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Commons Chamber

Volume 205: debated on Tuesday 10 March 1992

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House Of Commons

Tuesday 10 March 1992

The House met at half-past Two o'clock


[MR. SPEAKER in the Chair]

Private Business

Aire And Calder Navigation Bill

Lords amendments agreed to.

Oral Answers To Questions


Unemployment, Leicester


To ask the Secretary of State for Employment by how much and by what percentage unemployment in the city of Leicester rose between January 1991 and January 1992.

In the Leicester local authority district, unadjusted unemployment increased by 4,877 or 40 per cent. in the 12 months to January 1992.

Is not the increase of 40 per cent. absolutely disgraceful? It is due to the inefficiency of the Government which no amount of Budget bribery can possibly erase. Does the Minister know that while the number of jobs went down and unemployment went up, crime in the county of Leicestershire rose by more than one third over the past 12 months, nearly double the national rate, but the chief constable has said that in the next year the force can spend £l million less? From the start of the day to its finish, the Government have got their priorities wrong.

The key question is whether the Government's policy will lead to an increase in unemployment or tend to reduce it. The hon. and learned Gentleman, who is an authority on this subject and a distinguished member of the Select Committee on Employment, must ask himself in all seriousness about the consequences for the supply of job opportunities of Labour's policies on the minimum wage and increased social charges. Those policies would have serious consequences for job opportunities.

Are not the best chances for employment in the city of Leicester and the county of Leicestershire today's Budget and the re-election of the Conservative Government?

My hon. Friend is absolutely right. We must remember that 300,000 people who go into jobcentres find a job within a month.

Value Added Tax


To ask the Secretary of State for Employment how many firms were registered for VAT in (a) 1979 and (b) 1991.

At the end of 1990, the latest date for which figures are available, the number of businesses registered for VAT in the United Kingdom was 1·7 million, compared with 1·3 million at the end of 1979—an increase of almost a third.

Although the figures show a dramatic increase, is not my right hon. and learned Friend being characteristically modest? Does he forget the increase to £35,000 in the exemption limit for VAT? Surely, were not many more businesses created last year?

I was being characteristically direct in answering my hon. Friend's question. Of course, the increase in the total number of firms over the period was not one third, but two thirds—to nearly 3 million, or an average increase of almost 500 every working day.

Pay Statements


To ask the Secretary of State for Employment if he will introduce legislation to ensure that all employees have a right to an itemised pay statement.

Most employees already have the right to receive an itemised pay statement. We have no plans to extend the current legislative provisions.

The Minister is aware that those who work for 16 hours or less do not have the right to itemised pay statements unless they have worked for five years and that those who work less than eight hours have no right to them at all. Employees are scared to enforce their rights because if they did they would be unfairly dismissed. Should not every employee have that right and should not the Government therefore scrap the two-year rule, or are the Government determined to keep up their sweat-shop policies, contrary to what is happening in the rest of Europe?

I have received no representations on that matter and I am not aware of any disquiet among the groups that the hon. Gentleman described. As ever, we must balance the temptation to introduce such rights willy-nilly against the unreasonable cost burden that might rest increasingly on employers, especially those with only a few employees. I believe that we have the balance about right. If there is any question of unfair dismissal, those concerned always have the right to go to a tribunal, if they are protected in the way that the hon. Gentleman described. I remain to be convinced that there is a problem and that therefore we should necessarily consider the solution that the hon. Gentleman suggested.

Is not this one of several proposals that would add to the costs of employing part-time workers? Will my hon. Friend confirm that the directive on part-time working would mean that 1·75 million part-time workers, and their employers, would have to pay national insurance contributions?

My hon. Friend is correct. The Labour party has said that it would sign the directive on part-time working and many others, which would place an intolerable cost burden on British industry. That suggests that the Labour party does not care about employment. On the contrary, Labour Members are prepared to place ever more burdens on British business, which would only destroy jobs. That must be utterly reprehensible.

Child Care


To ask the Secretary of State for Employment what discussions he has had with employers regarding child care.

The Advisory Committee on Women's Employment, which I chair and which includes employer representatives, has discussed child care on a number of occasions.

The tax concession in the 1990 Budget, which allowed tax relief for employees on the benefit of nursery facilities provided by an employer, has been instrumental in promoting child care arrangements.

I am sure that the Minister is aware that the Midland bank, which has done much to develop child care, has said of the Government recently that they keep calling its representatives to conferences at which they urge the importance of child care, but they do nothing. Is it about time that the Government took the opportunities of our youngest children seriously, gave their parents the opportunities that they are looking for and made sure that children receive the very best start, which is something that is taken for granted in other European countries?

I have already referred to the tax concession in the 1990 Budget. That has shown that the Government are concerned. In the European Community, the United Kingdom has the highest proportion of women in work, with the exception of Denmark. About 63 per cent. of women of working age with children are economically active. That suggests that we are doing quite well by working women.

Does my hon. Friend agree that the United Kingdom has many more women in work than any other European nation and that tax relief on workplace nurseries, which was introduced in the 1990 Budget by the then Chancellor of the Exchequer, my right hon. Friend the Prime Minister, has greatly assisted many working women?

My hon. Friend is right. It is too often forgotten—this is another dimension—that in Britain the age at which children start school is comparatively young. Children in Britain start school at five, whereas the starting ages are six in France, Germany and Italy and seven in Denmark.

When the Equal Opportunities Commission, in its equality agenda, describes child care facilities as meagre in the extreme compared with the facilities that are available in the rest of Europe, when we know that the women in work to whom the Minister has referred are often forced into part-time work because of inadequate child care arrangements and when we bear in mind his entirely complacent answer, is not it a good thing that a Labour Government are coming who will ensure that child care provision is expanded?

In a recent survey of women who work part time, only 6 per cent. said that they would prefer to work full time.

Employment Action


To ask the Secretary of State for Employment how many trade unions are taking part in the employment action programme.

I thank my right hon. and learned Friend for that reply, which is a great disappointment to all my right and hon. Friends. Does he agree with me that proposals to pay more to those taking part in the programme will mean inevitably that fewer places will be available?

My hon. Friend is absolutely right. It is typical of the Labour party's attitude that it would fritter away additional resources by spending more money not on increasing the number of training places but on paying more to those already in training places. There would be no net benefit to training.

Instead of attacking trade unions, why does not the right hon. and learned Gentleman attack unemployment? Why does not he admit that since last year's Budget more than 500,000 people have been added to the dole queue? At the same time, there are 1 million fewer jobs in the economy. If present policies continue, hundreds of thousands of people will stand in fear for their jobs. Is not it the truth that the right hon. and learned Gentleman's Government, having created recession and unemployment, do not care about the casualties of their policies?

The hon. Gentleman's synthetic protestations about unemployment would carry a little more conviction if he were not so determined to advance policies which, by introducing a national statutory minimum wage, by embracing the European Commission's social action programme and by imposing a jobs tax on employers, would make unemployment far, far higher than it otherwise would be. Even the proprietor of the aptly named Walworth Castle hotel in the hon. Gentleman's constituency near Darlington has said:

"Labour's plan would be nothing short of disastrous."

Payroll Levy


To ask the Secretary of State for Employment what recent representations he has received on the subject of the introduction of a statutory payroll levy.

I have received representations from various sources on the subject of a statutory payroll levy related to employers' training expenditure. The most recent, from the Institute of Directors, firmly opposed

"any system of levy or tax that discriminates between employers on the basis of assumptions about what a firm spends on training".

Is my right hon. and learned Friend aware that, among the many business men who have condemned the payroll tax as likely to cost companies money and, therefore, jobs, is the president of the chamber of trade in Teesside? Does my right hon. and learned Friend agree that if the Labour spokesman is unable to convert to Labour policies those business men in his immediate area, he is also unlikely to convince the country?

I entirely agree with my hon. Friend. Increasingly, we find protests from employers in the area represented by the hon. Member for Sedgefield (Mr. Blair) about the effect of his policies and those of the Labour party. The truth is now out—Labour's policies would be disastrous for jobs.

Is the Secretary of State aware that the labour force survey was published today? Will he take time to explain to the House why, in the past year, 177,000 fewer people were in training in Britain—a reduction of 5·4 per cent? Whatever happened to all the talk about a world-class skills revolution? What about the fact that £20 billion is supposed to be spent by industrialists? Is not it really the case that the Government do not care about training, that we have a disastrous training record and that it is high time that we had a Labour Government to tackle the problems?

The same survey showed an increase of more than 100 per cent. between 1984 and 1991 in the number of people receiving training paid for by their employers and seven times as many people receiving training now as in 1979. That is the reply to the Opposition's synthetic protestations. [Interruption.]


To ask the Secretary of State for Employment what has been the rate of growth of self-employment from 1979 to the present time among (a) men and (b) women.

The number of male and female self-employed in the United Kingdom grew by 55 and 109 per cent. respectively between 1979 and 1991.

Is my hon. Friend aware that Britain now has more than 3 million self-employed people, of whom 750,000 are women, many of them in south Derbyshire? Does he share their view that they work hard for their money, that they pay quite enough tax and national insurance and that they do not want to see what would be the worst disaster for such businesses in future—an increase in income tax and national insurance, as proposed by the Labour party?

My hon. Friend makes an important point. We are entitled to take great pride in the fact that so many more women have now chosen self-employment to promote their standard of living and that of their families. It is also true to say that if the Opposition parties were ever in a position to put their policies into effect, that self-employment record would inevitably be gravely harmed and the cause of women in particular would suffer much more.

The Minister knows that many self-employed are concentrated in the construction industry. Does he know that thousands of construction workers in Wales are out of work, yet Shelter Cymru tells us that 63,000 families in the Principality have experienced homelessness in the past year? Why cannot this incompetent Government get their act together and put those building workers to build houses for those families?

That must be a matter for the local authorities. I am often at a loss to understand the sense of priorities or the lack of priority among Labour-controlled local authorities in particular. They seem determined to spend their community charge payers' money on the most irrelevant and frivolous projects rather than concentrating on the real problems that the hon. Gentleman described.

British Companies


To ask the Secretary of State for Employment how many British companies have 1,000 employees or more.

Recent research by the university of Warwick indicates that there are 3,024 undertakings in the United Kingdom with 1,000 employees or more.

Given that the United Kingdom has so many undertakings with more than 1,000 employees, does my hon. Friend agree that we would be disproportionately affected by the draft European directive on works councils? Will he assure the House that he will vigorously resist that further instance of discrimination against British industry?

Indeed. My hon. Friend has accurately described the position. The figure of more than 3,000 which I just quoted, when compared with 873 similar undertakings in France and 479 in Italy, shows that the United Kingdom has far and away more undertakings with more than 1,000 employees than either of our major European partners. That means that the irrelevant suggestions being made by the European Commission for mandatory information for and consultation with employees would bear much more heavily on British business than it would on our major competitors. That is why British industry is so adamantly opposed to that ridiculous directive. I give my hon. Friend the absolute assurance that the Government will continue to oppose it root and branch.

Why does the Minister have a graph on his tie of the economy in decline under the Conservatives?

I have been waiting for some time for hon. Members to refer to my apparel and I am duly flattered. If it helps the hon. Gentleman, I shall try to wear my tie upside down the next time I am at the Dispatch Box.

Is my hon. Friend aware that many of the companies that employ more than 1,000 people employ many women part time? Those women choose to work part time because it fits in with looking after their families. Please, please, please can we not destroy those part-time jobs?

My hon. Friend illustrates yet again that Conservative Members regard part-time employment as something which is productive and honourable, and not as something which is shameful or sordid. I believe that the millions of women and men who choose to work part time will understand very well that the Labour party seeks to destroy their jobs whereas the Government are in the business of protecting them.

