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7 pm
Mr. Tom Pendry (Stalybridge and Hyde): I, too, would like to join in the general chorus of praise for my right hon. Friend the Chancellor's excellent Budget. In content and delivery it was inspirational and it was the best Budget that I have heard in 27 years as a Member. From the responses that I have heard, other than those from Conservative Members, most other sensible people share my point of view.
In the short time available, I should like to refer the Chancellor and his team to the importance of the tourism and hospitality sectors and their potential for securing new, worthwhile jobs in the years ahead. That is very much in line with one of the main themes of the Budget. In fact, in a recent address at Malmo, the Prime Minister recognised that travel, tourism and hospitality are among the most important growth areas of the global economy of the 21st century.
I am sure that the Chancellor would also endorse that view, because he will be familiar with the contents of Labour's policy statement, "Breaking New Ground", which we successfully launched just before the general election. In that document, we promised to create an economic climate in which the tourism and hospitality sectors would thrive. To be fair to the Chancellor, he has made a good start with the Budget.
In that context, I should like to refer my right hon. Friend to a recent publication by the World Travel and Tourism Council, following the summit of the Eight, entitled "Travel and Tourism Creating Jobs". That document mirrors a great deal of what we spelt out in our policy document. In particular, it highlighted the importance of investment, training and education with a view to improving the skills, service and quality of the product and encouraging public and private sector partnerships.
It is regrettable that the tourism and hospitality industries are so fragmented and that national and local accounting, and general economic indicators do not specifically identify their importance. Often, their impact on the economy is not realised and underestimated.
In 1993, the United Nations body responsible for national accounting recommended that Governments should create a satellite account for travel and tourism in an attempt to rectify the situation. I hope that the new Government will give a lead in that respect, by highlighting the importance of those industries and their contribution to the national and global economies.
All hon. Members will be aware that tourism is a successful industry, which employs 3 million people. It is forecast to provide 300,000 new United Kingdom jobs in the next decade. In truth, however, it could do much more and this Government, and every Government, could do a great deal to assist its future growth. I hope that the Chancellor will ensure that the goals that we set ourselves in "Breaking New Ground" will be adhered to. In that document, we stated that the tourism and hospitality industries had much to contribute to a prosperous and equitable society. That is part of Labour's vision and such a society would make those industries develop new opportunities to ensure the well-being and wealth of our country.
As I have already stated, the Budget makes a good start in that direction. I must say, however, that my right hon. Friend the Chancellor could have gone further by
addressing a particular worry of the tourism industry.In the November Budget, the previous Government announced that airport passenger duty would double to £10 for flights in the United Kingdom or to another European country, and £20 for worldwide departures. I am concerned about the effect on the valuable in-bound leisure tourism market. Currently, it is worth £12.7 billion in foreign exchange earnings. It is already suffering from the impact of a strong pound.
An extra £20 on APD for a Concorde flight or a business class fare is unlikely to matter to the business traveller. It will, however, make those spending their own money on a short break, a budget off-season holiday or a family trip to Britain think twice. Given that APD is charged per head, it can amount to as much as 25 per cent. of a child's fare. I ask the Chancellor to consider in the next Budget an ad valorem tax or the possibility of exempting children from that increase.
On the subject of APD, I am sure that the Minister for Competition and Consumer Affairs would also deplore the way in which many of the scheduled airlines advertise headline fares that are exclusive of APD and airport taxes. That is misleading and places tour operators at a severe competitive disadvantage, because I understand that they are required by the Association of British Travel Agents code to include such compulsory extras in their brochure prices.
Many thousands of tour operators and travel agents across the country sell domestic and overseas holidays. They have been affected not only by APD but by the impact of changes made by the previous Government to insurance premium tax. May I ask the Chancellor to expedite the promised review of the introduction of the discriminatory level of insurance premium tax, whereby travel agents are taxed at 17.5 per cent. IPT when selling the same or similar travel insurance as BUPA or building societies, which are taxed at 4 per cent? The travel industry argues convincingly that the VAT avoidance practices that that measure was designed to plug never existed. Travel agents are losing a valuable share of the travel insurance business, and the market has been distorted as a result of the previous Government's action.
I hope that the Chief Secretary to the Treasury will address those issues when he replies to the debate. For the first time, perhaps, the tourism, travel and hospitality industries are looking to the Labour party to champion their cause. I hope that we shall not let them down when they request reasonable measures from the Government.
