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Earl Russell: My Lords, with respect, the Minister is in trouble if he gives the same reply because it was not the same question. I asked what resource implications for other departments were identified.
So far as I understand, the suggestions and proposals that we have made as regards housing have no read-across costs for other departments because we have taken into account the particularly difficult cases--I could list them--which were excluded from the January housing benefit changes, and any difficulties have been taken into consideration.
The noble Earl also asked me about the discretionary social fund budget. That is usually announced closer to the beginning of the next financial year, which will be in March, for the reason that the size of the budget relates to the performance in receiving back the social fund loans.
If I am to obey the strictures that I imposed on myself, I must now finish. However, what I found interesting about the statement of the noble Baroness is that it seemed to imply one extra expenditure piled on another.
Lord Mackay of Ardbrecknish: My Lords, as I understood the position of the party opposite, it does not want any increase in expenditure, I presume over the £90 billion that we are already spending on social security.
Will he explain what is to happen to an asylum seeker who does not claim asylum at Heathrow Airport or Dover but claims it some time later? As I understand it, the Minister answered that many of those claims were now being refused. However, that does not deal with whether an asylum seeker who is afraid of being sent into detention, and therefore does not claim asylum immediately but leaves it for some little while, should have any right to income support denied him. It is not just; and it does not make sense.
In the event of the Home Office refusing an asylum seeker, will the Minister explain whether or not the entitlement to income support will apply between that date and the date of an appeal before an adjudicator or an immigration appeal tribunal? It is a simple proposition. Will the Minister please answer?
Lord Mackay of Ardbrecknish: My Lords, the position is quite simply this. Those who enter the UK and apply for refugee status at the port of entry will be eligible for benefits until their position is decided. They
As regards people who enter the UK as visitors, tourists or students with the normal immigration clearance--they have limited leave to remain on the understanding that they do not become a burden on public funds--they will no longer be entitled to benefit if they subsequently claim asylum. I hope that that makes the position clear.
Lord Mackay of Ardbrecknish: My Lords, if they succeed in their appeal--as do a very small percentage of the considerable numbers that I mentioned--they will be eligible for benefit, I think, from that point. However, I shall check that I am right and write to the noble Lord.
Lord Ezra: My Lords, I should like to join with the noble Lord, Lord Clark of Kempston, in expressing indebtedness to the noble Lord, Lord Desai, for introducing the Motion even though the economy was exhaustively debated a week ago. However, we can now consider the state of the economy in the light of the Budget. It is rare that we have been able to discuss the Budget so shortly after its presentation. I hope that this can become a precedent.
We need to consider the Budget in the light of the current economic trends. There is undoubtedly a slow-down, as the Chancellor accepted in his Statement yesterday. The question that needs to be asked is whether this is a pause such as occurred in the mid-1980s or the precursor of a recession such as was experienced in the early 1990s. Let us hope that it is the former.
The facts are these. In the third quarter of 1994 the economy was growing by 4.3 per cent. In the third quarter of this year, as recently announced, growth has come down to 2.1 per cent. Underlying that figure is the fact that there has been a substantial amount of industrial stock-building, and with the continued weakness in the market de-stocking could begin to take place. That would bear down further on the growth rate. Within the figure of 2.1 per cent. is an exceptional expansion of North Sea oil output. That indicates that the rest of the economy has been doing worse than the figures suggest.
Against that background it is not surprising that tax revenues are noticeably less than expected and that in consequence the public sector borrowing requirement has been higher. The Government had forecast that that
Those are the current circumstances against which the Budget has to be judged. However, there are two longer-term problems. The first is the continued inadequacy of productive investment. The effect of that is that every time there is an upturn in demand, increased imports are required and there is an inflationary risk. The second long-term problem is unemployment. Even though the level in Britain is somewhat less than in a number of other European countries, it is still exceptionally high and represents an enormous drain on resources in the form of unemployment benefit, quite apart from the adverse social effects.
