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Mr. Michael Fallon (Sevenoaks): Will the hon. Gentleman give way?

Mr. Swinney: No. I have only 10 minutes and I want to make progress.

The folly of high interest rates has been compounded by the decision to proceed with yet another above inflation hike in fuel duties. That is another Conservative

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policy continued by the Labour Government. It is ironic that the Conservatives should complain about a higher than inflation increase in petrol duty when they presided over similar measures several times during the 1992-97 Parliament.

The people of rural Scotland will not be easily fooled by the Chancellor's soft words on a review of rural petrol prices. We have heard a lot about that before. Some of the analysis that I have seen from the Western Isles council and the Highland council shows that prices for rural drivers are between 20p and 50p a gallon higher than those for urban drivers. Every time that rural drivers fill up their petrol tanks they may pay £3 or £5 more than those in some other parts of the country. The additional cost of that increase alone is estimated at £60 each a year.

The reduction of petrol prices in rural areas by BP has already been mentioned. It would be churlish of me not to welcome that. However, the Government must take action to reinforce the decisions of private companies to ensure that essential car users--all rural drivers are essential car users--are properly protected. My hon. Friends and I will vote against the increase. I hope that others will join us.

The Chancellor has submitted himself to formidable public expenditure constraints, inherited from the previous Government. The straitjacket that he has adopted was mirrored by the language that he used on Tuesday. I suspect that his words brought a smile to one or two of the remaining Thatcherites in the House. He said:

The reality of the Budget is spending cuts and poorer services when revenues are rising far beyond even the Chancellor's expectations.

Some spending rabbits have been pulled out of the hat, including £500 million for transport. On closer examination, the majority of that appears to be for the London underground, which has attracted more than £10 billion of public resources in the past 10 years.

The Scottish public expenditure totals have been boosted by an extra £70 million for health, education and transport. However, in real terms, public expenditure in Scotland will fall by more than £100 million next year. As a direct result of the Budget, real terms spending on local government in Scotland will fall by a further £15 million, while industry and enterprise--a critical area when we are trying to motivate the Scottish economy to higher levels of growth--will lose £1.5 million. That is the real story of the Chancellor's spending plans. None of it takes into account the effect of higher than expected inflation on the Chancellor's public expenditure estimates. If we take away the gloss and look through the mirrors that were cleverly presented by the Chancellor, there is a continuing real-terms crisis in the public services on which our public depend.

The Conservatives' spending targets have been retained by the Labour Government and have failed to address the real crisis in many aspects of our public services. I heard one Conservative Member on Tuesday bemoan the fact that, as a result of the Chancellor's Budgets, individuals will see not their income tax bills but their council tax bills going up. I can only pose the question: who on earth did the new Labour Government learn that little trick from if it was not the Conservatives?

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The Budget has failed to make a difference for Scotland. The Chancellor had an historic opportunity on Tuesday, with public finances in a much healthier than expected condition. The coffers were fuller, but the Government failed to tackle the genuine public spending crisis. Public debt has been slashed, revenues have soared, the war chest is growing, but the Chancellor still lumbers on with a tightening of public expenditure totals of which the Conservatives would have been proud. People voted for political change at the general election, but I suspect that many of them are wondering when on earth it will come.

7.21 pm

Mrs. Helen Brinton (Peterborough): I add my congratulations to those already offered to the Chancellor and the Treasury team. Those of us on the Government Benches who were listening in the Chamber on Tuesday were delighted with all the Budget's good news on its central themes of encouraging and rewarding work, supporting families, women, children and business, and providing more money for education and health. The Conservative party kept waiting for the bad news, but it did not materialise. Despite the desperate attempts of Conservative Members today, they have failed totally to dampen the enthusiasm with which the Budget has been received by people not only in my constituency but in theirs as well.

That is not, of course, to say that no more can be done. We have talked a lot about welfare reform in this debate, to great effect, but I shall concentrate my remarks on environmental aspects. There, too, there was much good news. I welcome the measures to improve public transport, reduce VAT on some energy-efficiency measures--even if those still apply only, as yet, to a proportion of homes--and the favourable treatment of road fuel gases. I note that further measures relating to aggregates and water pollution are up for consideration. I hope that there will be others, encouraging innovation and environmental technologies in which our country could be a leader.

