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Mr. Malcolm Bruce (Gordon): The Liberal Democrats welcome this consultative Budget, which we think should help to improve the quality of the real Budget. We intend to submit our proposals to the Chancellor shortly, and we hope that the Conservative party will do likewise, to make this a constructive exercise.

We also welcome the code of fiscal stability, which we advocated last year; the proposals for the integration of tax and benefits, which we have long advocated; the cut in VAT on insulation materials; and the help for pensioners. I am happy to thank the Chancellor for those proposals.

There are a couple of points of concern in the Chancellor's economic forecasting. He has revised down the growth forecast for 1999-2000 by 0.5 per cent. and has revised up the inflation forecast by 0.5 per cent.--well above his inflation target. That suggests that there are some storm clouds ahead. I should be grateful for a comment on that. Should not Budgets involve expenditure as well as income? In that sense, is not this a Polo mint of a statement, with a hole in the middle where the spending plans ought to be?

Why is the Chancellor's press office briefing that the long-term objective of a 10p starting rate of tax should be delivered by next March, when the short-term pledges of bringing down NHS waiting lists and class sizes will have to wait until later in the Parliament? He has found the money for cuts in income tax and corporation tax. How can he find the money to cut taxes, but not the money to spend to stop hospital waiting lists rising or class sizes reaching a 20-year high? Are not those the people's priorities that he claimed to be fighting for?

The consultative Budget is a welcome innovation, but we need action to improve the NHS and education this year. Will the Chancellor confirm the figures that his colleague the Chief Secretary gave me last year, showing that there is £2 billion unallocated in the contingency fund? Should not that be used to meet the immediate needs of health and education? Will he also confirm that the control total is coming in lower than was planned by the Conservatives, which also gives him room to manoeuvre? Does the earned income tax credit require the ending of the independent review of taxation of husbands and wives?

I represent an area with a high engagement in oil and gas activity. Will the Chancellor accept that a review of taxation for oil and gas will not prejudice the long-term investment and financial viability of that vital industry? Will he acknowledge that, until he drops his Tory spending plans, national health service patients and those who rely on our state schools will be forced to conclude that, although the Tories are no longer in office, they are still in power in his Department? By the way, I think that he should be reminded who won Winchester.

Mr. Brown: I am grateful to the hon. Gentleman for supporting our code for fiscal stability, our reforms at the Bank of England--reforms that the official Opposition cannot support--and our intention to have an open

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consultation process on the Budget. I assure him that he and others will be able to contribute fairly to the review of North sea energy.

However, I have to part company with the hon. Gentleman when he says that we have not switched resources. We have transferred resources to health from defence and the nuclear programme--£300 million this year. We have transferred resources from the assisted places scheme to school class sizes. We are transferring resources next year to education, along with £1.2 billion to the health service.

The Liberal Democrats proposed £1 billion over two years for health. We have put in £1.5 billion--£500 million more. The Liberal Democrat proposals for the schools capital investment scheme--[Interruption.] They may be embarrassed, but they should hear this. They proposed putting in £500 million. We have put in £1.2 billion, which will rise to a great deal more with private capital. I also remind the hon. Gentleman that he opposed the windfall tax that is raising the money for education and employment.

I remind the hon. Gentleman that, during the debate on the Queen's Speech in May, the leader of his party said:


The leader of the Liberal Democrats said that there had to be fiscal prudence, but the Treasury spokesman goes to every by-election promising millions of pounds more, without giving anyone a clue about how the money can be raised. In their literature for the two by-elections last week, did the Liberal Democrats mention the 1p extra on income tax, the 10p increase in the top rate of tax or their new environmental taxes? They have suddenly become coy about the means by which they would pay for their programme, and we do not see it in their election manifestos.

It is all very well to will the end, but if the Liberal Democrats are not prepared to will the means, by taking tough decisions about the use of resources as the leader of their party suggested he wanted to do--[Interruption.]--they are not fit even to make their presence felt in the House in the way that they are suggesting. They should go back to their constituencies and prepare to adopt reality.

