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Mr. Geraint Davies: This is a sad day for the Opposition. They complained about the guillotine motion, but how many of them are present? Eight. It is a sad and
pathetic day. They said, "This is terrible. We haven't got time to debate these crucial issues. We didn't want the Budget anyway." Look at them. What a sad lot.
Would anyone in their right mind agree to the Opposition's amendment, which underlines the fact that they are not serious about the long-term prospects of the British economy but still spend all their time thinking about the short-term political impact, as presented in the media, and the impact on their Back-Bench committees or whoever runs their party in this day and age. They are not interested in the long term. The Chancellor's Budget, however, is about the long term: it is about confronting, realistically, the legacy of 18 years of Tory rule.
We all know what that legacy is. It is a legacy of under-investment in physical and human capital, a massive public sector debt that was out of control and an economy that was overheating and, at the same time, disabled by under-capacity. Every time we have seen a bit of consumption in the economy, it has fed straight into interest rates. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) pointed out, that contrasts with the situation in Japan, which has had a long-term industrial strategy.
The Chancellor, boldly and courageously, confronted the Tory legacy with, for instance, incentives for long-term investment--in the context of corporation tax and taxes on small businesses--and, before that, with his bold changes in arrangements involving the Bank of England. We all recall the master stroke with which my right hon. Friend delegated responsibility for the setting of interest rates to the Bank of England.
That is the answer to the question posed by the hon. Member for Teignbridge (Mr. Nicholls) about interest rates in the longer term. They are falling because the financial markets can see beyond the current blip--the current difficulties with sterling and the like, linked with sentiments about European monetary union and the fact that our current position in the economic cycle is out of synch with Germany's. In the long term, under the stewardship of our present Chancellor, we can expect interest rates to fall, providing the environment for health and wealth in Britain.
As for what has been said about massive taxes, a large proportion of the money that will be raised from the portfolio of activity that has been proposed will be used to reduce public sector debt--in other words, to cut future taxes. We inherited responsibility for paying back interest of some £25 billion a year, which, given the financial system, must have future tax implications. There are transfers; it is not a case of the old tax-and-spend idea that people seem to want to talk about.
Notwithstanding the denials that we have heard, we have a problem with housing. Consumption is increasing, and an extra £30 billion has been injected following the flotation of building societies and the like. This was the right time at which to help to stabilise the housing market by introducing a marginal reduction in MIRAS from 15 per cent. to 10 per cent.
As has been said, the reduction will not have a dramatic impact; it is just a touch on the brake. Given that we have given independence to the Bank of England, if we had not introduced the reduction, home owners would in any event have had to bear the cost in the form of a marginally larger increase in interest rates. The advantage of the
MIRAS reduction is that we can reclaim some of the money and invest it either to avoid debt or to support worthwhile causes.
The changes that we have made are clearly good for Britain and good for the home owner. We do not want to return to the days of boom and bust, when home owners did not know where they were going. Under the Tories, at one moment it was a case of run out and buy a house; at the next, house prices were spiralling; a moment after that, prices were plummeting and people had negative equity. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer are the friends of the home owner.
Mr. Boswell:
The hon. Gentleman is presenting an interesting argument, and he has just made an interesting assertion. He suggested that the Prime Minister and the Government were the friends of the home owner. I recall the Financial Secretary to the Treasury saying the other day that she regarded the Government as the friend of pensioners. Is there some propensity among Labour Members to take the maximum amount of damage as an indication of how kind one is to people? If so, would it not have been better to increase taxes by twice as much? The Government could then have helped everyone even more.
Mr. Davies:
That might sound logical in a cocktail bar--I am sure that the hon. Gentleman has many friends there--but, in fact, all the measures in the Bill involve long-term rather than short-term considerations.
As the hon. Gentleman has raised the issue of pensions, let me explain what the Bill means in that context. We are creating conditions in which British industry is strong and in which pensions are therefore secure. Moving some expenditure to cut future taxes must also be in the interest of the long term. Similarly, acting in the housing market to end an unstable cycle of change and uncertainty to which home owners cannot adjust must be in the interests of those home owners.
The shadow Chancellor has no idea of financial management, in that he has no idea whether interest rates should or should not have gone up in recent days. He will say nothing, one way or the other. Why? Is he worried about the view of the financial markets, or about the view of Back Benchers--or is he worried that he does not really know the answer? It is probably a combination of all three.
As we know, the amendment is about increases in interest rates after the election. We also know about the meetings between the Governor of the Bank of England and the last Chancellor of the Exchequer, who called the shots in terms of political interest, but held back interest rates against the long-term interests of the economy so that they would surge back after election day. The amendment suggests that the legacy of the last Government's political interference should interfere with the purity and elegance of the Government's proposals.
Incidentally, the amendment and the former Chancellor's behaviour in the past show that monetary and fiscal policy were governed by political considerations and were not designed to meet the country's long-term economic interests. That is why the Tories presided over the old boom-and-bust economy.
Many of us will remember the time when interest rates were at 15 per cent. We remember when we marched boldly into the exchange rate mechanism, and we remember arguments about the rate at which we entered. We did not know what we were doing. Then, suddenly, George Soros did a bit of manoeuvring, and everything collapsed. That was how we ended up, thanks to the politics and economics of the short term, and it is why we do not need any lessons from the wine bar about how to run an economy in the short term. I am beginning to dwell on specific statistics here, but it is preposterous that the hon. Member for Daventry (Mr. Boswell) can sit there and suggest that figures taken from the House of Commons Library today are wrong, although that is typical of the arrogance of the former Government.
I note that no one has bothered to look up the figures given some time ago by the hon. Gentleman. I may as well give them now. In November 1993, the interest rate was 5.5 per cent. It was in the Budget produced at that time that the Conservative Government decided to reduce MIRAS. By January 1996, the interest rate had risen to 6.25 per cent. By that time, we had seen two reductions, from 25 to 20 per cent. and from 20 to 15 per cent.
The behaviour and policy of the last Government were in direct contradiction to the amendment that we are discussing now. The Conservatives do not even remember what they did. Anything that is easy will be cobbled together in an attempt to mount some ludicrous opposition. There is a ragbag of hon. Members complaining about the guillotine. It is pitiful, is it not?
Mr. Brooke:
The hon. Gentleman refers to a ragbag that has been cobbled together. What is his verdict on the Government's proposals on foreign income dividends?
Mr. Davies:
I am not conversant with the precise nature of that. It will be articulated later, but that does not undermine my point that only a handful of Conservatives Members are in the Chamber barracking the Government.
Mr. John Bercow (Buckingham):
For the benefit of the House, will the hon. Gentleman please name an occasion in the previous Parliament when the current Chancellor of the Exchequer, then the shadow Chancellor, gave a verdict on the level of interest rates, saying that they should be higher, lower or at the level accepted by the then Chancellor?
Mr. Davies:
That is precisely the point. The current Chancellor has rightly said that the onus for setting interest rates should be on the Bank of England. Conservatives Members are suggesting again that politicians should jump up and down and say that interest rates are too high and are hurting people here and there. The reality is that we need to set a context in which Britain will succeed. That is why my right hon. Friend the Chancellor did not jump about making the verdicts to which the hon. Gentleman refers.
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