I suggest that in those circumstances, if the Budget were taking place in the political mid-term, the Chancellor could have been expected to be very cautious about tax reductions and to reserve what resources he had at his disposal to stimulate investment and create more job opportunities. The measures taken would need to be sustainable and to avoid any form of overheating.
However, the Budget has not come at mid-term but near the end of term. There have been considerable political pressures. We have to bear that in mind in considering the Budget. In the event there is no doubt that the Chancellor has resisted pressures from within his own party to introduce substantial direct tax reductions. He seems to have accepted that it is a year in which the priorities, while keeping inflation under control, are to stimulate investment and create job opportunities. However, the Chancellor has estimated that growth next year could be of the order of 3 per cent. That considerably exceeds other estimates and is certainly out of line with present trends. It is difficult to see how that could be achieved without a degree of stimulus.
There is little of such stimulus in the Budget. For example, nothing has been done to increase capital allowances as proposed by the CBI; and there is no hint as yet of reducing interest rates. Would it not have been more desirable at this stage to reduce interest rates rather than reduce direct tax? A reduction in interest rates would stimulate the lagging housing and construction market and boost industrial investment generally.
The Government appear to be relying to an increasing extent on the private finance initiative, as was mentioned by the noble Lord, Lord Desai. While this initiative, which we from these Benches fully support, was originally introduced as a means of adding to the level of public investment, it now seems to be intended to replace public investment. If that is the case, we ought to have a clear statement from the Government to that effect. The level of PFI investment so far has been below government estimates. Is there, therefore, not a risk that the overall level of public investment, including PFI projects, could fall at the very time when we need more capital formation in both the public and the private sectors?
I wish to conclude my views on the Budget by stating that I regret that more has not been done to deal with the long-term economic problems that we face; namely, the need for increased productive investment and job opportunities. While the Budget has been cautious, as befits present circumstances, it has not, in my opinion, sufficiently addressed those pressing priorities.
Lord Monson: My Lords, I too am grateful to the noble Lord, Lord Desai, for giving us the chance to debate the Budget Statement--the first time ever, to my recollection. I congratulate him on his ingenuity in finding a formula whereby that can be done. I am not qualified to follow him in his economic analysis and will therefore concentrate on the Budget Statement.
There are things to applaud in the Budget: for example, the concessions on business rates, especially the concessions for small businesses; and the refusal to give more tax breaks to owner occupiers. We all know that the current flat housing market is not caused by lack of tax incentives but by job uncertainties. Once the present wave of "down-sizing", "delayering" and other ugly verbs has subsided, the market is sure to recover, given that house prices in real terms are the lowest for many years.
On a personal note, as the proud owner of a very modest classic car in which I never travel more than 250 miles a year, I am naturally delighted at the exemption from road fund tax, since I calculated that last year I paid more than 60p in road fund tax alone for every mile covered.
However, there are also things to deplore in the Budget. The cut in road building, particularly the building of bypasses round towns where pedestrians risk their lives every day of the year, is bound to lead to more costly and often fatal accidents, as well as adding to the costs of manufacturers, distributors and retailers. I also deplore the fact that the tyranny of the health fanatics has led to the poor smoker being clobbered yet again. I use "poor" in both senses of the word. The well-to-do smokers will not suffer much, but poor pensioners for whom tobacco is perhaps their only source of comfort will suffer. I declare an interest as a patron of FOREST, but not in my personal capacity. As
I am uneasy at the reduction in the standard rate. Would not a further extension of the 20 pence rate have been preferable? "A penny off tax" sounds dreadfully old-fashioned and patronising, but I suppose that for all Chancellors, whatever their political affiliation, hitting the headlines is a political necessity. That is why no government, I fear, will ever dare to amalgamate income tax and national insurance, as we all know ought to be done--given that national insurance is bogus; it is not a genuine insurance premium at all. The amalgamation cannot be done because it would look terrible in the headlines, which would shriek: "Basic rate raised to 34 per cent." or whatever.
