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Lord Taverne: My Lords, when VAT was at a lower level, at 15 per cent., there was not to my knowledge any infringement of any European Union directive. I am sure that the noble Lord will agree.

Lord Mackay of Ardbrecknish: My Lords, indeed, one is allowed to have a standard rate and two reduced rates, but one is not allowed to reduce the rates of value added tax. That was the argument that the noble Lord, Lord Taverne, was making. Some people--I do not subscribe to their view--suggest that the closer we go to Europe the more likely we are to have to extend our rates of VAT because our European friends will insist on that in the course of harmonisation. If that happens, I presume that the noble Lord, Lord Taverne, and his party will, as always, welcome those suggestions from the European Union. However, I must not be tempted into a European debate because we have plenty of them, and the noble Lord, Lord Bruce of Donington, is beginning to look at me with a smile on his face!

When we previously debated these issues I indicated some of the huge improvements that have been made to our economy. Unemployment has fallen again, as I mentioned in my speech and as my noble and learned friend Lord Fraser of Carmyllie mentioned at Question Time. The noble Lord, Lord Eatwell, posed a question about jobs being created and the fall in unemployment. As I am sure he is aware, it is most unusual for a fall in unemployment to be mirrored exactly by rises in employment. Nevertheless, in the past few years we have seen an excellent record of rising employment alongside falling unemployment. According to respective figures from the Labour Force Survey, employment has risen substantially during this recovery. Approximately 900,000 new jobs have been created since the end of 1992. Of course, all of us want to create more jobs, but I believe that the Government's economic policy does that.

As always, the noble Lord, Lord Ezra, raised the question of investment. I know that he is always concerned about investment. He said that there were not many measures in the Finance Bill to encourage investment. Whether it is inward investment or

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investment by British firms in Britain, they are encouraged to invest not only by what is contained in the Finance Bill; they are encouraged by the economic climate created by the Government. It is a climate of low inflation, low interest rates, flexible labour markets, no social chapter and no minimum wage. Those are part of the background which creates a climate which helps investment. We have certainly achieved that position and we are determined to maintain it. Perhaps I may underline the last two points that I made: no signing up to the social chapter and no minimum wage.

The noble Lord, Lord Taverne, indicated that the Liberal Democrats are now the great tax-raising party. I thought that he objected hugely the last time that I suggested that, as a taxpayer in Scotland, I might be looking at a standard rate of 30p or 31p in the pound. Of course, the Liberal Democrats are enthusiasts for the so-called "tartan tax" which would add 3p. They want more money spent on education and have resisted the two 1p drops in the standard rate of tax that we have had--25p to 24p and 24p to 23p--and it does not take a calculator to work out that one quite quickly reaches 30p in the pound. From what I heard today, the noble Lord would like to tax even more. He may wish to tax in other ways but certainly, if one was to get that from the standard rate of tax, one would need to do that.

But one cannot divorce taxation from the money that we raise from spending. The noble Lord made much of the health service. I was grateful to him for conceding that since 1979 the real terms increase in expenditure on health has been 72 per cent. and, indeed, if one looks forward to next year, it will be 75 per cent. That has come through not in the kind of demoralised health service which the noble Lord tried to portray and which is normally painted by the spokesman on health from the party opposite. That comes through in waiting times, which are at an all-time low, and in more patients being treated than 18 years ago. As the noble Lord pointed out quite rightly, there are now some remarkable treatments both in relation to surgery and drugs which were simply inconceivable 18 years ago. We have 10 per cent. more nurses and 25 per cent. more doctors than we had at the beginning of the 1980s.

The noble Lord suggested also that we should spend a lot more money on education. One must look at our record on education. I take only one statistic, which I believe is the most impressive one. Every time that I see it, I feel that we should say it again and again, not just as a party political point but as a point to make to the world outside the United Kingdom to show the dramatic improvement in our education system. In 1979, one young person in eight went on to university. Now it is one in three. The United Kingdom has the second highest graduation rate for bachelors degrees in the European Union after Denmark. As a member of this Government for at least some of that time, with a small responsibility for Scottish education at one time, I am mightily proud of our record on education, especially with regard to higher education.

