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8.59 pm
Mr. Andrew Tyrie (Chichester): I would like to congratulate all hon. Members who have made maiden speeches; my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) and the hon. Members for Bury, South (Mr. Lewis), for Dumfries (Mr. Brown), for North-West Norfolk (Dr. Turner) and for Selby (Mr. Grogan), whose speech was particularly amusing. I share with him a loss of hair--in fact, I think I am ahead of him in that respect. I also share with him a concern for small businesses, although probably not of the Arthur Daley variety.
I was particularly impressed that the hon. Member for Dumfries ventured to criticise part of the Budget--the increase in fuel duty. We both represent rural seats and can make common cause on that issue. In a moment, I will be able to tell the maidens whether making a second speech is any less daunting than making a first.
I think there is no economic justification for the Budget. The economy is in good shape, as even the Red Book confirms. This is a political Budget, produced for political reasons about which I shall say more in a moment. It has been done in a rush. The likely blight to the venture capital industry caused by only the vaguest of announcements about possible changes which will not take place for nine months, but which will be backdated to Budget day, is one example. In common with the announcement of the Bank of England's independence, it is a sign of the Government's discourtesy to this House and their arrogance. Incidentally, they might also explain why the document, "Public Expenditure 1996-97: Provisional Outturn", was not available in the Vote Office after the Chancellor sat down.
The precedent for having a Budget immediately after an election exists--in 1979, we had the Geoffrey Howe Budget. That early Budget put in place a fundamental shift in the conduct of economic policy in this country--a shift that was clearly signalled before the election. By contrast, Labour's victory in May--far from being a vote for a new economic strategy--was a massive endorsement of the policies that they have inherited. To get elected, Labour had to endorse Conservative economic strategy, lock, stock and barrel. Labour even had to go to the extraordinary lengths of promising to implement Conservative spending plans, programme by programme.
Labour has spent the past 20 years--and the past decade in particular--learning a new language of free enterprise, sound money and the importance of markets. But I am afraid that some of the things in the Budget lead me to conclude that, for Labour, this is still a second language. That was clear enough from the text of the Chancellor's Budget speech, much of which, I am aware, was written by Treasury officials. I recognise some of the phraseology--some of which almost seemed to have come from Conservative party literature. But several paragraphs did not sound quite right. For example, the Chancellor said that his goal was
As for overheating, if the economy is really doing so, a few billion pounds on taxes will not make a scrap of difference. That was the lesson of the 1980s. The way to tackle overheating would be through interest rate and exchange rate policy. With Bank of England independence, that is what we are going to get.
While on the subject of exchange rates, I would like to ask the Treasury Front-Bench team a few questions, including, for example, whether we have an exchange rate policy. Does the Chancellor really want to moderate upward pressure on the exchange rate and, if so, does that also mean that he wants some downward pressure? Does that mean that there is a ceiling above which the Government will not tolerate, or will seek to avoid, allowing the exchange rate to rise? If there is to be intervention in the foreign exchange markets to achieve this, by whose direction will that be done and whose reserves will be used--those of the Bank of England or those of the Treasury? We now have two authorities controlling two sets of reserves.
I want some answers to those questions tonight from the Minister and I hope that the answers will not fall into the category of what my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) earlier described as "engaging irrelevance".
In his efforts to find a black hole, the Chancellor sent the forecast to the National Audit Office for vetting. Unfortunately for him, it did not oblige. In fact, it did the opposite and underwrote the credibility of the forecast of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). Far from being a black hole in the accounts, there has turned out to be a medium-sized pot of gold for Labour. It is to be found on page 12 of the Red Book. That gives the game away. It shows that, despite a reduction in the growth forecast, tax receipts are forecast to rise by no less than £10 billion in the next two years. That is where the improvement to the public sector borrowing requirement comes from and nowhere else.
Unfortunately, the Red Book contains very little text to explain all that. I suppose that Labour scarcely wanted to flag up the fact that it had inherited even better public finances than the Opposition had been stating. I can only say to that, so much for the new transparency in the accounts.
