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Lord Ezra: My Lords, I too should like to thank the Minister for having repeated the Statement, and to

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support what the noble Lord, Lord Peston, has said, that, exceptionally on this occasion, we on this side of the House did not receive a copy of the Statement, something which I regard as rather rare in our proceedings on such an important issue. Furthermore, I hope that we can have time for a longer debate on this matter.

The whole issue raises the question of what is the strategy behind the Budget. The Chancellor has been knocked off course on a relatively small part of the Budget; but that calls into question whether the aim is to support our long-term economy or to build up a reserve to use for a short-term political purpose. If in the next Budget the benefits which have been derived from the improvement in the economy are used purely for short-term purposes, then I should have thought that the thinking was deficient. I should like to have an assurance from the Minister that the intention is to build up the economy; that as we derive greater benefit from the current improvements, they will be ploughed back into the business of Britain in the form of stimulating further investment; to improve our infrastructure; and to ensure that we can overcome the next downturn in the world economy more effectively than we have in the past. That is the first point that I should like to raise.

The second point is one that has already been referred to by the noble Lord, Lord Peston, and that is the interest rate increase. Was the motivation for that increase a feeling that the economy was overheating, and that it would have been imposed in any event, or was it a reaction to the Government's failure to get through their proposal for VAT on fuel? We need to know what led the Government so quickly to introduce an interest rate increase. If it is due to the overheating of the economy, are they concerned about that seriously, and can we expect further increases in interest rates in the near future?

As to the specific measures taken, I believe that most would agree that if additional revenue had to be found, then it would best be found in areas where we should have fiscal disincentives—disincentives on smoking and drinking, and to deal with the problem of pollution from transport. I must say that I concur with the last question posed by the noble Lord, Lord Peston, bearing in mind that this represented such a small proportion of the total revenues about which we are talking, was it necessary to consider raising additional taxes anyway?

Perhaps I may conclude by saying that this has been a most disturbing episode. We are not clear what is the Government's fiscal and financial strategy, and the way in which this has been dealt raises many further doubts.

Lord Henley: My Lords, I start by giving the noble Lord, Lord Ezra, a categoric assurance that obviously we intend to see the economy build up. That is what my right honourable friend the Chancellor of the Exchequer was making clear in his Statement. That is why he made the decisions that he did. I am somewhat surprised by the attitude of the two noble Lords, particularly that of the noble Lord, Lord Peston, a distinguished economist. He seemed to imply that £200 million was a figure which was not worth bothering about. I have to explain to him that we are talking not about £200 million but

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about £1 billion. That is a fairly large sum, and I suspect that his attitude to those relatively insignificant sums—as he terms them—probably explains why my right honourable friend the Chancellor of the Exchequer is the Chancellor of the Exchequer and why it is exceedingly unlikely that he will be ringing up the noble Lord to seek his advice. It probably goes some way towards explaining why all Chancellors of the Exchequer for the past 15 years have been Conservatives.

I note the noble Lord's request for a debate. He makes such requests on many occasions. I can say only that I am sure that my noble friend the Leader of the House heard his request. I should remind him that we do not debate the Budget, and this is to some extent an offshoot of that. We recently had a debate on the economy during the debates on the Queen's Speech. We normally have an opportunity to have a debate on Second Reading of the Finance Bill.

Perhaps I may move on to the subject of VAT, and whether we thought that it was a good tax, and whether we shall be returning to it at some later stage. We believe in a broadly based tax system. We thought it was therefore sensible to go ahead with the second stage of VAT on fuel, not least because we provided considerable protection for pensioners, disabled people and other vulnerable groups. We should have preferred not to have increased excise duties, but we were left with no option. Obviously it is not without cost.

The most important thing is that we maintain healthy growth by sticking to the path mapped out for public borrowing. I can assure the noble Lord that we shall continue along that line. The noble Lord asked about the £100 million. As that was part of the compensation for the second stage of VAT on fuel and power, it is only right that it should have been withdrawn when the VAT vote was lost.

Both noble Lords asked about the rise in interest rates. Our monetary policy is based on the inflation outlook, and the half point rise yesterday was justified in those terms. We are committed, unlike noble Lords opposite, to avoiding the boom/bust cycle. It is important that we made that increase to maintain confidence in our finances. I do not wish to speculate on any future tax increases.

Perhaps I may deal with one or two small points. The noble Lord, with his Socialist interest in champagne, asked whether the increases announced would apply to it. I can assure him that the earlier reduction will still apply, because sparkling wine was taxed at a rate higher than similar products, including even stronger fortified wines, and that seemed wholly anomalous. Obviously the newly adjusted downwards rate will be adjusted upwards by the same percentage as other products and therefore the noble Lord will find a small increase of some 7 pence also on his bottle of champagne, but I dare say that he will manage to live with that.

Lastly, perhaps I may repeat that we are as committed as anyone to fighting genuine loopholes fully. We have done so on many occasions, and on occasions the party opposite has voted against those proposals. The Opposition's proposals put forward by the noble Lord's

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right honourable friend were not loopholes but taxes on business. I hope that that deals with most of the points put to me by the two noble Lords.

4.10 p.m.

Lord Boyd-Carpenter: My Lords, I warmly support the request of the noble Lord, Lord Peston, that your Lordships' House be given an opportunity to debate this Statement in full. It is slightly absurd that, while the two party spokesmen opposite have a reasonable allowance of time, the rest of us are confined within 20 minutes. Given the immense importance of the subject and the wide variety of expertise in this House, it is absurd that we should be so confined. I beg my noble friend seriously to consider arranging a full day's debate on the Statement in order that all Members of your Lordships' House can contribute.

There was little, if any, mention in this Statement of the Government being in the situation in which they were placed as a result of the decision of another place, reducing public expenditure. Surely that would have been the best method of adjusting the balance. I remind my noble friend that this year legal aid is being increased by £100 million. If we are so hard pressed and in such difficulties that we have to increase taxes in order to achieve a balance, surely thought should be given substantially to cutting back on legal aid.

Lord Henley: My Lords, as regard the first point that my noble friend made, I can only express a degree of sympathy. I recognise that there is considerable expertise in this House; we have as Members former Chancellors of the Exchequer, Chief Secretaries and writers of letters to The Times. I remember a great letter that was written some 15 years ago. I imagine that many people would care to debate these matters and my noble friend the Leader of the House heard what my noble friend Lord Boyd-Carpenter said. However, there are other occasions on which we can debate them.

My noble friend made a substantive point about reductions in public expenditure. My right honourable friend believed that after going through the public expenditure round it would be invidious to go back to departments to seek further reductions. The Government are committed to seeing a proportion of GNP that is taken up by public expenditure reduced over the years. That is what my right honourable friend the Chancellor of the Exchequer would like to see. I shall not comment on particular departments, although my noble friend raised the question of legal aid. The general point is that it would have been invidious to go back to departments after having achieved a settlement.

Lord Marsh: My Lords, does the Minister accept that many people will agree with the noble Lord, Lord Peston, that the measures that have been outlined are a preferable alternative to the Government's policy? That is not a unique discovery on my part because for some months almost everyone in the country has been saying that. The alternative measures that have been announced are preferable to what was taking place.

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Will the Minister accept that the worrying aspect is that £1 billion is a great deal of money as part of a Budget, because a Budget is made up of billions of pounds? The Government got into this situation as a result of their refusal to listen to anything that anyone said in this connection. They were prepared to sacrifice their majority and turn the issue into a major crisis. Does the Minister agree that that is a mixture of stupidity and, even more frightening, a growing level of crass arrogance?

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