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Several hon. Members rose--

Mr. Ivor Caplin (Hove): Will the right hon. Gentleman tell the House how many of the previous Government's 22 tax rises were in the 1992 Conservative party manifesto?

4 pm

Mr. Heathcoat-Amory: We dispute the hon. Gentleman's arithmetic in calculating 22 tax rises. He alleges that there were 22 tax rises during our five years in government, but perhaps he would like to reflect on the fact that, in their first four or five weeks, the Labour Government have introduced 17 tax rises. If they continue at that rate, we shall be well into three figures by the next general election.

The Prime Minister, before the general election, promised not to increase tax. On 21 September 1996, his exact words were:

More recently--in January 1997--the Chancellor of the Exchequer said:

    "It's my aim to get the burden down for ordinary people".

The Chancellor has since discovered that ordinary people use transport. Even if people do not use their own car, they use public transport, and both forms of transportation have been affected by the Government's tax increases. Many people heat their homes with oil, and many have pensions--which I shall not elaborate on now, because I realise that we shall debate that issue tomorrow. So-called ordinary people have been hit by 17 tax increases.

Mr. Geraint Davies (Croydon, Central): Does the right hon. Gentleman agree that there is a danger of the

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economy overheating and that, given that danger, the fuel tax is very welcome within the Budget's balanced portfolio of changes? Will he tell the House what changes, if any, the Conservatives would have made to fuel duty?

Mr. Heathcoat-Amory: I tell the hon. Gentleman straight that we would not have produced this Budget and, therefore, would not have introduced the huge extra increase in duty on heating oil, petrol and diesel. If he is right and the economy is overheating--the Chancellor of the Exchequer has said that it is--it is all the more surprising that the Chancellor did not try, as a general Budget strategy, to take money directly out of consumer expenditure. We know--as does the hon. Gentleman, because he was a member of the Standing Committee that considered the Bill--that the Chancellor's main tax-raising measure affected not current consumer expenditure but pension funds, thereby hitting long-term savings and not current consumer expenditure. If reducing such expenditure was the Chancellor's strategy, he went about accomplishing it in a pretty stupid way.

The Financial Secretary to the Treasury (Dawn Primarolo): The right hon. Gentleman has been going on about heating oil and price increases. Does he accept that kerosene is the predominant heating oil, and that the Budget did not increase excise duty on it?

Mr. Heathcoat-Amory: No; the hon. Lady is a little out of date. Kerosene--or paraffin, as it is sometimes called--is no longer the predominant heating fuel of those on benefits. Just as many of them, if not more, use heating oil for heating their hot water or--with central heating--their homes. As from Budget day, the duty was increased. The hon. Lady has not answered the curious conundrum whereby she is happy to delay until September the VAT reduction on domestic fuel, whereas the Chancellor made the duty increase on heating oil effective on Budget day--thereby emphasising a point that I have already made.

Mr. Bennett: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: I shall give way once more to the hon. Gentleman.

Mr. Bennett: Are not those crocodile tears? How many people on low incomes does the right hon. Gentleman suggest are running central heating at this time of year? Does not he expect most of them to turn off their central heating system between now and September?

Mr. Heathcoat-Amory: Yes, I do. However, it may come as news to the hon. Gentleman that many people use the same fuel for heating water. They take baths, they wash their hands and they heat water for cooking. I am amazed by the ignorance sometimes displayed by Labour Members about how so-called ordinary people live. All the extra costs affect people now. As we sit in the Chamber, the additional tax on fuel is affecting our constituents, and I am surprised that the hon. Gentleman is apparently unaware of that.

The tax increase on petrol, diesel and various oils does not just affect individuals; it is a massive extra cost to industry. Industry is the main user of diesel. Most lorries,

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buses and trains use diesel, which has increased in price by more than 9 per cent. Directly or indirectly, that affects the price of just about everything that is transported. It is a big extra industrial cost, as well as affecting individuals who use buses and trains. It also affects competitiveness. We have been promised a White Paper, a review or discussion document about competitiveness in the British economy. The Government could have made a start by not increasing the burden on the competitive sector of the economy through large tax increases.