Finance Bills are almost always amended fairly extensively in Committee, so I should like tentatively to put forward some suggestions to honourable Members and right honourable Members in another place. First, as regards beer duty, I do not believe that one can complain about the level of duty on the stronger beers and lagers. But the duty on low-strength beers is too high, particularly in relation to that prevailing on the Continent. A reduction in duty on lower strength beers, by helping to alter the drinking habits of young people, would pay for itself. There would be less smuggling and less criminal damage to people and property resulting from drunken hooliganism and vandalism.
Secondly, the Conservatives claim to be the party of the family. They claim, for example, to prefer men and women of the same generation living together to be married rather than unmarried, other things being equal. How strange, then, that the tax concession on gifts made in consideration of marriage has never been raised in the 27 years since it was first fixed at £5,000. It would now need to be more than quadrupled, in order to regain its former value. Even if circumstances make it impossible to do so this year, could it not at least be doubled for the time being?
Finally, capital gains tax: by leaving the rates unaltered, the Chancellor is missing a magnificent opportunity to raise more revenue--paradoxical though that may sound. Now that the dice have been loaded against the taxpayer by the withdrawal last year of indexation relief on capital losses, individuals like myself are not--on principle--going to realise gains taxable at 40 per cent. other than in emergencies. Short-term gains--by which I mean gains on assets held for less than a year or perhaps two years--should continue to be taxed as income. But if the rates on longer term gains were reduced from the proposed range of 24 per cent. to 40 per cent. to, let us say, 16 per cent. to 27 per cent.--a reduction of about one-third--one could guarantee that there would be massive realisations and an enormous increase in turnover, resulting in a greatly increased take for the Exchequer--particularly with the prospect of a government of a different political persuasion looming on the horizon. This would be one of those rare occasions when both the taxpayer and the Exchequer stand to gain. I urge the Chancellor to consider this very carefully over the next few weeks.
Finally, I turn to stamp duty. Ad valorem stamp duty, as opposed to the fussy 50p stamp duty, fulfils all the criteria for a good tax, if any tax can be considered good, in so far as it is almost impossible to avoid; the rate is low, thereby avoiding both hardship and the distortion of prices; and above all, it is extremely cheap to collect. However, it should surely be levied on the seller rather than the buyer, sellers normally being better off. This would enormously help first-time home buyers. Obviously it is too major a step to be taken this year, but I urge the Chancellor to consider this measure for the 1996 Budget.
Lord Eatwell: My Lords, what we all looked for yesterday was a Budget that addresses the needs of the country. First and foremost this country needs, as the noble Lord, Lord Ezra, said, more high quality investment. Today, three years into the recovery, the level of business investment is only 4 per cent. higher than it was in the trough of the recession. We are informed in the Red Book that business investment will increase by only a further miserable 3.25 per cent. in 1995. Manufacturing investment is still, despite recent increases, 18 per cent. below the previous peak reached in 1989.
At the same stage of recovery from the Tory recession of 1981, investment was 28 per cent. higher than in the trough. Without investment we cannot prosper. Without new capacity we can neither compete nor create sustainable jobs. Without competitive investment we are horribly vulnerable to inflationary pressures whenever the economy grows at anything like a decent rate.
Yet despite the importance of investment to our economic future, the Budget does nothing for private investment. There are some business rate and corporation tax benefits for small firms; but these are offset by the failure to uprate the threshold for VAT registration in line with inflation, and by the bizarre proposal to alter the rules on capital gains to encourage our most successful small entrepreneurs to sell up and retire at 50, when they are in their prime.
For the large firms which undertake the bulk of Britain's investment, there is nothing. No wonder British business has no confidence in this Conservative Government. Why should it, when the Government cut investment in Britain's future? The road programme is cut by 15 per cent., piling congestion costs on industry. Hospital building and repairs are cut by 18 per cent., piling misery on the National Health Service. Housing is cut, piling more people on to the streets and prolonging the misery of the construction industry. And while the public infrastructure crumbles around us, Table 6·4 of the Red Book shows that public sector capital expenditure is projected to fall in real terms year after year into the future, even when the private finance initiative is included in the figures.