Therefore, we have made huge progress over the years and that has been achieved through sensible balancing of the budget.

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The noble Lord, Lord Eatwell, told your Lordships about higher taxes and listed them. He seemed to say that he was against higher fuel duties. I shall wager that that is not what the party opposite will say when they try to cultivate the green vote over the next five or six weeks. He knows why we have decided to have higher fuel duties. We have done that as a means to encourage people to look carefully at the consumption of fossil fuels and the pollution which they create. I was not sure whether he was in favour of leaving the loopholes which we are seeking to close in the Bill by describing them as tax-raising measures.

But he made no mention of the cuts in taxation to 23p in the pound and the increase in allowances which, as the noble Lord, Lord Taverne, pointed out, help lower paid people in particular. Therefore, we have taken those steps to cut taxation. But as I said to your Lordships on a number of occasions, taxation must be balanced against expenditure. If one wishes to reduce and control taxation, one must reduce and control expenditure. Speaking also as the person who comes to this House representing the largest spending department in Whitehall, I have never noticed any support from the Benches opposite for any measure which I bring to your Lordships' House to control that social security budget.

On the general question of the PSBR, mentioned by the noble Lord, Lord Eatwell, it is on a clear downward path. The 1996 Budget ensures that that continues. The PSBR halved as a share of GDP between 1993-94 and 1996-97 and it is projected to be close to balance by the end of the century.

Your Lordships may be interested to know what that figure was during the course of the last Labour Government. The PSBR this year is less than half the average that it was under the last Labour Government. Therefore, I do not believe that we can take any lessons on the PSBR from the party opposite.

Therefore, in our economy we have strong growth, low inflation, falling unemployment, strong export performance, low mortgage rates and falling public borrowing. We have sound public finances and tax down from 33p in the pound as the standard rate in 1979 to 23p in the pound, its lowest level for 60 years. And, as I say, we have more than bettered the statutory indexation on allowances. That helps everyone in the country and, compared with the year before the last election, a family on average earnings should be more than £1,000 per year better off.

In the last debate on the economy a fortnight ago, the noble Lord, Lord Eatwell, quoted from a Lloyd's Bank economic bulletin. He did not read it all and I do not blame him for that. But I should like to give another quote from that bulletin which states:


    "There is evidence that the UK economy has become more stable recently both in absolute terms and relative to other countries. Sustaining this improvement would remove an important barrier to faster long-term growth in living standards".

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This Government are determined to sustain that improvement, and this budget helps. I commend the Finance Bill to your Lordships.

Lord Eatwell: My Lords, before the noble Lord sits down, perhaps I may be permitted to make a brief comment about the manner in which he has presented the Government's economic policies in the many debates in which I have been across the Dispatch Box from him during the past three years.

I believe that everyone in the House will agree that the noble Lord, Lord Mackay, has presented his arguments, answered questions and often evaded questions with considerable wit and charm. Of course, he has defended the indefensible, but he has done that with spirited good humour and cheerfulness and has been assisted on a number of occasions by extremely well-trained speech writers--trained by me.

Before we conclude consideration of this Finance Bill, I should like to thank him for his many courtesies in our frequent debates and to wish him well in the forthcoming long years on the Opposition Benches.

Lord Mackay of Ardbrecknish: My Lords, I thank the noble Lord, Lord Eatwell. I hope that the House has enjoyed our exchanges, which have often included the noble Lord, Lord Ezra, as much as, I suspect, the three of us have enjoyed participating in them.

On Question, Bill read a second time; Committee negatived. Then, Standing Order 44 having been dispensed with (pursuant to Resolution of 18th March), Bill read a third time, and passed.


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