The trade sector of the economy has been most squeezed since the election as it is exposed to international competition. In particular, the export industries and the manufacturing sector have been hit by the strength of the pound. They will also suffer most from a direct tax on one of their most important raw materials. That has no doubt contributed to stock market movements since the Budget. Shares in the financial and banking sectors, the retail sector and importers have increased in value, while those in manufacturing industry, the engineering sector and exporters are relatively low, as those industries have been hit by the Chancellor's monetary policies and the tax rises since Budget day.

There is also a general effect on inflation and the retail prices index. That further twist to inflation has not yet been reflected in the RPI. However, between the date of the election and now there has been an increase in the actual or signalled rate of inflation. That is hardly surprising, as one of the first things that the Chancellor did in office was to weaken his inflation target. We had a target of 2½ per cent. a year or less. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the previous Chancellor, had met that target by the time we left office. The incoming Chancellor weakened the target to 2½ per cent. plus or minus 1 per cent. That sent a signal to the world that he would tolerate higher inflation. In addition, he failed to damp down any consumer boom that he identified in the economy--another missed opportunity--and increased inflation by his action in the Budget. The duty increase has still to feed through into the economy.

Jacqui Smith (Redditch): Does the right hon. Gentleman accept that it is not the toughness of the inflation target that is most important, but the toughness of the action taken to achieve it, and that in many ways my right hon. Friend the Chancellor has already shown his willingness to take tough action, particularly through the independence that he has given the Bank of England in monetary matters?

Mr. Heathcoat-Amory: I quite agree with the hon. Lady that it is no good having a target unless one is tough about meeting it. Having set a looser inflation target, the Chancellor signalled that he would be rather relaxed in his efforts to meet it by producing an inflationary Budget. The figures are quite eloquent. A report in the Financial Times says that, according to the Office for National Statistics, the Budget will

The same article points out that the last Budget of my right hon. and learned Friend the Member for Rushcliffe added only 0.39 percentage points to the index. So there we have it. The Chancellor not only weakened his target, but set about breaching it.

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The Budget forecasts in the Red Book project a breach of the inflation target. The Chancellor accepts in his arithmetic that he will not--

Mr. Clifton-Brown: Does my right hon. Friend agree that a judicious blend of fiscal and monetary policy is needed to meet the inflation target? Relying purely on fiscal policy could advance a possible recession, by creating the need to increase interest rates too high for the demand in the economy. We are heading in that direction.

Mr. Heathcoat-Amory: I agree with my hon. Friend. I am not a Keynsian, but I accept that fiscal policy has a part to play. It should not work in the opposite direction to monetary policy. Although interest rates should bear the main strain of keeping inflation under control, the lesson from countries such as Germany is that success comes from having a low-inflation culture, in which all the levers of economic management--fiscal policy and monetary policy--point in the same direction. We have not achieved that under the new Government. The separation of fiscal policy, which remains in the Treasury, from monetary policy, which now goes to the Bank of England, has within it the seeds of a considerable bust-up. The Budget was not in tune with the inflation target laid down by the Chancellor, even though--I repeat--that target is looser than the one that he inherited.

My concluding point concerns the effects on public services of the tax increase, particularly the fact that it is being brought forward by five months. From the day of the Budget, all services that use transport will cost more. There is a 4p-a-litre increase for all police cars, all ambulances, all school buses, all meals on wheels, the national health service and social services. All those services are already experiencing higher costs. There is no extra money for that. The Chancellor has almost made a fetish of the fact that his cash targets remain the same. It is true that, for the financial year starting next April, he has raided the reserve to allocate some more money to two items of public expenditure--education and health--but there is nothing for law and order, local government or any other public services. For the current financial year, which ends next March, there is not a penny piece of extra public money to fund services, even though--again, this is all in the Red Book--they face the inflationary consequences of the Budget.

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