As noble Lords will probably know, the idea of the private finance initiative was invented back in 1991 by my honourable friend John Prescott, when he was Shadow Minister for Transport. Little could he have
Yesterday, Mr. Clarke relaunched the PFI, again, just as Tory Chancellors have relaunched it every year since 1992. The reality shown in Table 6·4 is that PFI-funded investment is running at a tenth of every projected figure. The PFI, as my noble friend Lord Desai suggested, is a fig leaf for cuts in government investment. The PFI is a dangerous illusion--PFI: probably fictitious investment.
Labour has put forward detailed proposals to make the PFI work effectively in the national interest. More generally, we have proposed a temporary increase in capital allowances to boost investment, together with measures to solve the key problem of long-term financing for small business and to encourage investment in the regions. And we have proposed a fundamental review of corporation tax and capital gains tax to encourage and reward long-term investment.
The second great need in Britain's economy today is a concerted attack on the growing inequality and outright poverty that defaces our country. Earlier this year, most Members of this House were shocked by the facts revealed in the Rowntree Inquiry into Income and Wealth. I say most Members, for we were treated to the distasteful spectacle of the noble Lord, Lord Mackay of Ardbrecknish, attempting to explain away the findings of the inquiry. Indeed, the Government put more effort into explaining away the facts of poverty than they have ever done into alleviating poverty.
Noble Lords will remember that the inquiry used government figures to show that around a fifth of our fellow citizens have enjoyed no increase at all in real income since 1979; that one in three children in this country are growing up in poverty (many of whom will be even more impoverished by the Government's shameful attack on the children of lone parents); and that one in five households now have no member working, compared with one in 12 in 1979.
The detailed analysis of the Budget by the Institute of Fiscal Studies, published in the Financial Times this morning, shows that once again the real incomes of the poorest 20 per cent. in Britain are to be cut by this Budget. That is the Tory way: take from the most vulnerable. I must ask the Minister: when are you going to pick on someone your own size for a change? Why are you always picking on the poorest and the weakest?
To attack poverty it is vital to get people off welfare and back into work. The Chancellor's uprating of personal allowances and his extension of the 20p band are therefore welcome; but it is still the case that most poor people taking up work will face a marginal tax rate, when loss of benefits is taken into account, of over 90 per cent.
Instead of adopting Labour's proposal for a 10p tax band to loosen the poverty trap, together with a concerted kick-start programme to get young people back into work, the Chancellor has cut housing benefit for young people. In an era in which flexibility and mobility are key elements in the efficient working of the labour market, this foolish Chancellor has encouraged the young unemployed to stay at home rather than going to look for work, thus reducing the likelihood that they will find work, and increasing the potential welfare burden. The noble Lord, Lord Mackay, demonstrated in his comments on the uprating statement that he just does not understand the mechanics of the poverty trap.
Indeed, there is little encouragement in this Budget for any of the unemployed. The cut in employers' national insurance contributions, which might help a little, is postponed to April 1997. Community Action, which helps people with learning difficulties into work, is to be abolished--attacking the vulnerable again.
There are no innovative schemes. Labour's idea of transferring benefits to employers to take on the long-term unemployed has but a pale echo in the reduction of employers' national insurance contributions. But the Red Book's projected slow-down in the overall growth of the economy also bodes ill for the labour market. And it bodes ill for the PSBR. Government borrowing is up--it was up £6.7 billion in 1995-96; there will be £8.5 billion more borrowing in 1996-97; and £10 billion more in 1997-98. We are talking serious money now. What could be more profligate than borrowing for tax cuts?
That increase in borrowing is a clear measure of economic failure--the failure to build an economy strong enough to sustain high non-inflationary levels of growth and employment, which would in turn result in healthy public finances.
And it is that failure to build a strong economy that also lies behind the relentless rise in taxation under this Government: 35.75 per cent. next year; up another half a per cent. the year after that; and another half a per cent. the year after that; and another half a per cent. the year after that, until we reach 37.25 per cent. of GDP in the year 2000. Upward and ever upward soars the Tory tax bill.