The Minister will know that we appreciate and share his concern about the handicap that might be placed on British industry by the European social charter. Before the Minister takes the mote out of Europe's eye, should not he take the beam out of his own? Are not many British firms unduly handicapped by the harassment they get from regulatory bodies such as the Fair Employment Commission?

The hon. Gentleman has made an important point. I must tell him that I have recently written to all the representative small business organisations in the United Kingdom asking them to give me examples of where excessive regulation is impeding their business. I am looking forward very much to their responses. I give the commitment that, when the Government are re-elected, we shall continue to fight to reduce the burden of regulation on British industry in order to make us even more competitive than we are already.

Unemployment, Holloway


To ask the Secretary of State for Employment what is the latest unemployment rate for the Holloway travel-to-work area; and what were the comparable figures for June 1987 and May 1979.

Holloway falls within the London travel-to-work area. In January 1992, the latest available date, the unemployment rate for the London travel-to-work, area was 9·5 per cent., compared with 8·7 per cent. in June 1987. There is no rate available for this travel-to-work area for May 1979.

Is the Minister aware that within the borough of Islington, which includes the Holloway travel-to-work area, fewer than 100 school leavers last year were able to find jobs and that, at the Holloway unemployment office, there is a gap between the 32 registered vacancies and the 11,600 people who are registered as unemployed? Does the hon. Gentleman recognise the terrible toll that that places on the community and, in particular, on the young people who cannot get work and see the possibilities of career development and a decent standard of living slipping away from them? When will he do something to bring jobs to inner-city areas?

During the last Employment Question Time, the hon. Gentleman asked me about job clubs in his constituency, and I have written to him about the matter. He and the House will be pleased to know that, in the 10 months to January, 1,607 people were placed in work as a result of their experience in a job club in his constituency.

Does my hon. Friend agree that one of the reasons for the unemployment that exists in that part of Islington is the way in which the political friends of the hon. Member for Islington, North (Mr. Corbyn) run Islington council? They specialise in squalor; they do nothing to help business; they cannot collect their rents; they did not collect the rates; they do not collect the community charge; and they keep homes empty. Is that the reason why the hon. Member for Islington, North will be swept away by the excellent Tory candidate in his constituency?

My hon. Friend has made a good point. Over the past 10 months, Holloway jobcentre has placed 2,006 people in jobs.

Disabled People (Unemployment)


To ask the Secretary of State for Employment what is the current rate of unemployment for (a) registered disabled people and (b) disabled people generally.

The 1991 labour force survey reported 18·2 per cent. unemployment among people in the labour market who had a health problem or disability which limited the kind of work that they could do. I am afraid that we do not have later figures, figures for registered disabled people or figures comparable with the monthly claimant count.

Is the Minister aware that an unemployment rate among disabled people nearly four times as high as that among able-bodied people cannot be justified? As this is the Government's 13th hour and it is now too late for them to help, will the Minister explain to disabled people why the Secretary of State for Employment spends so much of his time rubbishing trade unions, rather than finding jobs for those people?

I think that, regrettably, there has always been a higher unemployment rate among people with disabilities than among the rest of the population. We attempt to assist, however, and the total number of people who have been helped through our sheltered employment programme has increased substantially during the past 10 years. Expenditure has risen substantially, from £88·2 million to £112 million. The number of people who have been helped through assessment and rehabilitation centres has also risen and expenditure on special assistance schemes has increased substantially. All those measures were designed to assist people with disabilities.

Will my hon. Friend confirm that many companies find that the loyalty given to them by disabled people more than makes up for any days that they may have to take off work to undergo treatment? Will he tell the House just how much effort he and his colleagues in the Department have devoted in recent years to bringing that message home to employers?

My hon. Friend is absolutely right. The best way—indeed, the only way—in which we can make progress in that regard is by affecting attitudes and the culture that exists within companies. The Government have put a great deal of effort into persuading employers to take seriously the issues involving minorities in employment, including people with disabilities.

Does the Minister agree that discrimination against people with disabilities clearly exists in employment and that it was therefore a great pity that the very modest Bill presented by my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris) was talked out by supporters of the Government?

I think that the hon. Gentleman is referring to a Bill relating to advertisements—

Order. If the Minister has not got the message, perhaps he had better be given it.

The Bill presented by my right hon. Friend the Member for Wythenshawe dealt with discrimination against people with disabilities, particularly in regard to employment and jobs.

I do not believe, and the Government do not believe, that such a legislative approach is the right way to deal with the problem. Since 1944, for example, we have had a quota system which has never been effectively operated under Governments of either party. Rather than adopting an inappropriate legislative approach, we must persuade people and affect attitudes.

What would be the impact of the imposition of a minimum hourly wage of £3·40 on the disabled, to whom employment is so important in terms of dignity of life?

My hon. Friend makes a very important point. Many disabled people, often on income support, may earn relatively low wages, and the consequences of a minimum wage would be a withdrawal of job opportunities which would probably affect them in particular.

Does the Minister accept that an example would be a great deal of help to employers in the private sector? Will he acknowledge that Government Departments have not even come near their own target of 3 per cent. disabled workers?

We take very seriously our attempts to secure employment for disabled people in the Government. It is very difficult to meet the 3 per cent. target, but we are doing well in aiming towards it.

Industrial Action


To ask the Secretary of State for Employment how many working days were lost through industrial action in North Yorkshire during 1979; what is the most recent comparable figure; and if he will make a statement.

Information is available only for the Yorkshire and Humberside region, where 55,000 working days were lost during 1991, the lowest for more than 25 years. The 1991 total is nearly 60 times lower than the 3·1 million working days lost in the same region in 1979.

These figures illustrate the achievements of this Government's step-by-step industrial relations legislation. The fact that the number of working days lost in the United Kingdom as a whole in 1991 was the lowest since records began 100 years ago is testimony to our success.

Does my right hon. and learned Friend agree that those dramatic figures are eloquent testimony to the fact that under Labour the number of days lost was so dramatic that it resulted in near anarchy and that, as a result of our legislation, there are now proper secret ballots and democracy in the workplace? In the unlikely event of our ever having a socialist Government again could not we expect to return to those appalling figures of industrial anarchy?

I agree with my hon. Friend. One of the first things that the Labour party would do would be to change the law to make it easier for trade unions to strike. They would be aided and abetted in so doing by the Liberal Democrats. Their recipe for recovery is more strikes, more frequent strikes and more damaging strikes. That is the way in which they think that they can make the economy grow.

Can the Secretary of State say how many working days have been lost through unemployment in the north-east?

I can also tell the hon. Gentleman how many days would be lost as a result of the extra unemployment that would be caused by his party's policies.

Unemployment, Sheffield


To ask the Secretary of State for Employment what are the latest unemployment figures for the Sheffield travel-to-work area expressed as a percentage.

In January 1992, the unadjusted rate of unemployment for the Sheffield travel-to-work area was 11·4 per cent.

Is the Minister aware that Sheffield is plunging into its deepest recession since the war, that according to new research by the city council's department of employment the true figure for unemployment is 17 per cent. compared with the Minister's adjusted figure, and that even the Association of Yorkshire and Humberside Chambers of Commerce is now calling on the Government to do something about a sinking economy? In the words of the regional secretary, sitting there and doing nothing is no longer an option.

I am sure that the hon. Gentleman does not want to talk down his home city. I cannot give credence to the 17 per cent. figure. In spite of the recent very regrettable rises in unemployment, in his constituency and in Sheffield as a whole unemployment remains a quarter lower than it was at the last election and a third below its peak in 1986.

Does the Minister agree that whether in Sheffield or throughout Yorkshire as a whole the history of a great industry and of a great industrial heritage was based on innovation and entrepreneurism? Does he also agree that what Yorkshire as a whole needs to restart the economy is low tax, low inflation and another Conservative Government?

My hon. Friend's question speaks for itself, and no doubt we shall hear more about such matters in a few minutes.

Merseyside Training And Enterprise Council


To ask the Secretary of State for Employment when he next plans to meet the Merseyside TEC to discuss funding.

My right hon. and learned Friend and I meet TEC chairmen on a regular basis to discuss a range of issues, including questions of funding.

What advice or comfort can the Under-Secretary of State offer to those providers of training on Merseyside who have been driven out of business because insufficient resources have been allocated to the Merseyside TEC to provide contracts to them? What succour or comfort can he offer to the unemployed in my constituency of Knowsley, South, where 65 jobless now chase every vacancy advertised in the jobcentres? How can he possibly justify cutting training which is so desperately needed by a work force without jobs such as that in Knowsley, South?

There has been an increase in the overall budget made available by the Government for training. Negotiations between particular TECs and providers must be a matter for those TECs and providers.[Interruption.]

Order. May I ask the House not to indulge in private conversations. It is difficult to hear even at this end.

If the protests that have been made about cuts in training places on Merseyside are simply synthetic protestations, as the Minister said earlier, can he explain why projects such as the Hexagon project on Merseyside face closure? How can he explain that when 71,000 people in the city of Liverpool alone are currently unemployed? Surely that is an area where more training, not less, is needed.

I know that the hon. Gentleman is sympathetic to the idea of localism that lay behind the creation of the training and enterprise councils. The TECs are in the best position to make informed judgments about the qualities of particular providers. I will not second-guess the judgments made by Merseyside TEC in respect of any provider, including Hexagon.

North London Training And Enterprise Council


To ask the Secretary of State for Employment what discussions he has had with the chairman of the North London TEC to discuss the contributions of trade unions to training.

Is my right hon. and learned Friend aware that the day after the Transport and General Workers Union's disgraceful decision to boycott Government training schemes, the union was described as "the Labour party in so many ways"? Is he aware that the right hon. Gentleman who so described it was none other than the Leader of the Opposition?

I am. The Transport and General Workers Union voted to boycott youth training, to boycott employment training and to boycott the training and enterprise councils. Not a word of condemnation of that disgraceful position has come from the Leader of the Opposition, who is sponsored by that union, or from the shadow spokesman on employment, who is also sponsored by that union, or by any of the renegade crew who man the Labour Front Bench.

Unemployment, North-West England


To ask the Secretary of State for Employment what new policies he has to reduce unemployment in the north-west region.

The Government's main role is to ensure a sound and stable economic framework within which enterprise can flourish and the battle against inflation can be won. In addition, since 1979 regional selective assistance worth £326 million has been committed to the north-west, creating more than 60,000 new jobs and safeguarding more than 60,000 existing jobs.

Is not it patently clear that the Conservative party and the Minister have no understanding whatever of what unemployment means to the unemployed, their families and communities? After 13 years, it is an absolute disgrace that no input has been made to tackling unemployment. The Government have failed absolutely to tackle unemployment except for some cosmetic surgery. Is not it about time that the Government recognised that the only cure for unemployment is to get rid of the Conservative Government as soon as possible?

If the hon. Gentleman really cares about unemployed people, will he join me today in calling on his Front-Bench colleagues to abandon their policy of a national statutory minimum wage, to abandon their jobs tax and to abandon their embrace of the European Community social action programme so that we can avoid the disastrous consequences for employment that would follow from such policies?

Will my right hon. and learned Friend confirm that the north-west of England is coming out of recession faster than the rest of the country? Will he also confirm that we are leading the way in many training schemes and that there is no doubt that housing—[Interruption.] Will my right hon. and learned Friend confirm that there is no doubt that, in housing and in many other matters, the north-west of England is showing the way and will continue to show the way?

I agree with my hon. Friend, who will continue to champion the cause of the north-west in the next Parliament. The only things that could put a stop to the recovery from recession in the north-west of England and elsewhere are the policies of the Labour party—for example, the sharpest ever peacetime tax increase, the national statutory minimum wage, and changes in the law to encourage strikes. Those would be the policies to put a stop to recovery. [Interruption.] We shall ensure—[Interruption.]