Job creation was central to our policy as set out in "Breaking New Ground". I remind my right hon. Friend the Chancellor that many travel-related jobs are in small and medium-sized enterprises--the backbone of the market economy. A high proportion of those jobs go to women, minorities and young people. There are good opportunities for those who require job flexibility because of study commitments or family reasons.
Another advantage of utilising the job-creating potential of the travel and tourism sectors is that jobs created by them can be targeted at particular regions of the country through promotion or infrastructure developments.
A report released last year by the World Travel and Tourism Council, on the economic impact of travel and tourism in the United Kingdom, showed clearly that that
sector currently generates 11.6 per cent. of the country's gross domestic product, which is higher than the world average of 10.7 per cent.
The Chancellor is well aware that unemployment is possibly the principal social economic challenge facing most countries. With most new jobs being created in the service sector, which is the dominant part of the economies of industrial nations such as our own, travel and tourism is one of the key services. It is already responsible, directly and indirectly, for more than 10 per cent. of global employment, GDP and investment. It offers unparalleled and largely unrecognised potential for job creation in the 21st century.
In the past 25 years, international travel and tourism has grown by more than 500 per cent. Domestic tourism, which represents by far the largest proportion of the market, has also expanded dramatically in that same period.
In short, the Government are introducing major new initiatives to combat unemployment. Let us make sure that the job-creating potential of travel and tourism is high on that agenda. That was a pre-election promise in "Breaking New Ground". Let us deliver it, just as we are delivering on other pre-election promises.
The Budget has been well received by the tourism industries. The commitment to reduce the strength of sterling is helpful, as the overall number of visits to Britain was down by 1 per cent. at the end of April, and by 7 per cent. in April itself. Cuts in corporation tax will have a favourable impact on the tourism business. Tax measures to encourage the British film industry are also helpful, as films can play an important role: they attract visitors to this country, as the success of the British Tourist Authority's movie map has shown.
Mr. Michael Jack (Fylde):
I am grateful to you, Mr. Deputy Speaker, for being called to speak in the debate, as much of what the hon. Member for Stalybridge and Hyde (Mr. Pendry) said about tourism will have resonance on the Fylde coast, an area which I represent. Unfortunately, however, he did not touch on some of the hidden items of the new Government's ideas that will affect tourism--the minimum wage and the social chapter, both of which will have deleterious effects on employment prospects in Blackpool and Fylde.
Budgets are as interesting for what they say as for what they do not say. I listened carefully to what was, in presentation terms--it is never an easy task--a well-delivered Budget. The Chancellor gave us a little clue about forthcoming attractions, not all of them particularly attractive. He seemed to be outlining a policy that would allow him, in 2001 or 2002--having taken a very tough fiscal stance, as he has done in this Budget--to make some form of monetary easement, perhaps for short-term political advantage.
To that end, I fear that we are seeing just the beginning of further tax rises. Some commentators have indicated that, in terms of addressing our so-called structural deficit,
the Chancellor has not gone far enough. Indeed, they put forward the view that if the Budget's objective was to control consumer spending, he may not have gone far enough. I might not entirely agree with that strategy, but I am sure that that is what he is doing. I fear that there will be further fiscal tightening to come.
My right hon. Friend the Member for South Norfolk (Mr. MacGregor), a former Chief Secretary to the Treasury, rightly reminded us that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the former Chancellor, left this country's public finances in an excellent state. It was with some surprise that, one year after we last published estimates, I saw in the Red Book that the total Inland Revenue tax take had increased by some £10 billion.
I remember the guffaws from Labour Members at our Red Book figures in the previous Budget, when we improved public finances. We were attacked for our timetabling for the closing of the fiscal balance. We have now seen that we were right. We beat the public sector borrowing requirement estimates in the Red Book by some £3 billion. The legacy that my right hon. and learned Friend laid down has come to fruition in the figures that the Labour Government have at their disposal. That is, perhaps, another reason why my right hon. and learned Friend would not necessarily have gone down the same route that the present Government have taken.
What does the strategy that the Chancellor is following mean? It seems that he has taken the Pontius Pilate approach to setting monetary targets, which he sub-contracted to the Bank of England. In trying to deal with consumer spending, he lays us open to the first serious risk of the Budget. He has given the Monetary Policy Committee of the Bank of England the task of hitting his inflation target. I shall have a word or two to say about that in a moment. That committee will not want to miss his target.