Of course, everyone knows that the Conservatives want to cut taxes. They are just not capable of doing it. And they are not capable of doing it because of the weakness of the real economy that their policies have produced.
To build that strong economy Labour has put forward detailed proposals for encouraging investment in new capacity and investment in the skills of the British people, loosening the short-termist tourniquet on the investment life-blood of our future. Labour has also put forward detailed proposals to reform the conduct of monetary policy, to aid the maintenance of macro-economic stability and low inflation. But the only guarantee of low inflation and macro-economic stability is a strong economy. That is the circle into which we have to break. High levels of investment are necessary to be competitive, to cut employment, to build a strong public sector, to secure the public finances and to fund sustainable cuts in taxation.
Nothing in yesterday's Budget suggests that this tired government have the faintest idea how to achieve those goals. Mr. Clarke was going through the motions without either enthusiasm or conviction. The Budget confirms, if confirmation were needed, that the sooner this decrepit government go and make way for a new Labour Government, the better for the wellbeing and prosperity of British business and the British people.
Lord Boardman: My Lords, I hope that the noble Lord will forgive me if I do not follow him in the arguments that he put forward about the social services, but a time limit of nine minutes does not permit me to do so. However, I know that those arguments will be fully answered from this side on a future occasion.
Perhaps I may take up one point that the noble Lord made. He prayed in aid of his case the Institute of Fiscal Studies. Perhaps I may remind the noble Lord that that was the body which said that the proposed introduction by the shadow Chancellor, Mr. Gordon Brown, of a 10p tax band was a gimmick and that appearance seemed to matter more than truth. That is perhaps a side issue in the debate this afternoon.
I thank, as other noble Lords have done, the noble Lord, Lord Desai, for opening the debate. He has given us an opportunity that we have not had before to talk about the Budget. He is a very brave man for clearly he called this debate in anticipation of a Budget that he could attack. Indeed, he described in an article in the New Statesman at about the time that he must have decided to table this debate--an article entitled "No time for bribes"--what he confidently expected would be the Budget produced yesterday by the Chancellor. Obviously, he has been disappointed. It has not been such a Budget. Those of us on this side of the House did not expect that it would be. The press seemed to anticipate such a Budget but they, too, have had to retract. As the noble Lord said in opening, it might have been worse. That was the highest praise that he gave to it, although there were a number of elements in the Budget which he had hoped for but predicted would not be in it, such as publicly paid care. The concession made by the Chancellor was one for which the noble Lord had hoped though he had wanted it to be rather more generous than it was. It would have been nice had the noble Lord given some credit to the Chancellor for doing many of the things that the noble Lord feared he would not do. But so be it.
Much of the noble Lord's speech will prove a delight for economists. Perhaps he will forgive me if I do not devote my time and limited ability to trying to match it. I hope that others will do so. But in speaking of the Budget, he might have said something about the economy which supports it--the state of the economy which is the basis on which Budgets are built. He will have to concede--although he did not do so this evening--that the state of the economy is extremely good. My noble friend Lord Clark referred to it in his speech earlier. It includes factors such as low inflation, unemployment falling by 10,000 a month, exports per head, manufacturing output, faster growth and investment.
With regard to investment perhaps I may take up the point made by the noble Lord, Lord Eatwell, who was critical of the investment that we made in this country. But 40 per cent. of the investment in Europe from America and Japan comes to this country. That is a sign of confidence. Those who could choose any country in Europe have chosen this country. It is a sign of the confidence that they rightly have in this country.
Strikes over the past two years in this country have been lower than at any other time since records have been kept, which I believe is 1891. I cannot think of any other period in my political lifetime when this country has had a better economic future to look forward to or been economically stronger. At no other time in history has that been the case. Of course, many things can be and will be improved. But if any noble Lord can suggest a time when a government of the other side produced a stronger economy than this one, I shall happily give way to him.
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