Training Schemes


To ask the Secretary of State for Employment how many unemployed people are currently engaged in training schemes.

There are currently some 300,000 young people on youth training, and around 150,000 people on employment training in Great Britain. Last financial year, some 740,000 people entered Government training programmes, compared with 110,000 in 1978–79—a sevenfold increase.

Is not it a fact that during the 13 years of this Government, 25 methods have been found to try to prove that unemployment is massively smaller than it is? Is not it also a fact that the unemployed are generally on useless training schemes and that, therefore, unemployment and the slump are far more massive than the Government care to admit?

The hon. Gentleman is talking characteristic nonsense. More than 80 per cent. of those on youth training gain a qualification or a job, or enter a further education course. We are the only country in Europe to guarantee a two-year training course leading to a qualification for 16 and 17-year-old unemployed young people. That is what the hon. Gentleman should recognise.

Does my right hon. and learned Friend agree that since 1979 the Government have introduced more training places and a wider range of training courses both in width and in depth, in a way that has never been attempted before? We have spent far more money. Therefore it is nonsense for the Opposition to claim that we have done nothing at all about the problems of retraining.

My hon. Friend is right. We are spending two and a half times as much, after taking account of inflation, as was spent by the last Labour Government on training. That is because this is the only Government who understand training and care about training, and are determined to make sure that our people have high-quality training.

Ec Working Time Directive


To ask the Secretary of State for Employment what representations he has received from the CBI regarding the draft EC working time directive.

The CBI responded fully to my Department's consultative document on the proposed working time directive. It firmly opposed the Commission's proposals. I fully agree with the CBI that the directive would be a needless strain on United Kingdom competitiveness, and a threat to jobs and earnings.

Does my hon. Friend agree that the proposals, as attacked by civil engineers, would be a restrictive practice and would restrict the flexibility of the construction industry? [Interruption.]

I did not know that my question was so good. Would not the proposals restrict jobs, cause inefficiency and, with the minimum wage proposals, be very damaging to industry?

My hon. Friend is correct. No significant employer representative body in the United Kingdom has done anything other than condemn those irrelevant and damaging proposals very roundly. Her Majesty's Government will continue to fight to persuade our colleagues in the European Community that the proposals are not only unnecessary and unjustifiable, but would be extremely damaging to employment throughout the Community, particularly in the United Kingdom. I thank my hon. Friend for drawing my attention to the representations that he has made.

Will the Minister explain why European companies can apparently provide their workers with better conditions in terms of hours and minimum wages than this country's employers? Why is it that European companies do not regard looking after their workers well in terms of hours and wages as destroying competitiveness, but instead see it as a way to obtain good work from their workers? Why is that?

There are two good reasons. First, for many of our European partners, the rules apply on paper but not in practice. They simply do not put into effect the rules that the Community agrees. Secondly, investors from outside the Community, from places such as Japan, the United States and many others, look at the European Community and decide that the United Kingdom is by far the best place in which to invest due to the stability, skills and reliability of our work force. That explanation speaks volumes and answers the hon. Lady's question.

Prime Minister



To ask the Prime Minister if he will list his official engagements for Tuesday 10 March.

This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall have further meetings later today.

Is it not an appalling indictment of 13 years of this Government's economic policy that yesterday one of Her Majesty's coroners described the shortage of beds in one of Britain's principal hospitals—a shortage that has led to the death of a pensioner from Southwark —as appalling due to a 2 per cent. insufficiency in gross domestic funding of the national health service? As a result of the Government's policy, the pensioner's widow is more than £7 per week less well off in real terms than she was when the Government came to power. Is that not an example of private wealth at the expense of public underfunding? Are the Government to continue with the same policy or enact a U-turn at the last moment?

The hon. Gentleman well knows that there has been a dramatic increase in national health service spending on any measure one cares to take, far and above the amount necessary either to keep pace with the general level of inflation or to keep pace with the level of inflation in medical costs. The hon. Gentleman knows that that is the case, and he also knows that there has been an increase in net spending at all levels of income in this country.

Has my right hon. Friend had time to study the important report on occupational pensions by the Select Committee on Social Services? Does he agree that it contains a great many lessons for many people, particularly on the Maxwell scandal? Will he give the House an undertaking that, when the report calls for action from the Government, we can rely on my right hon. Friend to take action without delay?

I have seen the report. Our first step must be to examine it thoroughly and look at all the recommendations made by the Select Committee. It raises a number of complex and inter-related matters, some of which are for the pensions industry, some for the banks, some for actuaries, auditors and regulators. Some relate to the present legal framework. We need time to examine fully the findings of the Select Committee and to give our response. It is necessary to bear it in mind that the vast majority of occupational pensions schemes operate successfully in the United Kingdom—some 100,000 of them. The cause of the problem with Mirror Group pensioners is all too clear; There appears to have been a massive fraud, perpetuated under the very eyes of the trustees.

May I strongly recommend the report in question to the Prime Minister? I hope, it will lead, after the election, to his supporting us in putting its main recommendations into effect. Does the right hon. Gentleman recall giving the House, from that Dispatch Box, the assurance that the Government would not achieve the objective of tax reductions

"on the back of a burgeoning Government borrowing requirement now or in future"?—[Official Report 14 July 1988; Vol. 137. c. 588.]
Does he still stand by that assurance?

Nothing that my right hon. Friend does or announces later this afternoon will change our objective, or our intention of maintaining medium-term balance in the fiscal situation.

I asked whether the Prime Minister stood by the assurance that borrowing requirement would not increase to pay for tax cuts, now or in future, under any Government of which the right hon. Gentleman was leader. Does the Prime Minister still stand by that opinion—yes or no?

I did answer that question. Before asking his second question, the right hon. Gentleman might have consulted the shadow Chancellor, who said last week that—[Interruption.]

I am sorry that Labour Members do not like to hear what they themselves said, but I intend to repeat it. As the shadow Chancellor said last week, "I"—that is, the shadow Chancellor—

"am prepared to go on the basis of accepting the PSBR which emerges from the Budget."
Clearly the Opposition have no independent judgment whatsoever.

Will my right hon. Friend take time this afternoon to watch the recent interview by Mr. David Frost, which revealed the success of the Government's health service provisions, and also that the Opposition's figures are totally bogus? That interview revealed also that the hon. Member for Livingston (Mr. Cook) does not know his NHS from his NUPE.

My hon. Friend makes his point extremely clearly. The bogus statistics of the hon. Member for Livingston (Mr. Cook) have been finally revealed. Without the steady drip-feed of leaked documents, clearly the hon. Gentleman is in some difficulty with his figures. As was pointed out to him in that interview, this year there has been a 7·1 per cent. increase in the number of patients treated compared with last year, which is higher even than the Government's forecast increase in patient care. I remind the House of the so-called Cook test. The hon. Gentleman said that the success of the trusts must be measured

"by the simple test of whether they do more or less work for the national health service patients."
The trusts have clearly passed that test, and I look to the hon. Gentleman to admit that.


To ask the Prime Minister if he will list his official engagements for Tuesday 10 March.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Given the proposed increase in pensions, does the Prime Minister honestly feel that it is sufficient—yes or no?

The hon. Gentleman knows what is the pensions increase. It has been announced, it is Government policy, and I stand by that policy.

My right hon. Friend will have heard in recent Question Times much about medicine in London. Will he turn his eyes to the country as a whole and to the north—to the West Riding and my own constituency, where the health service is thought to be one of the best in Europe?

It is not only thought to be so but it undoubtedly is so, and getting better in each and every part of the United Kingdom. That is largely because of the dedication of the staff and the increased resources provided by this Government.


To ask the Prime Minister if he will list his official engagements for Tuesday 10 March.

I refer the hon. Gentleman to the reply that I gave some moments ago.

I refer the Prime Minister to the barrage of criticism from the Select Committee on Defence over the Government's handling of Army cuts, and its implied call for a defence review. Is the Prime Minister aware that among right hon. and hon. Members on both sides of the House who understand the Government's overall objectives, there is still a genuine fear that the outcome will be overstretch in peacetime and a dangerous shortage in times of tension? Does not the right hon. Gentleman agree that that is one risk—one national lottery—which we can well do without?

The Army of the 1990s will be structured to meet our needs in the face of a changed threat, in particular the end of the Warsaw pact and the millions of Warsaw troops who previously were geared immediately to face us. Our forward planning is designed to enable us to take stock precisely as the Select Committee advocated. I stress that we believe our proposals are right, and we set them out clearly in "Options for Change."

The hon. Gentleman says that all parts of the House take that view. Although I know that he does, I do not believe that all parts of the House do share that view. The occupants of the Opposition Front Bench appear to advocate 25 per cent. cuts in defence expenditure while the occupants of the Liberal Benches advocate 50 per cent. cuts in defence expenditure, both of which are irresponsible and both of which would have a devastating effect on our capacity to defend ourselves.


To ask the Prime Minister if he will list his official engagements for Tuesday 10 March.

Does my right hon. Friend agree that proportional representation reduces democracy and effective government? Will he confirm that after he has won the general election and is back in No. 10, he will have no intention of changing our voting system? Will he condemn the occupants of the Opposition Front Bench for using the issue in a squalid attempt to lure Liberal voters into their camp and for indulging in two-faced opportunism?

I am not sure that Liberals generally need much luring into Labour policies; they are very similar. My views on proportional representation are well known. PR does not lead to effective government and I do not support it. Indeed, I agree entirely with what the Leader of the Opposition said a few years ago, that

"proportional representation … is fundamentally counter-democratic in any case."
I am not sure that the right hon. Gentleman has told the hon. Member for Dunfermline, East (Mr. Brown) that, but perhaps the hon. Gentleman is putting down an early marker for after the next election.


To ask the Prime Minister if he will list his official engagements for Tuesday 10 March.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Will the Prime Minister explain what compensation is available under his supposed citizens charter for the late arrival of economic recovery? Does he realise that it is not just an hour but a year and a half late?

I congratulate the hon. Gentleman on his ingenuity. I can tell him precisely what will be there. It will be a very low level of inflation, lower than we have known at any time in recent years, and steady sustainable growth leading to secure jobs, sustaining the Conservative party in government for many years.

Will my right hon. Friend tell me how best to reply to a constituent of mine who has recently completed a course of treatment at Broomfield hospital in Chelmsford and who tells me that the nurses and doctors were fantastic, that the treatment was magnificent and that he is fed up to the back teeth with the constant efforts of the Labour party to undermine and talk down the achievements of the health service?

My hon. Friend's constituent speaks for many people who have enjoyed the splendid services of the national health service in the last year or so. I advise my hon. Friend to tell his constituent that his experience is not unusual and that it is a tribute to the service that is available from the national health service. He might add that the reforms that are bringing that about are in danger under the plans proposed by the Labour party and that nobody could guarantee the increasing support and assistance from the NHS if those reforms were turned back.


To ask the Prime Minister if he will list his official engagements for Tuesday 10 march.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Is the Prime Minister aware that the Home Office is withdrawing section 11 funding from all the colleges in the London borough of Ealing and that that adversely affects the Pathway further education centre in my constituency, where we have the largest concentration of people from the new Commonwealth? I find that totally objectionable from a Government who are shaping up to borrow and spend to save their necks.

I am not aware of the point that the hon. Gentleman raises but, as he knows, a tremendous amount of support has been made available through the Home Office and other sources to assist members of the ethnic minorities in this country. That continues to be the case.

With not a red rose in sight on the Opposition Benches, does my right hon. Friend realise that the traditional red rose of Lancashire is alive and well on the Government Benches? What message would my right hon. Friend and my right hon. Friend the Chancellor of the Duchy of Lancashire give us to take back to our constituents in the light of recent research showing that nearly 200 of the top British firms believe that the best way to increase unemployment and inflation and decrease investment would be the calamity of a Labour Government?