The Chancellor announced that he will now submit his fiscal forecast for an annual review by the NAO. I support that as a principle, but the NAO is probably not best equipped to do that work. If he really wants transparency and credibility for his forecasts, he would do better to set
up an independent fiscal policy committee--a counterpart to the independent Monetary Policy Committee--to do the job, as I suggested last year in a publication for the Social Market Foundation.
Other hon. Members have talked a great deal about the damage that the Budget will do by increasing business taxation, which will ultimately hit pensioners. I will not go over that again except to say that the 17 tax rises in the Budget must constitute one of the biggest broken promises of any incoming Government. After all, only in September the Prime Minister, then Leader of the Opposition, said:
Rather than repeat points about tax, I shall briefly mention spending. Whether the Chancellor has really learnt his free-enterprise lines to get him through the election or whether he believes them does not ultimately matter very much. What matters is whether he can fend off the inevitable demands for higher spending. It is now extremely unlikely that Labour will stick to its commitment to deliver Conservative spending totals, for several reasons.
First, the Government have saddled themselves with extra costs in the public sector as a consequence of the introduction of the minimum wage, the knock-on effect for local government and other parts of the public sector on pension schemes that the advance corporation tax change will bring and also expensive new legislation, big and small, such as the compensation for the banning of handguns.
Secondly, on top of all those factors will come tough decisions on public sector pay, local council grants, social security uprating, school budgets and hospital budgets. All those areas will feel the strain. They are all areas from which Labour drew support disproportionately during the general election and to which nods and winks, if not actual promises, have probably been given recently.
A third reason why spending will be difficult to control, as I explained in The Observer just over a week ago, is that Labour's new monetary policy will probably cost the Government money. The Chancellor has tried to discourage the Bank of England from flexing its new interest rate muscles too vigorously by giving it a 2½ per cent. inflation target with a 1 per cent. band either side rather than asking it to deliver a ceiling of 2½ per cent. inflation. That will make the spending totals difficult to hit. Totals are based on cash figures and any increase in inflation will mean cuts in real terms in departmental spending programmes. The Budget now forecasts a rise in inflation to 2¾ per cent.
The inevitable result will be bids from spending Departments to protect themselves in the face of higher inflation. I do not really think that the Treasury forecasters believe that the Red Book numbers add up. They show higher tax receipts to help the public sector borrowing requirement, but no higher spending from the higher inflation they forecast.
Most important of all, spending will rise because Labour is a ripe target for the spending pressure groups in the public sector. It is not so much that many who voted for Labour will want their shilling. It is rather that
a glance at the composition of the parliamentary Labour party tells us all we need to know. The Labour Benches have been swelled by a new intake of 179 who are predominantly from public sector backgrounds. I do not say that disparagingly; it is just a matter of fact. In the years ahead, those Labour Members will become a powerful voice for more resources and higher pay in their former professions.
"to ease inflationary pressures without damage to industrial and exporting prospects and to do so in a way that is consistent with our long-term objective of high and stable growth and employment. In this way, we can moderate the upward pressure on interest rates and on the exchange rates as well as further our objective of sustainable public finances.
7 Jul 1997 : Column 702
I have therefore decided to tighten fiscal policy."--[Official Report, 2 July 1997; Vol. 297, c. 305.]
That is the old language of fiscal fine-tuning. I could not help thinking that, unlike most of the speech, this passage was written by the Chancellor himself. In his speeches in the House 10 years ago, he was a far more committed supporter of fiscal fine-tuning than he is now.
The fact is that rather than merely say, "We want to raise taxes because, sooner or later, we will want to spend the money," which is the truth, the Chancellor tried to cloak some of the tax rises that he announced in something more respectable. That is what has been behind all the talk about output gaps, overheating and black holes. The plain fact is that output gaps are impossible to measure, as Treasury officials will have briefed the Chancellor. I think that there is a recondite footnote in the Red Book that more or less makes it clear that the Treasury does not believe in the idea of measuring such a gap.
"We have no plans to increase tax at all."
We can be confident that the Government will not rest at 17, which is why I am sure we have to have another Budget next spring.
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