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6.47 pm

Mr. MacShane: It is a pleasure to speak in tonight's Third Reading debate. For four years, I served on the Standing Committee considering the Finance Bill. In my view, it is the most interesting Standing Committee on which to serve because taxation represents the contract between the citizen and the state: it defines the relationship between the two and reaches into every corner of our existence. I regret that I have had to serve elsewhere for the last year, but no doubt one day my right hon. Friend the Prime Minister will release me from those duties, unpaid and unimportant as they are, so that I can return to my first love--tax and the Standing Committee.

I pay tribute first to my right hon. Friend the Chancellor, who has shown himself to be a fiscal Clausewitz. Clausewitz was the man who advised Napoleon at Austerlitz and then told him not to go to Moscow, but the French do not always take good German advice. Clausewitz believed in the concentration of forces. The Budget is the first in many years to focus hard on the key problems of the economy.

I should like to pay tribute to two personal friends--my hon. Friends the Financial Secretary and the Economic Secretary. Remarkably, having take a 450-page Bill through late-night sittings--we have heard from the hon. Member for Kingston and Surbiton (Mr. Davey) that the Liberal Democrats are the Horlicks party; once it gets late, off they go to bed--my two hon. Friends, unlike many of their fellow Ministers, appear, at the end of their dreadfully busy first year, to be younger than ever. That shows that Tory replacement therapy works. I look forward to many years of service from them on the Front Bench, and to their getting younger year by year.

The hon. Member for Kingston and Surbiton spoke eloquently and in some detail. He was not present in Committee to vote against the clause to which he was referring, and was not here earlier to move his amendment. No doubt he was taking his Horlicks somewhere else. He is wrong on his narrow point about insurance premium tax. It used to be said before the last election that the Conservatives were the party of garage owners--I think that they were described as the garagiste tendency. The hon. Gentleman is speaking up for the garage owners of Britain because they cannot make a little extra on selling insurance. He should also explain whether he is now representing Dixons, because he was doing valiant battle for electrical retailers. That is all the more interesting, given that Sir Stanley Kalms, the boss of Dixons, is leading some ludicrous anti-European crusade. There we have the Liberal Democrats--all things to all men.

Mr. Davey: The hon. Gentleman clearly was not listening to a word I was saying. I was speaking up for the ordinary consumer, who will lose out because of selective higher rates of insurance premium tax. The hon. Gentleman should be worried about that, because I am talking about his constituents.

Mr. MacShane: The ordinary consumer--or those who shop in Dixons--would be better served by a boss of Dixons who cut his prices rather than spending all his money on a crusade against Europe. We have had enough from the Davey lamp for the time being. There is very little illumination from that source.

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I should like to focus briefly on how the Budget has affected my constituents. Rotherham is a great manufacturing centre. It still has Europe's biggest and most productive engineering steel plant. New firms are being created there. During the years in which I had the honour to serve the people of Rotherham before the last election, I often heard their demand for stability in the economy. We talk about the Tory 18 years or 19 years or whatever it was, but even before then my constituents suffered on an endless rollercoaster of inflation rates, interest rates and, of particular importance to my constituency, exchange rates.

The former Chancellor popped in for a brief chat--I see that his would-be successor, the right hon. Member for Wokingham (Mr. Redwood) has just appeared on the Front Bench. It is good to see him taking some time off from his new outside earnings. The Benches behind him are empty, because the Conservatives have given up on opposition. I thought that the constitutional duty of the Opposition was to oppose.

Mr. Deputy Speaker: Order. The hon. Gentleman is indulging in a great deal of embroidery. He should come back to the Third Reading of the Finance Bill.

Mr. MacShane: I do not want to plunge into the outside earnings of the Conservative party, Mr. Deputy Speaker.

Steel exporters had problems because between May 1990 and May 1997, the exchange rate of sterling against the deutschmark changed no fewer than 87 times. No exporter or manufacturer buying goods from the continent could live with that endless change. I know that the cliche "boom and bust" irritates the Conservatives, but I am happy to repeat it, because an awful lot of mud has to be thrown against a wall--even the empty wall opposite me--before it begins to stick. My right hon. Friend the Chancellor is searching for stability. I hope that he keeps to that aim.