My hon. Friend is right. I share his remarks about the red rose belonging to Lancashire. It also belongs to the Rugby Football Union, which shows the red flag on its grand slam tie that it was generous enough to send me this morning. My hon. Friend is also right about the calamity of a Labour Government, because 86 per cent. of companies in that survey thought that Labour would be bad for the economy. I am concerned about what on earth is wrong with the other 14 per cent.

Bill Presented

General Elections

Mr. Tony Banks, supported by Mr. Tom Clarke, Ms. Diane Abbott and Mr. Jeremy Corbyn, presented a Bill to make statutory provision for fixed term parliaments, compulsory attendance at polling stations, a public holiday on days set for general elections; and for connected purposes; And the same was read the First time; and ordered to be read a Second time on Thursday 9 April and to be printed. [Bill 112.]

Ways And Means

Budget Statement

Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor's speech, copies of the Budget resolutions will be available to hon. Members in the Vote Office.

3.31 pm

I want to begin by announcing a far-reaching reform that will affect our entire system of public finance. Each year, the Budget for this country is presented in two parts. In the autumn, the Chancellor announces the Government's spending plans for the coming financial year; and in March, he sets out the revenue measures necessary to pay for them. Many criticised this uniquely British institution. Elsewhere in the world, and indeed everywhere in the private sector, the meaning of the word "budget" is crystal clear: it is a schedule showing where the money is coming from, and where it is going to.

In my view, the current system is not only illogical, it has also had a number of highly undesirable consequences. Over the years, the separation of public expenditure from taxation and the announcement of tax proposals in isolation has intensified the pressure for special reliefs and contributed to the excessively complex tax system that we have now. The time has come for reform.

I therefore intend that next year's Budget will be the last spring Budget. From then on the annual Budget will be in December, and it will cover not just taxation but also public expenditure. The Budget in December 1993 will contain the Government's proposals for both revenues and expenditure in 1994–95. It will also include spending plans for the subsequent two years. The 1994 Finance Bill will be presented to the House in January rather than April.

I am publishing today a White Paper on the mechanics of this change. I believe that it will lead to better decisions about both taxation and spending. It will enable spending plans to be considered alongside the tax plans needed to pay for them. Above all, it will enable Government and Parliament to make more informed and rational choices between spending measures and tax changes. I hope that it will be warmly welcomed by the House.

Economic Situation And Prospects

This year's Budget is a Budget for the recovery. As usual, I shall begin with the current economic situation and prospects. I shall then deal with monetary policy and public finances. Finally, I will present my tax proposals. The Financial Statement and Budget Report, together with a number of press releases filling out the details of my proposals, will be available from the Vote Office as soon as I have sat down.

World Developments And Prospects

I turn first to international developments. Nineteen ninety one saw the weakest growth in the major seven economies in a decade, while industrial production in the G7 actually fell. This brought a sharp slowdown in the growth of world trade, which was exacerbated by the dramatic events in the former Soviet Union.

In the United States recovery was generally expected in the second half of last year. But, despite low interest rates, the upturn failed to appear towards the end of 1991. High levels of debt have made firms and households very cautious about spending, while banks have been reluctant to increase their lending.

In Japan there have been similar problems, and growth has slowed sharply. In the year to January, industrial production actually fell by 4 per cent.

The slowdown in world growth has been accompanied by lower inflation in nearly all the major economies. G7 inflation fell from over 5 per cent. at the beginning of last year to about 3 per cent. now.

But economic developments in continental Europe have been dominated by events in Germany. Over-rapid expansion of domestic demand, following reunification, led to a rise in German inflation. The German authorities responded by increasing interest rates and Germany has now moved into recession. As a consequence, other European economies are experiencing high real interest rates and weak domestic demand.

But falling inflation, and the cuts in interest rates that have already taken place in north America and Japan, will in time lead to a pick-up in confidence and demand. And as the underlying level of German inflation abates, I expect to see reductions in European interest rates.

Gross domestic product in the seven major economies is projected to grow by about 11/2 per cent. in 1992, and world trade by about 4 per cent. We can expect more rapid growth in later years as the recovery gains momentum.

Some have argued that delayed recovery in the United States, and the slowdowns in Japan and Europe, are not just a cyclical phenomenon of the kind we have seen before, but herald something much more serious. It would be irresponsible for anyone in my position simply to ignore such claims. But I do not believe that they are well founded. I believe that Governments have learned the lessons of the past. Above all, they recognise that nothing could be more damaging to the world economy than a relapse into protectionism of the sort that we saw in the 1930s.

Indeed, a crucial challenge for Governments is not merely to preserve the world trading order, but to extend it. Unfortunately, not all our Community partners see this as clearly as we in Britain do. But narrow sectional interests must not be allowed to prevent the current GATT negotiations from reaching a rapid and successful conclusion. The prosperity of the world in the decades ahead rests squarely on the freedom to trade.

United Kingdom: Recent Developments

The most significant development in the British economy over the past year has been the sharp and sustained reduction in inflation. Retail price inflation has fallen to around 4 per cent., close to the German level, while underlying producer price inflation is at its lowest level for a generation.

Average earnings, too, are rising at the lowest rate for 25 years, suggesting that, after a decade of supply-side reform, the British labour market is operating far more effectively than before. This augurs well for employment prospects in the longer term. But, as elsewhere in the world, activity and demand in Britain have been weak. The rapid increase in demand in the late 1980s, fuelled by a sharp fall in saving and large increases in indebtedness, made a period of adjustment inevitable. Companies and households that borrowed extensively have reined in spending and repaid debt in response to higher interest rates.

Following a substantial reduction in interest rates, there were clear signs of renewed growth in the late summer and early autumn of last year—not just in confidence surveys, but also in the figures for retail sales and economic activity more generally. But, as in the United States, the recovery here was not sustained.

The effect on the British economy of recent world developments, and particularly those in the United States, cannot simply be measured by the adverse consequences for British exports. British firms have factories and offices abroad—indeed, our investment in the United States is higher than that of any other country. Conditions in one country can and do affect business confidence elsewhere. So unexpected weakness in the rest of the world has taken its toll on confidence in Britain, discouraging investment and stockbuilding. Over the year as a whole, GDP fell by nearly 2½ per cent., ½per cent. more than my forecast of a year ago.

The Outlook For 1992 And 1993

Most independent forecasters agree that 1992 will see the resumption of economic growth. The recovery is expected to start slowly, but to gather pace. I expect growth in the year to the second half of 1992 to be almost 2 per cent. The level of GDP for this year as a whole should be about 1 per cent. higher than last.

As inflation in Britain has fallen, so too have interest rates; and that has put money in the pockets of mortgage payers. Indeed, a typical family with a £30,000 mortgage is now more than 15 per cent. better off in real terms than in October 1990—nearly £30 a week. That represents a considerable stock of pent-up spending power, which will in time feed through to stronger consumer spending.

Output will also be boosted by stronger export growth as the world economy recovers. Our share of world trade in manufactures rose in 1991 for the third successive year, despite the world slowdown, and I expect further gains in the future as lower inflation leads to improved competitiveness.

The current account deficit for last year was about £4½ billion, ¾per cent. of GDP. As domestic demand recovers, the deficit is likely to widen a little this year. At 1 per cent. of GDP for the year as a whole, it will be easily financeable.

Even with a resumption of growth, unemployment is likely to go on rising for some time. But while the increase will moderate over the months ahead, a sustained reduction in unemployment over the longer term will depend crucially on our success in keeping inflation down, and the prospects for that are better than at any time in recent economic history.

I expect retail price inflation to fall decisively below 4 per cent. by the end of the year and to be close to 3 per cent. by the middle of 1993. Producer price inflation will be even lower, down to 2 per cent. by the end of this year and to 1½ per cent. by the middle of 1993.

The Longer Term Prospect

A whole generation has grown up to accept inflation as an unalterable fact of life. But we are now making steady progress towards price stability—an environment in which the decisions of businesses and consumers are no longer distorted by the expectation of a general upward movement in prices. Inflation has been the scourge of our economy for decades, and its defeat, not just here but elsewhere in Europe, will represent a tremendous achievement, bringing enormous benefits to British businesses and families. There are those who would put this at risk by seeking to pump up demand, but I am not prepared to take steps which would call into question the Government's determination to match or better the inflation performance of our Community partners.

And even if it were thought desirable, it is not remotely feasible for Governments to try to target the level of demand month by month or quarter by quarter. Having made such progress in getting inflation down, it would be tragic now to throw it all away with an ill-judged or ill-timed attempt to kick-start demand.

The challenge before us is not to provide some artificial short-term stimulus to the economy. It is to continue the supply-side reforms of the 1980s. Low tax and light government have produced an economic environment which spurs competition and rewards enterprise. Our job now is to build on them to help people and businesses make the most of recovery. And that will be the theme of my Budget today.

Between 1979 and the end of 1990, the number of businesses rose by almost a third. Even during the recession capital spending on plant and machinery has remained higher as a proportion of GDP than at any point in the 1970s. As a result we have seen exceptional growth in manufacturing productivity—faster than in any other G7 country in the 1980s. Industrial relations have been transformed. Fewer days were lost to industrial action in 1991 than in any year since records began a century ago.

The confidence of foreign investors in Britain's renewed economic strength is demonstrated by our continued high share of inward investment. Almost half of the direct investment in the European Community from the United States and Japan comes to the United Kingdom. Those investors recognise that Britain, with its low taxes, good industrial relations and stable currency, is the right place to come to exploit the opportunities of the single European market.

Monetary And Exchange Rate Policy

Whether or not the United Kingdom decides to participate in a move to a single European currency, we will be among those who meet the strict conditions required for entry. The Government believe that these conditions provide a valuable framework for setting policy in the medium term.

And that means that monetary policy is primarily directed at the maintenance of sterling's parity within the exchange rate mechanism. In due course we shall move to the narrow band of the ERM, at the current central rate of 2.95 DM.

Since ERM entry was announced in October 1990, sterling has remained within its permitted ERM bands, while interest rates have been reduced by 41 per cent. The differential between United Kingdom and German interest rates is now at its lowest for a decade.

In common with all the major countries within the ERM, I shall set a domestic monetary target. M0, the narrow measure of money, has stayed comfortably within the range I set in the last Budget. For the year ahead I propose to continue the target range for narrow money of 0 to 4 per cent. This is consistent with a further fall in inflation combined with a recovery in output. I shall continue to watch closely other indicators of monetary conditions, including broad money and asset prices.

Public Finance And Fiscal Policy

I turn now to the public sector finances. The slowdown in the world economy over the last year has led to larger budget deficits in most industrial countries. Tax revenues and spending on some social security programmes largely depend upon the level of economic activity. So, in a recession, tax receipts are lower while social security spending rises.

But, thanks to my predecessors, we in Britain have the great advantage of having a ratio of Government debt to GDP that is very low by both historical and international standards. Indeed, the general Government debt burden is lower in the United Kingdom than in any other European Community country bar Luxembourg. That means that a rise in borrowing in response to cyclical pressures will not jeopardise the Government's firm commitment to sound finance.

The objective of fiscal policy remains to balance the budget over the medium term. In a recession borrowing will tend to rise. But there is nothing wrong with that, providing that the underlying position is sound and the budget moves back towards balance as the economy recovers. Indeed, it makes good economic sense to allow the level of Government borrowing to vary in this way over the business cycle.

For the year ending on 1 April, I expect a PSBR of a little under £14 billion, or 2¼ per cent. of GDP. The rise in the forecast since the autumn statement is due for the most part to the impact of weaker activity on revenues rather than to higher public spending. Indeed, planned public expenditure this year is likely to be a little below the level that I set in last year's Budget.