There is a very real danger, as Roger Bootle reminded us in The Times today, that there will be an over-tightening of monetary policy, with sterling continuing to rise, which will affect our manufacturing industry to the extent that there may be a form of monetary overkill. When we look at the inflationary factors in the economy at present, we see tight control over the important price indexes. We do not see a runaway in terms of earnings, at around 4.5 per cent. The marketplace is extremely competitive and will remain so because of the advantage to those who bring in goods from overseas.
The Chancellor seems to have ignored that in his strategy. In fact, on monetary policy, he has almost become a Chancellor without ambition. It is noteworthy that he relaxed my right hon. and learned Friend's tight inflation target of 2½ per cent. or less. I can rememberthe current Chancellor attacking the Conservative Government for having an inflation target that was above some of the European comparators that he chose, but now that he is in office and he can see the dangers of an over-tight monetary regime, he has given himself room for manoeuvre, so much so that he has upped his inflation target to 2¾ per cent. for the next financial year. It is quite remarkable in some ways how the Red Book does not look ahead more than one year in terms of tax revenues and two years in terms of spending revenues.
The right hon. Gentleman is also a Chancellor without ambition in terms of the potential of the British economy. Any Chancellor who goes backwards in his growth forecast for the British economy to a forecast of 2¼ per cent. shows little faith in his own policies, which he says are supposed to improve the productive capacity of the economy, increase investment and do all the other supply-side things to which his Budget alluded.
It is quite interesting that, when the smoke clears, one sees how little ambition the Chancellor has on inflation and on growth in the economy. That is, perhaps, not surprising, because forecasting is difficult, particularly when it comes to monetary policy. The Economic Secretary to the Treasury, who is in her place, reminded me of that when I asked specific questions on interest rates. Her reply was a telling contribution:
Other right hon. and hon. Members tellingly pointed to the fact that, now that the smoke has cleared, the fizz has gone out of last Wednesday's Budget champagne. By Thursday, a headline in the Financial Times pointed out that "Poorest Households Fare Worst". If a Conservative Budget had received such a headline, we would have been taken to the proverbial cleaners, but Labour Members cheered. These were socialists cheering. What a great beginning for socialists, who raised so many expectations in the election that those at the bottom of the pile might benefit. Those are the people whom the new Chancellor clobbers straight away.
By Sunday, the journalists were warming to the task in their critique of the Budget. David Smith in The Sunday Times entertained me over my cup of tea to the headline, "Brown gets into a budget mess". That is a pretty quick downward road to disaster for the Budget.
We also find that, despite all the meticulous planning of the Budget, within 24 hours the Paymaster General is rowing back from his proposals on foreign income dividends. That is a technical but important area of detail for Britain's overseas trade, involving the location of foreign companies with large-scale foreign interests in this country. When those companies blanched and said that they might have to move away, the Paymaster General quickly rowed back. That is not an issue to be tackled by amateurs, but the Government have taken an amateurish approach to a difficult subject.
One could argue that the same amateurism was shown over advance corporation tax. It is true that previous Conservative Governments took action in that area. One of the arguments that the Chancellor advanced was that the measure would achieve two ends. He said that it would encourage investment because it would take the pressure off companies to distribute profits. But that argument does not hold up. The former Chancellor, Norman Lamont, did not achieve that result when he reduced tax credits from 25 to 20 per cent.
The second argument advanced was that the measure would provide some sort of beginning for a change in corporate tax. The United States has a classical corporation tax system, and the percentage of profits distributed through the imputation system is greater there
than it is in the United Kingdom. The case has not been made for a change in ACT bringing the investment results suggested by the Chancellor.
The more telling point involves the impact on individuals. My right hon. Friend the former Chief Secretary went as far as to say that considerable extra contributions could be required, particularly for those with personal, as opposed to final salary, pensions. It is a tawdry little Budget--the Government have not come clean and spelt out its financial implications.
We are supposed to live in the world of open government, but it takes the money page of the Financial Times to open the eyes of the individual. In his moment of discomfiture, I refer the Chief Secretary to what he may have read on Sunday. Using PensionStore as its source, The Sunday Times makes clear the effect of the abolition of ACT relief on personal pension holders who invest £100 a month. Assuming a 9 per cent. return per annum before abolition, a person aged 30 would have to pay another £20.12 a month to deal with the consequences of the Budget. Someone aged 40 would have to pay £13.69 and someone aged 50 would have to pay £7.52.
"it is not possible to be sure about the precise level of interest rates required to hit an exact inflation rate ten months ahead."--[Official Report, 3 June 1997; Vol. 295, c. 147.]
We know about the uncertainties of forecasting inflation rates and growth.
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