There were disappointments for me in the Budget. I am a great believer in employee share ownership. I took a delegation to see my right hon. Friend and had an interesting meeting on the subject. There was nothing in the Budget on that, but I hope that the Government may come back to it. We must spread the fruits of people's work not just in wages, but in their share in the company for which they work.

The search for stability is an obsession of the Treasury Front Bench. I admire that. It contrasts with the flippant ups and downs of Budgets that I scrutinised as an Opposition member of Standing Committees considering previous Finance Bills. The Budgets of the previous Chancellor were like a Christmas tree--I think that that was the metaphor of the hon. Member for Gordon (Mr. Bruce)--decorated with all sorts of funny baubles in an attempt to attract votes here, there and everywhere. The British people saw through that meretricious dishonesty and kicked him out. Since then, the Opposition have had considerable difficulty in deciding on their strategy. They have removed one shadow Chancellor, but we are still waiting for some impact from his successor.

Mr. Deputy Speaker: Order. I am still waiting for the hon. Gentleman to come back to the Third Reading of the Finance Bill.

Mr. MacShane: I am particularly impressed by the Bill's step-by-step approach. Making work pay affects my

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constituents more than any other issue. Achieving that at the marginal rates of tax that we inherited from the Conservative party proved all but impossible. The Chancellor's two Budgets have shifted the burden of taxation, so that work is subject to less tax, and unearned income and capital takes a fairer share. The working families tax credit is a move towards lifting the burden of taxation from the lower-paid. In 1950, a married worker with two children had to earn 107 per cent. of average industrial earnings--about £20,000 in today's money--before he paid any tax; and we wonder why the Attlee Government were so popular. Until the end of the 1960s, the state took 30 or 35 per cent. of gross domestic product in tax. My right hon. Friend the Chancellor is taking us back to the golden years of stability, employment, growth and investment.

Ms Sally Keeble (Northampton, North): Will my hon. Friend give way?

Mr. MacShane: My hon. Friend must be quick; I want to sit down.

Ms Keeble: My hon. Friend has raised the point about making work pay. Does he agree that the £10 extra that the combined effects of the Finance Bill put into every average family's pocket in my constituency as a result of changes in tax structures will be extremely welcome, and is in complete contrast to the figures that Conservative Members have bandied about?

Mr. MacShane: The Conservative party was the party of the rich. Labour is the party of middle England and working England, Scotland, Wales and Northern Ireland--people who seek to earn an honest living and to amass savings that guarantee their future.

The step-by-step approach is sometimes so silent that one does not detect it happening. My right hon. Friend the Chancellor is a sort of stealth bomber, coming quietly over the horizon, taking as much money as is necessary, but not too much, and dropping his bombs on the irrelevant Opposition. I wish him well. I know that the Budget was welcomed by the business community, working families and the poor of my constituency.

Mr. Gardiner: Will my hon. Friend give way?

Mr. MacShane: If I may, I should like to finish. [Interruption.] Well, I could carry on. I wish the Finance Bill a handsome and solid majority on Third Reading.

7 pm

Mr. Malcolm Chisholm (Edinburgh, North and Leith): As someone who served on several Committees that examined Finance Bills in the previous Parliament, it gives me great pleasure and pride to speak about this Bill, which is in such marked contrast to the Bills that we opposed over those years--contrary to the view given by the hon. Member for Banff and Buchan (Mr. Salmond), who has unfortunately fled the Chamber and the truth. Hon. Members who do not represent Scottish constituencies will not know that the Scottish National party's calculated core message is that Labour is the same as the Tories. That is arrant and demonstrable rubbish in the context of this Bill and, indeed, of other policies.

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The primary objectives of the Government's economic policy, as seen in the Budget and the Finance Bill, are to raise the economy's sustainable rate of growth and to fight against poverty and social exclusion. They are the exact opposite to the objectives of the previous Government, who increased inequality over 18 years, and for many of those years, used unemployment as a deliberate instrument of policy.

Throughout proceedings on the Bill, we have heard opportunistic carping on particular aspects of Government policy from both the SNP and the official Opposition. Some of those aspects are the unavoidable short-term results of correct long-term policies. We have never heard from either party any coherent alternative economic strategy. Throughout the economic debates this week, the Conservative party has also attempted to rewrite or, rather, airbrush history to try to persuade people that everything that happened before 1 May 1997 is irrelevant. That is economic illiteracy.

