers and exporters and on engineering and chemical companies.
The tax measures will have a swingeing impact on all the large companies that have employee-employer pension schemes. They will undoubtedly have to increase their contributions, thereby increasing the cost of employing people, to make up for the lost tax credits that would otherwise have supported future pensions. That is a savage attack on companies and pensioners. It is a great pensions takeaway and there is, as my right hon. Friend the Leader of the Opposition said a few days ago, no free lunch. Loophole closing is destined to raise £1.6 billion over the forecast period. That also represents a substantial increase in corporate taxation which the Paymaster General should explain.
Unlike the other tax increases, the utility tax was heralded in Labour's manifesto. It is badly designed and is a tax on current shareholders and on the current situation in their companies for the alleged sins of earlier shareholders and executives. Far from being a tax on the so-called fat cats, the executives who received good remuneration from their companies, it is, of course, a tax on shareholders and customers. The only people who can ultimately pay the tax are the customers. That is where the businesses get their money, and the tax will have to come from customers' income to provide the revenue that companies will need to pay this large levy. It is a one-off levy to pay for a long-term programme--a rather surprising mismatch which will come back to haunt the Government in future years when they can no longer raid the utilities on the pretext of some past windfall.
The Chancellor has been guilty of sleight of hand in presenting a so-called black hole in the nation's finances. In his Budget documentation, he makes it clear that an £8.3 billion improvement in the borrowing requirement for 1997-98 is only partly the result of his Budget measures. The Budget supplies £5.5 billion of net additional revenue--a massive tax increase. That means that £2.8 billion of lower borrowing has resulted from the excellent economic policies that were pursued by the Conservative Government.
Far from inheriting a worse black hole that they could not foresee from the Budget documentation that was issued in the autumn, the Government have inherited sharply improving finances, which means that their borrowing forecasts are much lower than they had any reason to believe they would be from reading the autumn
documentation. The same is true for the following year, because an £8.2 billion improvement in the borrowing requirement--£8.2 billion less borrowing--comes only partly from Budget measures, which raise £4.75 billion net. The other £3.45 billion improvement comes from the strength of the economy that the Government have inherited from the excellent Conservative policies which, in some measure, the Government are following.
My right hon. and hon. Friends and I have another worry about the preparation of the Budget, and I hope that the Paymaster General will clear it up in response to my questions. Yesterday, during Trade and Industry questions, there was considerable confusion on the Treasury Bench. Between those questions and business questions, Opposition Members felt that we received three rather different answers to a very simple question: has the Minister for Trade and Competitiveness in Europe--whose duties we believe straddle DTI and Treasury responsibilities--sold all his shares, cleared all his options and ended all his business interests? If he has not, are we sure that he is not participating in sensitive issues?
The first reply was from the Minister for Science, Energy and Industry, who implied that there was no conflict and that all was well. The second reply was from the President of the Board of Trade and Secretary of State for Trade and Industry, who said that she did not know. She thought, however, that the Minister concerned should abide by the Nolan procedures. Of course she should have told us that he must obey "Questions of Procedure for Ministers", which is rightly considerably more rigorous and restrictive than the Nolan procedures, which apply to Back Benchers in either place. A Minister makes or influences real decisions in a very direct manner and must, therefore, be under much closer scrutiny and much more rigorous control.
A hole was blown in both those answers, however, when the Leader of the House told us, I presume accurately:
Today, in the absence of the President of the Board of Trade, will the Paymaster General tell the House whether the Minister for Trade and Competitiveness in Europe has had involvement of any kind in the Budget's preparation? The Budget deals with the most sensitive matters governing corporate taxation and the future of British industry and commerce. Will the Paymaster General assure us now that the Minister concerned has attended no meeting, entered no ministerial discussion, written no memo or letter and seen no Budget papers in the Budget's preparation? The House must be reassured that all was conducted properly in the preparation of a Budget that will raise massive taxes from British industry.
"The list of losers in the Footsie was also a list of Britain's foremost engineering stocks. Exporters were badly hit".
It quotes a trader who said:
"Overseas earners are being smashed to bits."
4 Jul 1997 : Column 581
The losers are led by the great names in British engineering--Tube Investments, GKN, Rolls-Royce and many other fine companies and include big manufacturers like ICI.
The stock market is telling us that there is already a treble whammy on profits, investments and jobs in British manufacturing as a result of weeks of Labour government. The treble whammy consists of the higher exchange rate, which throttles the prospects of exporters in continental markets; the higher interest rates which have already occurred--undoubtedly there will be more, as my hon. Friends have said--and higher taxes in the Budget.
"My noble Friend the Minister for Trade and Competitiveness in Europe is in the process of complying with the rules in 'Questions of Procedure for Ministers', which takes time. During that time, he has not been involved in discussions that would be relevant or relate to his particular interests."--[Official Report, 3 July 1997; Vol. 297, c. 427.]
Why was the President of the Board of Trade unaware of the situation? She must have chaired most of the meetings that the Minister concerned would otherwise attend. Surely she had been told that there were meetings that he could not attend, because he was not complying with the necessary requirements.
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