I welcome the setting up of the task force under Sir Colin Marshall, with its crucial remit to investigate the use of green taxation aimed at reducing industry's energy consumption. I welcome, too, the inclusion of an assessment of the environmental impact of tax measures in the Red Book, which show how the Budget will reduce greenhouse gas emissions and improve local air quality. I wonder, however, whether we can go further.

I should like to reiterate one of the key recommendations of the first report of the Environmental Audit Committee, of which I am a member. The report was published a couple of weeks ago. It was our view that the complexities of environmental tax reform require the setting up of a special advisory body to examine the overall impact of green tax proposals. Such bodies, indeed, already exist in different forms in other countries. I hope that the Government will consider that. Obviously, it will be for them to decide on the precise constitution and powers of such a body. My other remarks are related to my constituency, although they have a similar thrust.

Peterborough is one of the four environment cities in the United Kingdom. Our environment city trust has recently completed an audit of energy consumption across the city. The results will be published shortly. However,

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I can say to you that, following a discussion with the director, Richard Dean, the audit has revealed that, whereas the potential saving on industry use of lighting is quite minuscule, for combined heat and power it is enormous. We could make, I am told, great energy savings at no cost to business, which is what I hope we all want. I shall be very glad to turn over the evidence to the new task force if so required.

The trust is also working on a waste audit--a life-style analysis of waste materials in the city. That will provide a factual basis for assessing the impact on business of tax changes and will identify areas where savings in waste management could be made. Through the green business forum, we are also planning a transport audit of the use of different forms of transport. We are waiting only for funding; the sums will be small.

Only through those and other forms of investigation of particular environmental measures will it be possible for us to make a rational and fair assessment of their impact and, indeed, of their likely success as measured against properly defined targets. I say to you that the overall target--

Mr. Deputy Speaker: Order. The hon. Lady is using the word "you". Will she try to use correct parliamentary language?

Mrs. Brinton: Many apologies, Mr. Deputy Speaker.

The Government's overall target on greenhouse gas emissions is a cut of 20 per cent. by 2010. That is an aim of which we should all be proud. It is an ambitious target, and to many of us involved in environmental matters inside and outside Parliament, it seems that, although an excellent start has been made, time is short and of the essence. Everyone will have to work together very hard to gain acceptance for an organised and concerted approach to environmental tax reform.

7.26 pm

Mr. Philip Hammond (Runnymede and Weybridge): My right hon. and hon. Friends who have spoken in this debate, yesterday and on Tuesday have covered many of the vital areas of the Budget. They have identified our practical concerns about the operation of the working families tax credit--a laudable attempt to deal with a long-standing problem, but one which we believe is fraught with many difficulties.

My right hon. and hon. Friends have drawn attention to the high price that the Government are paying for eliminating the very high marginal deduction rates which some families on low incomes have hitherto suffered. The price that the Government are paying is an increase in the number of families who will suffer marginal deduction rates of 60 per cent. or more. As we all know, an effective tax rate at 60 per cent. is a powerful disincentive to work. The jury must be out on whether the net effect of the Government's quite laudable efforts to remove those very high marginal deduction rates will be positive, overall.

My right hon. and hon. Friends have also drawn attention to the Chancellor's failure to address the central, immediate problem facing the British economy: the very high level of sterling, which is decimating our manufacturing industry. That problem is faced not just by exporters, as the Chancellor suggested in his Budget speech, but by all manufacturers, as they deal with

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increased import penetration. The Budget statement says that the Government's objective is to see sterling at a competitive rate in the medium term, but I can tell the Paymaster General--other hon. Members who have talked to businesses in their constituencies will also be able to tell him--that, unless something is done in the short term, there will be no manufacturing industry left to benefit from that competitive exchange rate in the medium term.

Time is short, so I shall address a few specific issues arising from the Chancellor's statement. There is a continued confusion in Government policy over subsidies for employment. The welfare-to-work programme is at the centre of the Government's policy platform, and it is dependent, at least in part, on the principle of paying employers subsidies to employ workers.

We have also seen in the Budget the introduction of a £75 a week subsidy for the employment of the long-term unemployed. Both those measures are based on the principle that, at the margin, employment is sensitive to the cost of wages and the other costs of employment.