The context of the Finance Bill is the inheritance of the previous Government. The salient features of that inheritance were a lack of stability and economic credibility and a serious structural Budget deficit, which the previous Government failed to address, in spite of 22 tax rises in their last Parliament. On top of that, we inherited problems of inflationary bottlenecks due to underinvestment and chronic shortages in human capital. There was a major productivity gap between ourselves and our main competitors. We inherited, too, the well-known fact that one in five families were without anyone in work. Those are the problems that the Finance Bill and the two Budgets have begun to address. Clearly, such problems cannot be turned around in a day, a month or a even a year.

The Government are concerned to do three things: deliver macro-economic stability, tackle supply-side barriers to growth and promote economic and employment opportunities for all. I know that some of my colleagues who are impatient for more rapid change find the objective of macro-economic stability rather boring. It is very easy for the SNP and others to say that it is a Tory objective. It is also difficult to communicate some of the complex economic policies to the public at large. It must therefore be made clear time and again that delivering macro-economic stability is a means to an end. It is a necessary precondition for all the other objectives of growth and employment.

There are many reasons for achieving macro-economic stability. One of great importance is that, without it, there is the threat of a return to boom and bust and, therefore, a disincentive for employers and others to invest. Investment is very much at the heart of what this Government are all about. That is why pension fund arrangements were changed in the first Budget last summer. We heard opportunistic carping about that, too--certainly from the Conservative party. The policy's clear purpose was to increase investment in the economy.

Many other policies in the Finance Bill are directed towards the same end. We have a new rate of corporation tax, there have been changes to the capital gains tax regime and we have seen innovations such as the university challenge fund. Those are very important supply-side measures to deal with underinvestment.

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The Finance Bill also contains measures on training. The flagship welfare-to-work policy was introduced in the first Budget.

We must tell people that these are the objectives of Government policy; that this is what we are trying to achieve. By delivering macro-economic stability and tackling supply-side barriers to growth, we shall be able to raise growth. All that is a necessary precondition to our social objectives, on which we have already made significant progress. Most important, the working families tax credit, with its radical, innovative child care element, which we used to talk about endlessly in opposition and are beginning to deliver in government, clearly opens up employment opportunities and the rewards of employment to a much wider range of people.

Other policies in the Bill include changes in national insurance contributions, which act as an important incentive to employers to take on employees who earn up to £440 a week. There is a range of measures to make economic and employment opportunities more widely available. That is at the heart of the Government's strategy for tackling poverty and social exclusion in our society. When people say, as they sometimes do, "Why do you put emphasis on stability? Why don't you just get ahead and do something about poverty, unemployment and social exclusion?" it is important to explain that they are two sides of the same coin. That should be the core message that we try to get across.

Stability is not just about monetary policy--although that has been very important, and was dealt with in the separate Bank of England Bill. The purpose of that Bill should be explained, too. One of the reasons why the previous Government lacked any credibility was that they used interest rate policy politically. That was one of the problems that we inherited. They refused to put up interest rates before the election for political reasons, so inflation was heading for 4 per cent. and above. We had to address that problem; that is why interest rates have had to go up. The hon. Member for Banff and Buchan said that we were doing the same as the Tories. We are not; they tried to tackle inflation, but did not succeed. Their phoney monetary indicators in the early 1980s were not successful in dealing with inflation. We shall be successful. That is one side of the coin. It is, perhaps, more exciting to talk about the other side of the coin--the work opportunities and the attack on poverty--but without the precondition of stability, we shall not achieve those aims.

The same is true of fiscal policy, and I welcome the code for fiscal stability in the Finance Bill. As the Chancellor's public expenditure statement in June made clear, that fiscal framework does not mean that we are unable to deliver significant increases in public expenditure. I understand those who want a big bang approach to public expenditure--perhaps Liberal Democrats come into that category--but there is no point in having a big bang approach that cannot be sustained. Within the rules set out by the Chancellor, which were in our manifesto, we are able to achieve a real growth rate of 2.75 per cent. If that is sustained for the next five years, it will be an achievement that has not been managed since the 1960s.

The Government are also putting great emphasis on capital investment as part of the general drive for increased investment, which I referred to earlier, and we welcome that.

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Clearly, the Government have the task of explaining their economic approach. It is very easy for the Opposition to caricature economic policy and dwell on short-term consequences, but this Government's economic objectives are absolutely contrary to those of the previous Government, and the results will also be contrary.


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