Since the full impact of the recession, on both tax revenues and public expenditure, feeds through only with a time lag, the PSBR will increase further in 1992–93. Taking account of the measures that I am announcing today, my forecast implies a PSBR next year of some 4½ per cent. of GDP, about £28 billion.

As I have said, the increased borrowing requirement reflects the delayed impact of weaker activity over the last year. Even so, I expect it to be rather lower than that of Germany, and less than half the level seen in Britain following the recession in the mid-1970s. The ratio of Government debt to GDP will rise slightly next year. But our debt burden will remain very low by international standards. As the economy recovers, and growth gathers pace, the PSBR will move back towards balance, and the debt burden will resume its downward trend.

During 1991–92 the borrowing requirement has been fully funded, and that policy will continue over the year ahead. An increased amount will be funded through national savings. A new product, a guaranteed growth bond designed to appeal to taxpayers, will be launched in the summer.


The prosperity of this country does not stem from government but from the enterprise and initiative of the British people and of British business. A recurrent theme of the Budgets delivered by my distinguished predecessors has been the desire to create a framework in which economic decisions are taken on their own merits, and not in response to distortions created by the tax system. In continuing that tradition today, my Budget will ensure that recovery is not based on some short-term boost from Government but on the decisions taken by the private sector.

The proposals that I shall be presenting today should be seen in the context of the benefits that business will receive from the measures I announced last year. In my last Budget, I cut the main rate of corporation tax by a full two percentage points, to 33 per cent., for profits earned in the 1991 financial year. That has given Britain a lower rate of corporation tax than any of our major competitors, and I propose to leave it unchanged for the year ahead.

Because corporation tax is paid in arrears, companies will feel the full impact of last year's cut only in the coming year. Combined with the other corporation tax measures that I announced last year, it will benefit businesses by some £1 billion in 1992–93.

In my autumn statement I announced substantial increases in public sector investment. In the financial year beginning 1 April investment in roads and public transport will be £5 billion, and capital spending on the national health service will be more than £2 billion. Next year, public sector asset creation—in other words, total investment spending by the public sector—will amount to nearly £30 billion.

Over the last decade, this Government have fully demonstrated their commitment to investment in our public infrastructure. It would be wholly wrong to allow the impact of the recession on the fiscal deficit to lead to cuts in our long-term investment programmes, as occurred in the 1970s. But it would be equally wrong to expect public investment or an ever-expanding public sector to lead the recovery. The recovery will be sustainable only if it is led by the private sector. Investment does not take place in a vacuum. Good quality private-sector investment will come not from artificial subsidies or incentives but in response to consumer demand.

One suggestion that has been put to me is that I should raise first year capital allowances. I have considered this proposition very carefully. I would be as concerned as anyone if I thought that the corporation tax system introduced in 1984 was acting as a drag on profitable investment. But, on average, the current tax rules allow capital investment to be written off more quickly than economic depreciation would imply. In current circumstances, any general increase in capital allowances would primarily benefit large and profitable businesses. Moreover, given the way that the corporation tax system works, those benefits would not flow through into companies' cash flow until the year after next.

The evidence suggests that the cost of higher capital allowances to the Exchequer would be several times greater than the resulting increase in investment over the next few years. I have therefore concluded that, whatever its superficial attractions, an increase in capital allowances would not be a sensible use of the resources available.

National Non-Domestic Rate

There is a far better way to help business this year. I have decided to bring forward proposals that will be of early benefit to some 900,000 non-domestic properties, large and small, throughout the United Kingdom.

Business in England and Wales has gained much from the introduction of the uniform business rate in 1990. During the 1980s, when business rates were set by local authorities, poundages in England rose on average by over 37 per cent. more than inflation. Under the new system, rate poundages are capped in real terms.

In some cases, however, the changes in bills have been substantial, and many businesses have faced a difficult adjustment. That is why, when we introduced the uniform business rate, the Government eased the transition by phasing in the losses of those who faced large changes in their bills. But I am well aware that many of the businesses which face large increases next year have also been hard hit by the recession. I have therefore decided that their burdens should not be compounded by real increases in business rates.

The Government propose to amend the transitional arrangements already enacted for next year's business rates in England and Wales to ensure that no business property will face a real increase in rates next year. The bills for properties protected by the transitional arrangements will increase by no more than the rate of inflation, like those for other properties—500,000 business properties in England and Wales will benefit at a cost to the Exchequer of £320 million in 1992–93. The present statutory limits on real annual increases in rate bills will apply again from 1993–94. Since such increases will be from a lower base, there will be a further cost of £220 million in that year.

The present rules mean that new occupiers are not eligible for transitional relief. As the property market has weakened, this has made it more difficult for businesses to move. I therefore propose to allow businesses occupying new premises after midnight tonight to inherit the transitional protection available to the previous occupier, at a further cost of about £25 million. This should help to increase mobility and unlock the property market.

But it would be wrong to concentrate help only on those businesses who lose from the new arrangements. While the transitional arrangements have postponed losses for some companies, they have also delayed the gains for those who did worst out of the old system. I believe that businesses should see the full benefits more rapidly. I therefore propose to accelerate their gains.

From 1993–94 onwards, I propose that all businesses gaining from the 990 reforms should be allowed to have their gains in full. So, by then, no business will be paying higher business rates than it should be doing under the new system.

In the coming year, I propose that the maximum reductions in the rate bills of the gainers should be raised to 22 per cent. in real terms for large properties, and to 27 per cent. for small properties. Those limits are nine percentage points higher than in the current year: 150,000 business properties in England and Wales will benefit at a revenue cost of £85 million in 1992–93.

These changes will not reduce the income of local authorities. Subject to Parliament's approval, the Government will pay extra money into the non-domestic rates pool to make good the shortfall in business rates revenue. These payments will not add to public expenditure.

The Government will introduce special legislation as soon as practicable to implement these proposals. In the meantime, local authorities should send out bills and collect business rates in accordance with the existing legislation and regulations. Business rate bills on properties in transition will be cut, and adjustment made for earlier higher levels of payment, when Parliament has approved the legislation and local authorities can send out new lower bills.

The proposals that I have outlined will apply to business properties in England and Wales, reducing the total business rates bill next year by 3¼ per cent. Scotland and Northern Ireland each have different arrangements for business rates. The Government propose that their total rates bills next year should likewise be reduced by 3¼ per cent. My right hon. Friends the Secretaries of State for Scotland and for Northern Ireland will be announcing the details.

These measures will bring significant and early benefit to many thousands of businesses throughout the United Kingdom. The revenue cost will be £480 million in 1992–93 and £590 million in 1993–94 but will fall away rapidly in subsequent years.

Small Business

My proposals on the UBR will be of particular benefit to small businesses—the lifeblood of a modern economy. Small businesses have been at the heart of the supply-side revolution in this country over the last decade. The result has been a new economic dynamism, with increased competition and a more flexible labour market.

Inevitably, taxation and regulation bear most heavily on small firms, so I have considered carefully what measures I can take to ease that burden, and in particular to ease the cash flow of small businesses. Last year, I raised the VAT registration threshold by some 40 per cent. This year, I propose to increase the threshold in line with inflation, to £36,600. One hundred and thirty-five thousand traders—one third of all those eligible—now use the cash accounting scheme for VAT, which allows small firms to delay their VAT payments until they themselves have been paid. I can now announce that the rules will be relaxed to allow traders owing less than £5,000 to Customs to use cash accounting. I hope that this will encourage many more traders to take advantage of this excellent scheme.

My decision last year to allow small employers to pay income tax and national insurance deducted at source on a quarterly rather than monthly basis was widely welcomed by small employers. I propose to raise the qualifying limit to £450 a month. That will mean that nearly ¾ million employers will be able to make payments quarterly rather than monthly.

But one problem arouses more anger in the small business community than any other. I have every sympathy for small companies which find that their larger debtors are deliberately delaying payment to boost their own cash flow. Such practices are wholly deplorable; and, while there is no easy solution, my right hon. Friends and I have looked hard at what the Government can do to help. I have a number of proposals to announce.

First, the Government propose to require larger companies to state in their annual report and accounts how quickly they pay. Second, my noble and learned Friend the Lord Chancellor will be proposing simpler procedures in small claims and debt recovery cases.

Third, I want to see the Government's good record on the payment of bills extended to firms which win Government contracts. From next month, those successfully negotiating a contract with a Government Department will be required to include clauses in their own contracts with subcontractors which provide for the prompt payment of bills, ordinarily within 30 days of receiving a valid invoice. I believe that Government have set a good example, and I hope that large companies will follow.

For businesses facing cash flow difficulties, value added tax penalties can be the last straw. It has been put to me on many occasions that the VAT penalty regime is too strict. The serious misdeclaration penalty is catching too many minor mistakes. This must stop. In future, Customs will not normally charge penalties on underdeclarations of tax of up to £2,000. That will take over three quarters of cases out of the penalty regime, although the largest mistakes will still be penalised.

Last year I reduced the rate of penalty from 30 per cent. to 20 per cent. I now propose to cut it further, to 15 per cent. But there are other aspects of the regime which require more consideration, and Customs are issuing today a further consultation document on the options for longer-term reform.

I believe that the highest rates of default surcharge levied on traders who submit late VAT returns or payments cannot be justified. I therefore propose to reduce the maximum rate from 30 per cent. to 20 per cent. These measures, taken together, will reduce the penalties businesses might otherwise have had to pay Customs by £35 million next year.

One of the other complaints I have heard most frequently over the years is that it is unjust that taxpayers cannot be awarded costs when they appeal before the special commissioners. I now propose to introduce a measure which would give the Lord Chancellor power to make new rules about the hearing of appeals, including the powers to award costs where either party has acted wholly unreasonably.

Inheritance Tax

I have one final change to announce which will be of substantial benefit, particularly to small family businesses. I propose to take most family businesses out of inheritance tax altogether. This will cost £10 million in 1992–93, and £25 million in 1993–94. Relief from inheritance tax for interests in unincorporated businesses, for shareholdings greater than 25 per cent. in unquoted companies, and for working farmers will be increased from 50 per cent. to 100 per cent.

Shares dealt on the unlisted securities market, which are generally less liquid than shares with a full stock market quotation, will from today be treated like unquoted shares. That means that shareholdings of over 25 per cent. will also generally be free from inheritance tax.

For shareholdings of 25 per cent. or less in unquoted companies, and for agricultural landlords, the rate of relief will rise from 30 per cent. to 50 per cent. relief will also extend to smaller shareholdings in USM companies and to controlling shareholdings in quoted companies.

Inheritance and capital are no longer a privilege of the wealthy few. Ordinary families want to be able to pass on the wealth that they have built up over their lives to their children without an excessive proportion being taken by tax. Over the years to come I shall continue to look for ways of lightening the burden of inheritance tax. This year I propose to raise the threshold for inheritance tax by more than inflation, to £150,000. This will cost about £10 million in 1992–93. I intend to raise the threshold for capital gains tax in line with inflation, to £5,800.

Taken together, the measures that I am proposing on business rates, on VAT and on inheritance tax will be of very substantial benefit to British business as a whole and to small business in particular in the year ahead.

Other Business Measures

Over the past year I have received many representations about surplus advance corporation tax. ACT is paid by companies when they pay dividends. It serves two purposes: first, to discharge the shareholders' basic rate income tax liability; and, second, as a payment towards the company's own corporation tax liability. But some companies paying dividends out of foreign profits taxed abroad find that they are now paying more ACT than they can set against United Kingdom tax.

That is a significant problem for those affected. But it is also highly complex, and huge amounts of revenue are potentially at stake. A satisfactory and lasting solution will need to address the ways in which different national systems of corporation tax interact. This is currently the subject of a review sponsored by the European Commission, and it is clearly an issue to which the Government will have to return.