Yet, at the same time, the Government are telling us that the national minimum wage will not destroy jobs. Essentially, that statement depends on the premise that at the margin employment is not sensitive to wage costs. That is the contradiction at the heart of Government policy.

If the Minister of State, Department of Tradeand Industry, the hon. Member for Makerfield (Mr. McCartney), is correct, and employment is not sensitive at the margin to wage costs, the Government should stop subsidising jobs now, because that is throwing money away. However, if he is wrong, the Government had better start quantifying the cost of the national minimum wage and its effect on unemployment.

In introducing his changes to employers' national insurance contributions, the Chancellor said that he would

However, at the same time, the Government, through the national minimum wage, are increasing the cost of hiring at precisely that level. Confusion abounds.

The changes to employers' national insurance contributions may be neutral overall, but they have significant sectoral and regional impacts. The increased contribution is a payroll tax on all those earning more than about £450 a week. The tax falls initially on the employer--I doubt whether the Chancellor would have dared to raise employee national insurance contributions 2 per cent. above the present ceiling, or to raise income tax rates by 2 per cent.--but, ultimately, the effect of any tax on employment costs must fall on the employee in the medium term, as pay rates come to be negotiated.

That payroll tax will hit firms employing highly paid workers, such as those in the technology and financial services sectors--professional firms offering the kind of highly paid, highly skilled work that the Government seek to encourage. The tax will also disproportionately affect firms in London and the south-east, where wages are higher than elsewhere, so employees there are more likely to be remunerated at the rate of £450 a week or more. That is another breach of the Prime Minister's promise not to raise taxes on the middle-income earners of middle England.

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The Chancellor, rightly in my opinion, drew attention to the impact of very high marginal deduction rates, which are effectively high marginal tax rates. He has sought valiantly to address some of those issues through his reforms of tax and national insurance for the lowest paid.

However, there are other areas of the economy in which very high marginal rates apply, and I shall draw attention to a couple of those. Although, in the short term, the changes in corporation tax will produce a negative effect on the cash flow of the corporate sector overall, they are none the less welcome because of the reductions in rates. I also welcome the Government's decision to exclude from the instalment payment system companies defined as medium sized.

I am disappointed, however, that that definition includes only companies with profits of up to £1.5 million. The Chancellor wants to encourage growing businesses. He said so in his speech. Yet I submit that what the United Kingdom economy desperately lacks is a large enough sector of prosperous medium-sized companies. We have many small companies and we have world-class large companies, but we have nothing equivalent to the German Mittelstand companies--that great body of medium-sized, often family-owned companies that have contributed so much to the growth and success of the German economy.

Yet in the United Kingdom, the current corporation tax system presents companies whose profits are between £350,000 and £1.5 million with marginal rates of corporation tax higher than the mainstream rate. If the Chancellor can take the lesson of the disincentive of high marginal rates on board when he is dealing with the benefits and national insurance systems, I hope that he can take on board the same issue when he considers corporate taxes.

Stamp duty is another subject which has received relatively little attention so far in the debate. In his first Budget, the Chancellor introduced additional steps in stamp duty tiering, and on Tuesday he increased the rates for property selling at more than £250,000, and also for that selling at more than £500,000--[Interruption.]

The Government Deputy Chief Whip, from his seat on the Front Bench, laughs. He is thinking about houses, and wondering whether I am thinking about my house or my hon. Friends' houses. However, the duty applies not only to houses but to factories, shops and warehouses--business assets and institutional property owned by pension funds. It is an attack on the liquidity of the institutional property sector, and on property and assets held for the benefit of productive business throughout the country.

We now have a grotesque set of distortions to the operation of the property market. At £250,000, the marginal rate for the additional pound achieved in selling a property is a staggering 250,000 per cent. At £500,000, the marginal rate of tax for the additional pound is 500,000 per cent. That is plain silly; clearly it will spawn a whole avoidance industry, which cannot be what the Chancellor wanted.

It cannot be good for the country as a whole to develop the stamp duty system as a serious revenue raiser, for which it was not designed. That will have a serious negative effect on the operation of the institutional property market and on the supply of property available to businesses to rent for productive purposes. That, in turn, will increase their costs.

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Finally, I would like to say a brief word about the so-called green taxes in the Budget, especially those on petrol and landfill--

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