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Mr. Geraint Davies: Will the right hon. Gentleman give way?
Mr. Davis: I am afraid not, as I have only 10 minutes in which to speak. Normally, I would love to give way to my colleague on the Public Accounts Committee, but not today.
That cocktail could burden our economy in much the same way that it did in the 1970s. The pressure on welfare, health and education spending means that the Government will be tempted to finance much of their capital expenditure through the private finance initiative. That method avoids large sums of capital expenditure having to be found and spreads the costs over the life of the project.
The PFI has many virtues--after all, it was a Conservative policy in the first instance. The private sector brings good management, innovation and enterprise to the provision of public services. Properly used, it is a good thing, but the temptation will be to provide public services and public service capital assets on the never-never. Just as someone who accumulates hire purchase payments carelessly loses control of his or her financial affairs, the Government could do the same. I draw the attention of the House to the fact that the Red Book shows that they are planning about £11 billion in PFI expenditure. Every time that the Government undertake a PFI project, they commit tomorrow's taxpayer's money. If that is done imprudently, it will shackle the hands of future Governments every bit as tightly as though they had borrowed billions of pounds. Just like unfunded pension liabilities, that could grow to be an intolerable burden on the nation's finances. It concerns me that we may have a Chancellor who is living for the moment and forgetting his responsibilities to future generations in that respect.
The Chancellor may be behaving responsibly--I simply do not know--but to prevent that scenario he must set an explicit limit on how much capital expenditure he finances on the never-never. If he does not do so, his golden rule on capital expenditure will be meaningless. Clearly, stealth taxation accompanied by covert debt mean that today's expenditure will be financed not merely out of tomorrow's pensions funds, which we all know about, but out of tomorrow's taxes. That would be irresponsible and improper, and I urge the Government to avoid it by having proper rules to govern that type of expenditure.
On the longer-term aspects of the financial package that make up the Budget, rather than the details that my hon. Friends mentioned, this year, because there has been a change, assumptions relating to the labour market have been audited by the National Audit Office.
Incidentally, I broadly welcome the measures for the employment of people aged 50 and above--not merely because that decade is facing me, but because those people are socially valuable. In many ways, I think that the measures will be more effective than some of those aimed at younger members of the work force. The 50-year-old-plus man or woman is a valuable member of society and could continue to give a great deal.
However, within the labour market issues and assumptions in the Budget, the largest reduction in expenditure over the Red Book period--about£9 million--results from lower social security payments. That reduction arises because last year, not this year, the Department of Social Security told the Treasury that its assumptions for social security expenditure looked pessimistic. Fewer people were claiming income support and the job seeker's allowance than had been expected and fewer people were turning up for interviews. Why?
It is a result of the reforms that were initiated by the Conservative Secretary of State for Social Security in the previous Government. I will give this Government credit: where they have continued and toughened up those reforms, as they have occasionally done, they have reinforced that case.
Mr. Deputy Speaker (Mr. Michael Lord):
Order. The right hon. Gentleman's time is up.
Mr. Michael J. Foster (Worcester):
I shall begin by referring to the car industry in the west midlands. The area is extremely reliant on that industry--and not merely on the huge car factories, such as Rover at Longbridge. There are many smaller component factories, such as Metalcastings Ltd. in my constituency, which is a classic example of a small manufacturing company that relies heavily on the Rover Group as a customer. I speak as a member of the third generation in my family to work in a car factory. I urge the Government to do what they can to support Rover on behalf of the many component manufacturers in my constituency and elsewhere in the west midlands.
The car industry is not a lame duck. It is not a primary industry with low profits, but one capable of being highly value-added, with high skills and a high-tech base. The industry has huge export potential and it should be encouraged. I ask the Government to ignore the editorial in The Daily Telegraph last month, which stated that "BMW should close Longbridge" and that
On the proposals for small businesses, I am pleased that the Chancellor has had time to read the December 1998 small firms survey that was conducted by Hereford and Worcester chamber of commerce before he finalised the Budget. Clearly, this Chancellor has listened to what those small firms had to say in the survey. The new rate of reduced corporation tax for small business start-ups and the lower rate of corporation tax mean that retained profits are more available for investment and that there is a greater reward for enterprise. A feature of the United Kingdom economy is that small firms rely heavily on retained profits for their investment plans. Indeed, the survey found that 56 per cent. of the small firms used only retained profits for their investments and more than half thought that it was their most important source of finance.
The extension of the 40 per cent. first-year capital allowance adds to what previous Budgets have done to give incentives to invest. Some people argue that the
measure affects only the timing of the investment, making marginally profitable projects more viable. However, coupled with the economic stability that has been brought about by Bank of England independence, prudent fiscal management, an end of boom and bust and the positive growth forecast from the Treasury, that continued tax relief may affect the volume and not merely the timing of the investment.
Of special note is the small business service and the extra help with venture finance. In the survey that I mentioned, about 80 per cent. of respondents claimed that they needed more help from the Government in that area, 36 per cent. wanted easier access to the small firms loan guarantee, 35 per cent. wanted the Government to promote a wider range of finance options, and a further 36 per cent. wanted easier access to financial information and advice. Those small businesses will thank the Chancellor for his Budget. Those are the findings of those who are active within the chamber of commerce. Imagine what they would be for those who are not active members--those who are perhaps too busy to seek such advice.
I particularly welcome the help for automated payroll support. I spent six years teaching night school students how to do manual payroll calculations and I can assure the Government and every small business out there that computerisation works. That is a further example of the Government's reduction of the burdens on business by enabling businesses to process a piece of essential work. It adds to the already enlightened approach that the Government have taken in bringing together the Contributions Agency and the Inland Revenue, an act which was welcomed in the survey to which I have referred.
I have a few remarks to make on employee share schemes. I worked in the car industry for a company that gave employee shares to the workers--me included--and I saw at first hand the real interest that employees began to take in the financial success of the company. They love sharing in the good times. It is interesting to see workers on the production lines in the huge car factories of the west midlands scanning the newspapers to find out the daily share price of their holdings. They also quiz their line managers on what has caused particular movements. That interest and involvement should be admired and encouraged.
I taught accountancy at a college, and that included teaching about labour remuneration schemes--or new labour remuneration schemes as I used to call them. Employee share schemes clearly show a sense of partnership and team work in a business. They enhance other productivity measures that the Government are keen to see in industry. In particular, they will enhance new investment opportunities that will result from reduced tax levels.
Coupled with the works council directive and our fairness at work legislation, the Budget will equip the United Kingdom for the 21st century with workers who know that they will achieve more working together than acting individually within an organisation. The employee share scheme meets all the basic criteria of a good remuneration package. It is fair to all employees, because they are all eligible. It has a regular reward because dividends can regularly be converted into more shares. It is certainly easy to operate, and it focuses on long-term commitment to a company.
7.14 pm
"Subsidies simply do not work".
The small and medium-sized enterprises that rely on the thriving car industry will welcome the Budget because it will undoubtedly make it more profitable to invest, but they also need a secure business environment in their sector so that they have the confidence to do so. I am pleased to note that the Government have recognised that. The Red Book refers to key investment mechanisms and goes on to mention spill-over effects, where one firm's investment creates new growth opportunities for other firms. That is perhaps best seen in the development of clusters of firms, where the opportunity for a particular firm to make profits depends crucially on the presence and prior investment of other firms. Rover, Longbridge, could be a classic case of that, if it gets the grant aid from the Government.
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