Its importance is of course increased by the abolition, from 1 January 1993, of fiscal frontiers within the European Community. That will give British business access to the largest home market in the world. But it will also necessitate a number of technical changes to our VAT and excise systems. As I announced last October, one consequence of the single market is that businesses which import from other European Community countries will pay VAT on those imports later than they do now, giving some 90,000 businesses a welcome cash-flow benefit.

This change will add substantially to the PSBR in 1992–93. I therefore announced last year that, from this autumn, the largest VAT payers—those who paid over £2 million in VAT in 1990–91—would be required to submit VAT returns monthly rather than quarterly as now. It has been put very forcefully to me that the requirement for monthly returns would place an undue administrative burden on the businesses concerned. I have listened carefully to these representations, and I now intend to take steps to allay the concerns raised by those affected.

I have asked Customs to implement a system of monthly payments on account for these large businesses, but I propose to allow them to continue to submit returns quarterly. This will avoid the requirement to fill in VAT returns every month, while still offsetting the cost to the Exchequer of postponed accounting for imports. Compared to my original proposal for monthly returns, payments on account will cost the Exchequer some £200 million in 1992–93, with a corresponding benefit again to the businesses concerned. I will introduce legislation to establish the basis for these new arrangements.

I also propose to introduce legislation to prevent the business tax rules from being manipulated to secure an unjustifiable tax deferment when rent is paid between connected persons. The manipulation which has already occurred has involved tax of some hundreds of millions of pounds. This loophole will be closed immediately.

I have one change to make to the business expansion scheme. It has been put to me that the BES could play a valuable part in helping to ease the problem of mortgage repossessions. At present companies can use the BES to acquire empty repossessed houses, but there are complications if the houses are still occupied. I propose to make it easier for the BES to be used for mortgage rescue schemes where owner-occupiers in difficulties wish to stay in their homes as assured tenants. This will add to the impact of the measures I announced in December to help the housing market.

But I have also looked closely at the entire rationale behind the business expansion scheme, which is an exceptionally generous tax relief. When my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) introduced it in 1983, the venture capital industry was in its infancy, and there was concern that the investment needs of small firms were not well understood and provided for.

The BES has been extremely successful. Over £2 billion has been raised and invested in qualifying schemes of all kinds. And Britain now has a venture capital industry the equal of that anywhere in the world, outside the United States. But the provisions of the business expansion scheme have become ever more complex; and nowadays only a small part of the total invested goes to small businesses.

As my right hon. Friend the Member for Blaby (Mr. Lawson) made clear when they were introduced, the BES provisions for assured tenancies were intended to expire at the end of 1993. I have decided that it is unnecessary to continue the business expansion scheme beyond that date, not only for assured tenancies, but for other investments as well. BES will therefore come to an end on 31 December 1993. As I have said, it has fulfilled a useful purpose. But its removal will significantly improve the neutrality of the tax system; and some 45 pages of complex legislation will be removed from the statute book.

As a result of my announcement today, there is likely to be some acceleration in investment, which will be welcome. In the long run there will be substantial savings, perhaps £130 million a year.

Last year, I made it clear that I was concerned about the position of the British film industry and that I would consider carefully any further proposals that the industry brought forward. I have done so. Although a special tax regime already exists, the industry has long argued that the provisions for writing off expenditure do not fully take account of their special circumstances, and in particular of the cash flow problems that may be caused by the sometimes lengthy gap between the completion of a film and its release. I propose two measures to alleviate the position.

First, relief for pre-production expenditure will be available as it is incurred; and, second, production expenditure will be available for write-off at a fixed rate of one third each year, on a straight-line basis, starting immediately on the completion of the film. This will have a cost of about £5 million in the first year, and around £15 million in 1993–94.


The motor industry is and will remain at the very heart of British manufacturing.

Facing a sharp fall in domestic demand over the last year, the industry responded in exactly the right way, by switching production to exports, which rose by 20 per cent. in 1991. The fall in domestic sales should not be allowed to obscure this growing strength, which should make Britain a net exporter of cars by 1996 for the first time since 1974.

None the less, I recognise that the last year has been a difficult one, and the measures I am proposing today will help the industry, while building on and continuing the reform of the taxation of cars that I and my predecessors have introduced.

Before the 1988 Budget, the car scale charges—the income tax charge on those who have the benefit of a company car—were too low. Since then, we have moved much closer to realistic levels. I propose this year to increase the scale charges only in line with inflation. Otherwise, the real value of the tax payable would actually fall.

But there are still aspects of the car scale charges which are both arbitrary and unfair. For most cars the tax payable is determined not by reference to the value of the car but rather by the car's engine size. As the Monopolies and Mergers Commission has pointed out, this causes distortions. It also discriminates against diesel cars. The unfairness in the current system may have been acceptable when the tax charge was only a fraction of the true value to the user, but that is no longer the case.

We need a system that better measures the value of the benefit. That means basing the tax charge on the price of the car, not its engine size. I therefore propose to introduce price-based scales as soon as practicable. The Inland Revenue will be publishing a consultative document in the summer on the details and timing of such a move.

The car fuel scales, which measure the taxable benefit of free private fuel provided by the employer, have remained frozen since 1987. I propose to increase the scale for free petrol by 4·5 per cent. But at the moment we apply the same charge to diesel as to petrol, even though the cash value of free diesel is less.

That means the fuel scales are too high for diesel cars, so I propose to introduce a new, and significantly lower, scale for diesel, bringing the tax charge closer into line with the value of the benefit received.

While the income tax treatment of cars has until recent years been much too generous, in other ways cars have been the subject of discriminatory tax treatment. I have some changes to announce that will reduce that discrimination, and provide a boost for all businesses buying cars and for the car industry itself.

First, companies that offered their employees the alternative of cash or a car have found themselves liable to pay VAT on the salary forgone by those who chose the car. That is clearly nonsensical. I shall be laying an order to make clear beyond doubt that, from 1 April, a VAT charge will no longer be imposed in these so-called salary sacrifice cases.

Second, the capital allowances available for business cars are currently restricted for cars costing more than £8,000. That limit is now unrealistically low and I propose to increase it to £12,000, enabling full capital allowances to be given on most business cars. This measure will cost £50 million in 1993–94, building up to £220 milion when the change has its maximum effect. But the revenue cost in the long term will be small.

At present, most taxi and car hire firms and driving schools cannot recover the VAT they pay on their cars even though their cars are their business. I propose to end this anomaly from 1 August, at a cost of £50 million in 1992–93.

Those measures will go some way towards improving the neutrality of the tax system as its affects cars purchased by businesses. But I have one further measure to announce, which will affect all those buying new cars.

In 1973, car tax was introduced, to make up the difference between VAT and the former purchase tax. It has remained unchanged, at 10 per cent. of the wholesale price, ever since. This tax distorts consumer spending, and car manufacturers have long complained that our taxes on new cars are higher than those of other main European producers.

This Government have always sought to reduce distortions in the tax system, and I therefore propose to reduce car tax by half, to 5 per cent., from midnight tonight. That will directly reduce the tax burden on all new cars. I trust that car dealers will respond by passing the full benefit of this reduction—about £400 on a typical family car—to the buyer. The halving of car tax will cost about £635 million in 1992–93, and £765 million in the following year.

Excise Duties

I turn now to excise duties. Last year I raised the duties on alcohol in line with inflation, and I propose to do the same this year. From 6 pm tonight, this will mean an increase in the tax on a typical pint of beer of just over 1p, just under 5p on a bottle of wine and 28p on a bottle of spirits. I also propose to raise the duty on unleaded petrol and on diesel in line with inflation.

On leaded petrol, I propose a rather larger increase, of 7½ per cent., taking the tax differential between leaded and unleaded petrol to over 5p a litre. That will continue our long-standing and successful policy of encouraging motorists to move away from leaded petrol, which now represents little more than half the market.

I propose to increase vehicle excise duty on cars, taxis and light vans by £10, and to freeze it again this year for lorries.

I propose to raise the duty on tobacco by about 10 per cent.—roughly the same real increase as last year. That will add 13p to the price of a packet of 20 cigarettes. The duties on other tobacco products will also rise by about 10 per cent., apart from that on pipe tobacco, which will rise only in line with inflation. Benjamin Franklin once remarked that nothing was certain except death and taxes, but for some people the latter may help to delay the former. As for the irreconcilables—among whom I count myself—I have one minor compensation: I propose to abolish from 1 January 1993 the duty charged on matches and mechanical lighters.

I also have a change to announce on betting duty, with consequences for the racing industry. I propose to cut the rate of betting duty by one quarter of 1 per cent., reducing the tax take by £15 million in 1992–93. My right hon. Friend the Secretary of State for the Home Department will be announcing later today his determination of the horse race betting levy, and he will be making proposals to ensure that the greater part of that reduction will be channelled to the horse racing industry. That is an important part of the measure, and I shall review the cut in betting duty next year.

A proportion of the reduction, of course, will be attributable to betting on greyhound racing. I hope that voluntary arrangements can be found to direct some of that money to help the greyhound racing industry, and my right hon. Friend will be exploring the possibilities with interested parties.

I should also tell right hon. and hon. Members quite clearly what I am not proposing. I know that there is particular concern about the European Commission's proposals on the taxation of alcohol. But let me make it clear: I will not accept any deal in Brussels that would ride roughshod over the interests of the British cider industry. Nor will I accept a deal that would allow member states to continue to levy no excise duty on wine which they make but which forces them to put up duties on spirits which we make.


Over the past 13 years, we have introduced a number of measures directed at encouraging charitable giving. We introduced the payroll giving scheme. We have extended and widened value added tax reliefs—and my right hon. Friend the Prime Minister, when he was Chancellor, introduced the gift aid scheme.

Gift aid allows tax relief on one-off donations of £600 or more. It has been a considerable success. Charities have received nearly £200 million in income under the scheme. I propose that from 1 July 1992 the minimum gift should be reduced to £400—the figure proposed by the Council for Charitable Support and the Charities Tax Reform Group. I shall not go further, because I know that some charities are concerned that to do so might reduce the attraction of regular giving through charitable covenants.

But I propose some changes to the arrangements for tax relief on charitable covenants, intended to reduce administration costs for charities and to help them to maintain a steady and reliable flow of income. And I propose a number of minor improvements to the VAT reliefs available to charities and for aids to the disabled.


Savings are a passport to personal independence and security; the very foundation of a property-owning democracy. That is why, over the last decade, the Government have set out to lighten the burden of taxation on saving.

We have reduced the basic and higher rates of income tax, and abolished the investment income surcharge. We have stopped taxing the savings of non-taxpayers. And we have extended savings incentives to the mass of ordinary tax-paying savers by introducing tax-exempt special savings accounts—TESSAs—which allow people to invest up to £9,000 over five years in a bank or building society account.

We have also introduced new and popular incentives to invest in shares. In 1986 we introduced personal equity plans to enhance the attraction of investment in shares by making the income and capital gains from them free of tax. Today, I want to improve PEPs still further by removing the £3,000 limit on the amount that can be invested in unit or investment trusts. I propose that from April people should he able to invest up to the full £6,000 a year in qualifying investment and unit trusts. This new opportunity—which will cost £10 million in 1993–94—will provide further encouragement to PEPs, and help to small savers.

We do not see the returns to savings as "unearned income", to be taxed more heavily than earned income. On the contrary, we will continue to lighten the burden of tax on savings, and to broaden the range of investments which receive savings incentives.


No one has benefited more from our encouragement of savings than pensioners. In the 1980s, most pensioners saw their real incomes rise sharply, as inflation fell and the value of occupational pensions rose. On average, pensioners' real incomes increased by more than a third between 1979 and 1988. More than half of pensioners now have a second pension; and pensioners have seen their income from saving double since 1979.

