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Mr. Tim Loughton (East Worthing and Shoreham): I am glad that the hon. Gentleman has come round, in terms of what is happening to the euro. Will he therefore condemn the Chancellor for today's fifth round of sales of our gold stocks at a time when the gold price is falling further and the largest chunk of that money is being reinvested in the euro, which the hon. Gentleman has just admitted is weakening?
Mr. Plaskitt: No, I will not. The hon. Gentleman, who serves with me on the Select Committee on the Treasury--
Mr. Loughton indicated dissent.
Mr. Plaskitt: I beg his pardon--he does not. He should nevertheless know that the Treasury Select Committee has had detailed breakdown figures from the Treasury on the gold sales, and the reinvestment in not just in the euro but in a basket of currencies. So far, the Treasury's move in switching the nature of our deposits has produced a net gain for the Exchequer. So the hon. Gentleman does not need to worry about the gold sales.
There is no getting away from the fact that it is hard going for manufacturing companies which predominantly export to the euro zone. I believe that the Government and the Bank of England are right not to attempt to lower sterling against the euro artificially--it would not work. Sterling's strength against the euro does, after all, help to hold down inflation. Far bigger risks of inflation would result from a sterling devaluation than from holding the current position.
The best bet, and the best way in which to help hard-pressed manufacturing companies in the west midlands and in my constituency, is to deliver the measures in this and previous Government Budgets to give direct assistance with investment. That is why, despite the export struggle that many in the manufacturing sector face, we see growing investment, growing output and--certainly in my constituency--growing employment. The combination makes it possible to live with the weak euro until the rate improves, as the European economies grow.
Mr. Nick St. Aubyn (Guildford):
Is there not a more fundamental reason why the euro is weaker against sterling? The European labour markets are far more inflexible than ours. That is why the euro is weaker--it is a fundamental difference. In the past few years, the Government have gone in the same direction and made our labour markets less flexible, with the danger that our currency may also weaken in the future.
Mr. Plaskitt:
I am interested in the line that I often hear from Conservative Members, who have spent years extolling the virtues of the free market. The euro is doing what I think an international currency is supposed to do
I turn to the third problem, which I cited at the outset and which has plagued our economy for so long. I refer to the productivity gap and skills shortages. There is a significant productivity gap between us and our competitors. It is part of the under-investment by both industry and Governments. Indeed, Governments have been responsible for historical under-investment in education and training. There is no more important investment than in the skills of the work force. The economy needs a strong skills base. Hence it is vital to raise education investment, across the board, as we are doing. It is vital to help reskilling across the board, as we are doing. The labour market needs to grow not only in quantity but in quality. It is therefore impressive that 800,000 more people are working than in 1997. It is also impressive that the quality of the work force is improving through greater opportunities to train and reskill.
Government measures across the board are helping us deliver on these objectives. The minimum wage, the working families tax credit, child support, the new deal--now extended--all help to make work pay and raise productivity. The lower marginal rates of tax and national insurance for those moving into work are also extremely important. We inherited from the previous Government a situation in which more than a million people moving off benefit into work faced an effective marginal tax rate of 70 per cent. That marginal tax rate is now virtually eradicated, and the further measures announced by my right hon. Friend today in extending the new deal to those over 50 are very welcome.
Finally, the headlines in tomorrow's newspapers will undoubtedly be grabbed by a few key features. They are, of course, excellent features. However, the real story of the Budget is that it makes it possible to have targeted tax cuts and increased public investment in vital areas without any short or long-term risk to the economy. It is possible to do those things only because of the platform of stability that we have created.
Mr. William Thompson (West Tyrone):
As someone from one of the minority parties, I perhaps feel able to look at the Budget more sympathetically and impartially than members of the two main Opposition parties.
What we have heard today is certainly very interesting. When the Chancellor of the Exchequer comes to the Dispatch Box, he paints a glorious picture of the economy. He tells us that we have never had it so good, and that it is going to get better. Then Conservative Members say that that is not true--it is all a con trick. I can perhaps be more impartial and see where the truth really lies.
From experience, I have discovered that many people believe that they are saving on tax when their income tax comes down. When many people hear today's news that the basic rate of income tax is to drop from 23 per cent.
to 22 per cent, they will think, "My wage packet will be bigger in the months ahead." What they fail to recognise is that, when the Government reduce income tax, they generally take the money back through indirect taxation. That has been the pattern of all Governments, as well as the pattern of this Government. It has been acknowledged that the overall percentage of tax has been rising. Income tax may have gone down, but the total amount of taxation has gone up.
With the increases announced in today's Budget, many people will indeed be worse off. For example, someone who smokes will find that a packet of cigarettes is going up by 25p. I am not in favour of smoking. However, because of the continual increase in cigarette prices, the Exchequer is getting less money from taxing cigarettes than before. There is also the problem of smuggling. As the price of cigarettes goes up, more and more smuggling takes place. It is difficult to control or stop, with the result that the tax benefit will probably continue to go down.
We are told that 1 million pensioners will be 20p a week better off. What a paltry sum! A pensioner who buys one packet of cigarettes a week will lose that 20p immediately. If he drives a car, he will be much worse off, because every gallon of petrol will cost 8p more. When the reduction in income tax is seen against what will be taken back in indirect taxes, the country at large will probably be worse off.
Vehicle excise duty and road fuel duty cause tremendous problems in Northern Ireland. Diesel prices will increase, and, as the right hon. Member for Penrith and The Border (Mr. Maclean) said, excise duties differ greatly between European Union countries. That is a particular problem for Northern Ireland, because the excise duty for a 40-tonne lorry is £1,278 in the Republic of Ireland and £5,750 in Northern Ireland. Many road hauliers cross the border to buy diesel, and many register in the Republic of Ireland to save considerably on excise duty. My constituency is adjacent to the border, and nearly every petrol pump for 20 miles on the United Kingdom side has been closed down because people cannot keep them going. Drivers cross the border to fill up. Inevitably, a tremendous amount of money--estimated at around £200 million--is being lost to the Exchequer. The Chancellor must consider whether any remedial action can be taken.
Northern Ireland's proportion of the consumption of petrol in the whole of Ireland is falling. It was 35.9 per cent. in 1994, and has dropped to 24.2 per cent. In the Republic of Ireland, it was 64.1 per cent. and is now 75.8 per cent. In 1995, diesel sold in Northern Ireland represented 27.7 per cent. of the whole of Ireland's consumption, but that fell in 1998 to 16.1 per cent., and has probably fallen further since. A lot of money is being lost to the Exchequer and remedial action is necessary.
Rev. Martin Smyth (Belfast, South):
It might be argued that the same form of taxation should apply to the whole of the United Kingdom, yet the highlands and
Mr. Thompson:
I thank my hon. Friend for making that point, which emphasises mine. I hope that those on the Government Front Bench will not just listen but do something.
Mr. Maclean:
I hope that my hon. Friend the Member for West Tyrone (Mr. Thompson) will communicate his message to the BBC newsroom. Last week, a BBC programme waxed lyrical about the wonderful benefits of joining the single currency, giving the example of how much cheaper fuel was in the Republic of Ireland. The BBC newsroom put that down purely to the benefits of the single currency, but my hon. Friend could point out that fuel is cheaper in the Republic because the Irish Government levy less tax on it than the British Government do.
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