Mr. Giles Radice (North Durham): I congratulate my right hon. Friend on publishing a pre-Budget report. It is high time that we moved away from the doctrine of pre-Budget purdah and had a more civilised, informed and open discussion of ideas and policies. Of course, the Treasury Select Committee will want to talk to him about the issues that he has raised in his statement, but may I now warmly welcome the help that he has announced for pensioners, which will be most welcome in my constituency? May I also strongly support the idea of a code for fiscal stability, which I believe will help good housekeeping and improve accountability?

Mr. Brown: I shall be happy to work with the Treasury Select Committee, and my hon. Friend knows that he will receive whatever evidence he needs so that the Committee can make comments before the Budget.

Mr. Kenneth Clarke (Rushcliffe): Is the Chancellor aware that, after announcing some small and, on the

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whole, welcome spending increases and skipping over the spending cuts that he proposes to make in benefits for the disabled, defence and elsewhere, he has still announced public sector borrowing requirement figures that show him reducing public sector borrowing at a rapid rate, and even likely to hit a period of debt repayment that he never intended, despite the fact that we have one of the lowest debt to GDP ratios in the western world?

Does the right hon. Gentleman not accept that that underlines the fact that his July Budget was unnecessary, and that the most courageous social step he could have taken was to reverse his taxation changes affecting pension funds? That would have been the most significant announcement on social policy for the longer term that he could have made today.

As for the other changes in the forecast, has the Chancellor noticed that the Bank of England now forecasts that, as a result both of rapid increases in interest rates and the increase in the exchange rate that has resulted, and of tight fiscal policy, it expects economic growth to fall away very rapidly next year, and possibly to disappear? Does he accept that nothing he has announced today could have a significant effect on that?

Does the right hon. Gentleman really stake his reputation on the forecast of 2.75 per cent. growth next year, which seems highly unlikely? Will he stop justifying what he says with constant references to the late 1980s, when circumstances bore no relation to what we see now, earnings were running away at 8 per cent. per year, there was a balance of payments crisis, and economic growth of 4 per cent. had been running for two or three years?

Before the right hon. Gentleman revives the myth that the Conservative Government were profligate big spenders, reckless on inflation--that was not what he said in opposition--will he not accept that he inherited stable growth with low inflation, falling unemployment and public finances that have surprised him by how rapidly they are improving? Will he go back to the drawing board and consult genuinely on a more constructive long-term economic policy that might protect living standards and jobs?

Mr. Brown: I am grateful for the chance to continue my debates with the right hon. and learned Gentleman. I do not know which will happen more quickly--his reaching the leadership of the Conservative party or the Conservative party's no longer existing to be led.

As for the right hon. and learned Gentleman's three points, first I shall tell him why my July Budget was needed. First, it was needed to cut VAT on fuel, which he had refused to do. Secondly, there was the introduction of the windfall levy that was necessary for our welfare-to-work programme. Thirdly, I had to introduce measures for stability that he had failed to introduce during the three years that he was Chancellor.

The right hon. and learned Gentleman wants to create a myth about the difference between his record, which he wants to promote, and that of Lord Lawson, whom he is happy to see remain in a difficult position. I have to tell him that, when we came into office, we were told that inflation was forecast to rise way beyond the target. Therefore, it is hardly surprising that the Bank of England was telling him for six months before the general election that, on its understanding of the position, interest rates should have risen.

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I was not prepared to go back to a situation, as in the late 1980s, where interest rates had to rise late because the action to tackle inflation had not been taken, forcing the country into the stop-go instability of recession. Let us remind the Conservatives that, in 1990, interest rates went up to 15 per cent. and wages had gone up by 10 per cent.--[Hon. Members: "ERM."] That was before the ERM. Inflation was at 10 per cent. We are not going back to those conditions.

The right hon. and learned Member for Rushcliffe (Mr. Clarke) said that our changes to pension funds were unnecessary. Let me remind him that his special adviser on tax before the election has written an article in the Financial Times, supporting our reforms. From what he said in that article, I believe that he will support the further reforms in advance corporation tax announced today.

The tragedy is that the former Chancellor was in power for three years and could--and should--have made these reforms in the interests of long-term investment in this country. We will take no lectures from a Chancellor who should have raised interest rates before the election, but did not do so for political reasons.


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