I propose that the income tax allowances for the over-65s—both the personal allowances and the married couple's allowances—should increase in line with inflation. The income limit for the age-related allowances will also increase in line with inflation.

Increases in the age allowances can, of course, benefit only those pensioners who pay tax. But this year I also want to help the less fortunate pensioners—those whose savings have been eroded over the years by inflation; those who have only modest occupational pensions; and those who retired too early to take advantage of the growth of SERPS.

Last October, my right hon. Friend the Secretary of State for Social Security announced that the income support rates for pensioners would be increased this April by at least 7 per cent.; and there were extra increases for disabled pensioners and the over-80s.

I now propose a further increase in income support rates, of £2 for single pensioners and £3 for pensioner couples. When this comes into effect, in October, all pensioners on income support will be at least £5·75 a week better off than they are now, and some will be as much as £10·70 a week better off. In total, some 5 million people will benefit. And it will bring the real increase in spending on benefits for poorer pensioners since 1989 to more than £700 million.

The cost—some £145 million in 1992–93 and £305 million in the following year—will be financed from within the existing public expenditure plans.

Income Tax

Turning now to income tax more generally, I do not propose this year to increase the basic rate limit, the level of taxable income above which people begin to pay higher rate tax. Compared with indexation, this will save £180 million in 1992–93 and £290 million the following year.

Nor do I propose any increase in the married couple's allowance for couples under 65 or the allowances that are linked to it. But I do have one significant change to announce. The introduction of independent taxation in 1990 brought privacy and independence to married women by ending the rule that a wife's income was assumed to be her husband's. This change was widely welcomed. However, it did not eliminate completely the discriminatory features of the old system.

At present, the husband receives the benefit of the married couple's allowance unless his income is too low to make use of it. That means that the husband's tax allowances are almost always greater than those of his wife. It also means that couples where the wife is a higher rate taxpayer and the husband is not pay more tax than couples where the husband is the higher rate taxpayer. That cannot be right. It is hardly surprising that the MCA has been described by some as the male chauvinist allowance.

I propose to change this system. From 1993–94, couples will have a choice. If they take no action, the husband will continue to receive the MCA as now. They will be able to decide that the wife should receive the whole allowance, or that they should split it; or the wife will be able to claim half at her own request. This measure will have only a small effect on revenue—£10 million in 1993–94—but it will make the tax system much fairer to married women.

The Government have cut the basic rate of income tax by 8p since we took office in 1979, to 25p. And, as the House knows, we are committed to reducing the basic rate to 20p as and when it is prudent to do so. I reaffirm that commitment today.

For the year ahead, I propose that the personal allowance should be uprated only in line with inflation. It will rise from £3,295 to £3,445. But having reflected carefully on the priorities for this year's Budget, I have decided that for the year ahead it is right to leave the basic rate at 25p in the pound.

I believe that it is possible, desirable and, indeed, prudent to take a substantial step this year towards our goal of a 20p basic rate for all taxpayers. It is neither necessary nor desirable that anyone earning more than their personal allowances should start paying income tax at a rate of 25 per cent. With national insurance contributions on top, that means that the Government take a third of every extra £1 earned even from the low paid. In my view, that is simply too much; and I believe that we can and should reduce that burden.

So I propose this year to cut the rate of income tax by 5p, to 20p, for the first £2,000 of taxable income. That will benefit every taxpayer in the country, but it will be of proportionately greater benefit to those on low incomes. It represents a decisive first step towards the Government's objective of a 20p basic rate.

In the next Parliament, we will gradually move closer to that goal. We will be able to do that in two possible ways: either by extending the width of the 20p band so that it covers increasing numbers of basic rate taxpayers, or by reducing the basic rate itself.

Next year, nearly 4 million people on low incomes will already be paying tax only at the 20p rate. Their income tax bill will be cut by a fifth. That will improve their work incentives and make it more worth while for those not currently in work to take lower paid jobs.

Nearly 25 million people—every taxpayer in the country—will see their starting rate of tax reduced to 20p. Combined with the indexation of the personal allowance, that will reduce taxes for the large majority of taxpayers by at least £2·64 a week.

Mortgage interest tax relief at source will continue to be given at 25 per cent. for everybody, irrespective of whether they are a non-taxpayer, a 20p taxpayer, a basic rate taxpayer, or a higher rate taxpayer. But those in the 20p band will only be liable for tax at 20 per cent. on their savings.

The new 20p band will cost £1·8 billion in 1992–93 and £2·3 billion in the following year, broadly equivalent to the cost of a penny off the basic rate. But, in comparison with a penny off the basic rate, the 20p band will be of particular benefit to those on the lowest incomes. Indeed, about three-quarters of the cost will go to taxpayers earning less than average male earnings.

I now turn to the question of value added tax. I have a very important announcement to make, to which I hope the whole House will listen carefully. I have no need, no proposals and no plans either to raise or to extend the scope of VAT.

The total impact of the taxation proposals I have put forward today, taken together with measures announced since my last Budget, will reduce the burden of taxation by around £1·5 billion, equivalent to ¼ per cent. of GDP, in the next financial year.


The Budget I have presented today is a Budget for the recovery. It maintains the policies that have slashed inflation and reduced interest rates. And it includes measures that will help businesses, large and small, up and down the country.

But it is also a Budget that cuts taxes for every taxpayer in the country, a Budget which marks another significant step in our constant drive to leave individuals and families with more of what they earn. Over the past decade our belief in low taxation has brought unparalleled growth in the living standards of the British people. My Budget today continues that process, and I commend it to the House.

Provisional Collection Of Taxes

Motion made, and Question,

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—
  • (a) Spirits (motion No. 2);
  • (b) Beer (motion No. 3);
  • (c) Wine and made-wine (motion No. 4);
  • (d) Cider (motion No. 5);
  • (e) Tobacco products (rates) (motion No. 6);
  • (f) Hydrocarbon oil (motion No. 8);
  • (g) Vehicles excise duty (rates: cars etc.) (motion No. 9);
  • (h) Vehicles excise duty (rates: tricycles) (motion No. 10);
  • (i) Value added tax (penalty for serious misdeclaration etc.) (motion No. 18);
  • (j) Car tax (rates) (motion No. 20).—[Mr. Norman Lamont.]
  • put forthwith, pursuant to Standing Order No. 50 (Ways and Means Motions), and agreed to.

    I now call on the Chancellor of the Exchequer to move the motion entitled "Amendment of the law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week, and then they will be decided without debate.

    Budget Resolutions And Economic Situation

    Amendment Of The Law

    Motion made, and Question proposed,

    That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
  • (a) for zero-rating or exempting any supply;
  • (b) for refunding any amount of tax;
  • (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
  • (d) for relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Norman Lamont.]
  • [Relevant document: European Community Document No. 10212/91 and COR2, the Commission's Annual Economic Report 1991–92.]

    4.42 pm

    First, I offer the traditional congratulations to the Chancellor of the Exchequer on the delivery of his speech, especially since he had a lot of information to offer and took rather longer providing it than he did last year and than has been customary in recent years. Nevertheless, we listened with interest. Indeed, I offer my congratulations with rather greater felicity than I usually do because this will be the last speech by a Conservative Chancellor for many years to come.

    I also want to follow an even more pleasant tradition and welcome several of the measures that the Chancellor announced this afternoon. The step that he made in the direction of radical reform of the Budget process is certainly worth a warm welcome. It has been the policy of our party for some years past, and it is good that there is a consensus. The job of the right hon. Member for Huntingdon (Mr. Major) will be made easier next year when he speaks from my current position after the change has taken place.

    We should also like to welcome several of the changes that the Chancellor is introducing in respect of businesses, large and small. I refer to changes in the VAT arrangements for small businesses and the effective freezing of the uniform business rate—and to other arrangements to do with the inflation rate. We are bound to wonder, as we opposed the introduction of the UBR in the first place, why the Government waited until the recession had continued for 21 months instead of making earlier changes which would have saved many good businesses. The UBR is lingering evidence of the shambles of the poll tax system, and any changes in the right direction are to be welcomed—before we make the further changes that will be welcomed by business during the rest of this year, when we introduce our reforms.

    For the automobile manufacturing industry, which has been under terrible pressure, especially during the recession—and still—the changes in the special car tax must be welcome. The Chancellor has made here another worthwhile step worthy of our support.

    We also support the modest but welcome steps that he has taken in respect of the British film industry. I had hoped last year that he would take up the proposals of the working party; I am glad to see that he has rectified that this year. As the right hon. Gentleman is making large changes to the business expansion scheme this might have been an opportunity for him to make the scheme serve the interests of the film industry, which certainly needs support and which, given its remarkable record again last year, is worthy of that support.

    We are in the midst of the longest recession since the 1930s, with unemployment rising towards 2·75 million again, with record repossessions and bankruptcies. What our country needed today—

    Will the right hon. Gentleman—[HoN. MEMBERS: "Sit down!"]

    What our country needed today was a Budget for strengthening Britain and promoting sustainable recovery out of the recession caused by the Government. What we got was a Budget to try to bribe voters with borrowed money which they will have to repay. The borrowing that the Government are raising to finance tax cuts is not, as the Chancellor would insist, prudent economic strategy: it is a panic-stricken pre-election political sweetener.

    For the sake of a few weeks of an election campaign the Government are going to try to saddle the British electors and taxpayers with many years of debt. The borrowing —[Laughter.] When Conservative Members realise that the Government are running a public sector borrowing requirement of £28 billion perhaps they will be a little more silent on the subject—the more so since the PSBR is the result of a combination of long-term failure and recession and short-term fear in the face of the electorate.

    The kind of borrowing that the Government propose—the extra borrowing to fund tax cuts—will not provide a single extra school or hospital. It will not provide a single extra place on a training scheme or in a childcare nursery. It will not create a single extra research project or transport improvement, or put an extra policeman on the streets. This debt is just extra Tory dead-weight debt, an extra £2 billion which gives a new meaning to the idea of state funding for political parties.

    There are no excuses for this Government. In 13 years of power they have had £100 billion worth of oil revenues, £40 billion worth of income from privatisation and the revenues from the highest tax burden ever imposed on the British people by any Government. At the end of all that, the best that the Chancellor could come here today and forecast in his Budget statement was a paltry 1 per cent. growth, further rises in unemployment, a continuing balance of payments deficit, despite the recession, and a PSBR of £28 billion. That is double this year's PSBR, which the Chancellor acknowledged to be £14 billion. What a terrible confession—

    What a terrible confession the Chancellor had to make to the effects of a mismanagement that has brought this country to the point where the Government have got those finances and that growth into such a parlous state. Even now, it is quite probable that the Chancellor is not making a dependable forecast. He is having one of his visions of green shoots all over again. He started having his attack of green shoots—his equivalent of pink elephants—last year in his Budget speech. He started promising then

    "the recovery will begin around the middle of the year"—
    that is, in 1991. He told us that output would increase
    "by about 2 per cent."—[Official Report, 19 March 1991; Vol. 188, c. 165.]
    He firmly anticipated "an added boost" in the "revival" in "consumer confidence". He said that the Budget deficit would be £8 billion. In reality, as the country knows to its cost, output did not grow by 2 per cent.—it fell. The promised revival in confidence and performance simply did not take place and the deficit was not £8 billion but, as the Chancellor has just told us, £14 billion—75 per cent. higher than his original forecast. The Chancellor's predictions were not simply inaccurate; they turned out to be complete fiction.

    The Chancellor has told the Select Committee that
    "forecasting is an inexact science"
    and it may be that he is a hapless victim of the forecasters—innocent putty in their hands. He is, after all, only the Chancellor of the Exchequer. In that case, we have to ask him what weight we can attach to the forecasts that he has been offering us this year, especially that on the PSBR.

    We also have to ask the Chancellor, if the forecasters were inexact and he was consequently in error and knew by January of this year that he was wrong, how could he still say to the January meeting of the National Economic Development Council:
    "The policy would not have been different had we known the outcome"?
    People all over the country have lost jobs, businesses and homes. What faith can any of them have in a Chancellor of the Exchequer who says that, even had he known at the outset that this was going to become the longest recession, his
    "policy would not have been different"?
    Despite all the redundancies, the bankruptcies and repossessions, he still, as he put it himself, regarded unemployment and recession as a "price well worth paying". The Chancellor was sticking to his economic guns even when they were turned on the people of this country.

    In his last Budget statement, the Chancellor told us that he was dedicated to
    "a simple rule, which … requires the Government to finance their spending honestly."—[Official Report, 19 March 1991; Vol. 188, c. 167.]
    When I heard the Chancellor laying down his simple rule, I was reminded of one of his predecessors. I recall the Chancellor who was excoriating "successive Governments" who, he said,
    "had spent more than they were prepared to raise honestly from taxation and … made up the shortfall by borrowing. They left that bill to be picked up by future generations." —[Official Report, 20 March 1990; Vol. 169, c. 1016.]
    It was a stern rebuke to those dishonest borrowers and, interestingly, it did not come from a Chancellor in the distant past, not from a Victorian or even from one of the advisers to Henry VII; it came from the last Chancellor, the right hon. Member for Huntingdon, now the Prime Minister, just two years ago in his Budget statement.

    When I compare those words about honest taxation and borrowing with the Budget we have just heard, a Budget in which the Government will borrow £28 billion, of which £2 billion will go for tax cuts, I realise that I do not have to condemn the Government—they are condemned out of their own mouth and on the basis of their own words. They are the dishonest borrowers whom their Prime Minister was so busy denouncing. It is not just the Prime Minister and the Chancellor who have cursed Governments for spending more than they were prepared to raise honestly from taxation.

    Will the right hon. Gentleman give way?

    Order. Have hon. Gentlemen started the election early? As I understood it, the Leader of the Opposition had given way.

    I am grateful to the right hon. Gentleman for giving way. Are we to take it that he intends to oppose the 20p tax band that the Chancellor has just announced?

    It must have been the word "dishonest" that brought the right hon. Gentleman to his feet.

    I will if the right hon. Gentleman will just shut up. I will answer it, no problem. We shall, next week, be offering our alternative Budget. The country will see in that how we shall have a much better offer to make to the taxpayers of Britain and to the people of Britain, who, in the great majority, want jobs, decent public services, a health service, an education system and not the bribes that the Government are offering them. [Interruption.]

    Order. The Chancellor was given a reasonable hearing and the Leader of the Opposition is entitled to no less. I very much hope that we shall not get into red card territory.

    Thank you, Mr. Deputy Speaker.

    The right hon. Gentleman and I just made a little history there because, as far as I know, it is the first time that the Leader of the Opposition has been interrupted in the course of his response to the Budget statement. What a shame, now that we have established this precedent, that we shall be changing the Budget process, so possibly the same conditions will not arise again. However, I can say on behalf of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) that if the then Leader of the Opposition wants to intervene, he will give way.

    I have just given the answer.

    We have been treated for months with teases about the Budget. We have been treated to the sight of the Chancellor of the Exchequer and other members of the Treasury team saying that they could not disclose anything. I think that, in the name of reasonability, they could at least give us another six days to produce our own statement in opposition to, an alternative to, what we have heard this afternoon.

    It has not just been the Chancellor and the Prime Minister who have been cursing Governments for spending
    "more than they were prepared to raise honestly from taxation",—[Official Report 20 March 1990; Vol. 169, c. 1016.]
    It is only weeks since the chairman of the Conservative party called borrowing "deferred taxation". The right hon. Gentleman probably regrets that now. He and the rest of his colleagues have to go into a general election with a promise to make tax cuts that are funded by borrowing, and that means that they will have to go into that general election campaign guaranteeing that they will make their children and everyone else's children pay the cost of their electioneering. But it is worse than that, because borrowing for tax cuts for this generation leaves the next generation with debts and nothing else.

    Borrowing for tax cuts does not provide the next generation with the means of generating wealth or with any extra ways of producing revenues to repay the borrowing. Borrowing for tax cuts leaves no extra advantages, only extra burdens. The difference between borrowing for investment in the future and borrowing for immediate consumption is the difference between borrowing to put an extension on one's house and borrowing to go away for a day at the races. That is what the Government aim to do, just a few weeks at the races before they come second.

    Perhaps the Chancellor will tell us whether he thinks that it is all right to compromise our children's future and to burden rising generations with the cost of our generation's tax cuts because he believes that the reduction in taxes now is the best way to stimulate the economy into recovery. If he believes that, the Chancellor is wrong—even about that. The burden of personal and company debt in Britain is so big that some of the borrowed giveaway would doubtless be used to reduce that record burden and not to generate fresh economic activity.

    Such is the run-down in British industry that, as the Engineering Employers Federation and several others testify, much of the borrowed giveaway would be spent on imports and not on generating jobs in Britain. The Government know that, but they still borrow for tax cuts in an economy which, despite the long recession, has a rising balance of payments deficit as the Chancellor again confirmed in his speech. In making those changes the Government demonstrate their desperation and their irresponsibility.

    If the Chancellor believes that borrowing for tax cuts is an effective way to promote recovery, he has to answer a simple question. If borrowing for tax cuts is the fast lane to recovery, why did not he hit upon this great scheme last year or a year ago when the recession was already nine months old instead of waiting until the recession was 21 months old? Why did not he do it a year ago when he was forecasting that Government borrowing would be just £8 billion instead of £28 billion? Why did not he do it when 50,000 more companies were still in existence or a year ago when 100,000 more families were still in their homes? Most of all, why did not the Chancellor do it a year ago when 800,000 more people were still in their jobs?

    The answer is obvious. The Chancellor did not take any action to combat recession because there was no election to come just weeks after the Budget. Now the election looms and borrowing, yesterday's original sin, has become today's prudent virtue. However, the debt will still have to be paid. Perhaps the Chancellor wishes to avoid burdening the next generation with the cost of money that has been borrowed for these pre-election tax cuts. That would be noble of him but, of course, there is only one way for him to stop the obligation falling on the next generation, and it would be quickly to reclaim the cost of this year's borrowing by raising taxes on the present generation. Obviously, that would mean that what he gave with one hand this year he would have to take back with both hands next year.

    If the debt that the Chancellor has run up for tax cuts was not to be permanent, he would have to repay it with higher and wider VAT and other taxes and charges. I heard what the Chancellor said about having no plans to make changes in VAT. It was a faithful echo of what his right hon. and learned Friend the Member for Surrey, East (Sir. G. Howe) used to say in those precise words before the Government doubled VAT at the beginning of their period of government.

    The Chancellor knows that this is the only alternative to saddling rising generations with tax. The Prime Minister also knows it. All that they have not done is to admit it. I shall give the Chancellor an opportunity to make his Budget a little more honest. First, I ask him to acknowledge the basic truth that money borrowed for tax cutting would soon have to be repaid by tax raising if he was to keep his pledge to balance the Budget over the cycle. That must be the case. The Chancellor shakes his head. Unless he has developed a new system of mathematics, what I have said must be the case. One way or another that money will have to be repaid.

    Secondly, I ask him whether he would do that in this generation or leave the unavoidable task of repayment to the next generation. Which is it to be—extra tax for our children or extra tax for us? I know that the Chancellor could tell us now if he wanted to. He must have worked it out. If he can give an honest answer so that the country will hear about the real cost of his Budget and who will pay that cost, he should rise and tell us. It should not be difficult because all that he has to do is to repeat the recent words of the Prime Minister who said:
    "if borrowing takes the strain,"—
    which it clearly is—
    "taxes … have to go up to service the debt".
    If there is not an acknowledgement of that, so much for the "simple rule" of honest financing and for the Prime Minister's declarations about honest taxation and borrowing. So much for this discredited Government.

    Borrowing money for tax cuts in this recession will not stimulate recovery in any significant or sustained way. It will not strengthen the economy or improve the essential public services. If the borrowed money goes into consumption, it will suck in imports and increase the deficit and debt, and bring a rise in inflation which will be combated in due course by higher interest rates, so pushing the economy back into recession. That is where Tory policies have led this country already, and that is why the British people do not want to rejoin the treadmill that they have twice been on in the past 13 years.

    The British people know that in this recession, if there is to be borrowed money available, it must be invested in industry, construction, capital works, transport and other essential services. People know that if borrowing is used in that way it will generate sustained orders, production, profits and employment in Britain. It will create wealth and incomes by building a recovery with staying power. It will generate the extra revenue that will be needed in future for rising standards of health provision, education opportunities, childcare and proper security for the old.

    That is the kind of resilient recovery that Britain wants and needs. The Government have never been able to produce a resilient recovery because they have always relied on the consumption-led recovery that the Chancellor advocated yet again in his speech. We need an investment-led recovery that will make Britain well equipped, well trained, competitive, consistently successful and socially just. That change will never come from this Government. They have got it wrong for the past 13 years and they will not start to get it right now. They have had all that time in power and at the end of it, it is a matter of fact that our country is under-trained, under-invested and under-performing.

    Because of the Government's policies, Britain is increasingly dependent on imports and is still in recession. Our essential public services are run down, and poverty is spreading across the land. Now the Government are asking the country to believe that, having got it so wrong for so long, they can with this Budget put it all right. They cannot be believed: they are not believed. That is why they will be beaten. They are hollow men—and the Tory Government ends not with a recovery bang but with a bribery whimper. The British people will not be deceived. They want real recovery. They will not support the bribers; they will support the builders.

    5.10 pm

    The speech of the Leader of the Opposition showed his attitude clearly. We have heard that there is to be a £30 billion programme of public capital spending—a larger sum than the public sector borrowing requirement—yet there was no account of that in his speech.

    The right hon. Gentleman was asked what he would do about the 20p in the pound tax rate for the lower paid. He ducked the question and was asked it again, and again he ducked it. It is my guess that by the time that he reaches a press conference he will have been able to take advice from his right hon. and learned Friend the Member for Monklands, East (Mr. Smith) or from other right hon. and hon. Friends. They will explain to him that he has to say either that the Labour party will vote against 20p in the pound or that it will support the reduction.

    The right hon. Gentleman will not be able to get away with his tight response when replying to the Budget statement on behalf of the Opposition. It was seen to be inadequate and it disappointed his supporters. The reaction of Opposition Members at the conclusion of his speech showed that he is not up to the job of moving across the Chamber to the Government Benches.

    Does my hon. Friend agree that, to put it in a phrase, the Leader of the Opposition has been kebabed by the Budget?

    I am not sure about that. One needs to be fair to him. He did not have much time to prepare his response to the contents of the Budget. He had to work on the assumptions that appeared in the newspapers. It is wrong to spend too much time criticising the right hon. Gentleman, because he has done a great deal with the Labour party during his time as Leader of the Opposition. It is plain, however, that there is likely to be a change of some sort on the Opposition Benches after the election. As the election has not yet been announced, perhaps we can leave that to the debate that will take place later this week.

    There will be a welcome throughout the country for many of the imaginative proposals that my right hon. Friend the Chancellor of the Exchequer announced. The idea of using the rate of 20p in the pound for the first £2,000 of taxable income is imaginative and will be welcomed. If it did not lead to a reduction in the basic rate of tax, it would be wrong. The introduction of the proposal as a stepping stone towards a reduction in the overall rate is to be welcomed.

    Many people will understand that, whatever we may or may not want to do to those higher rates of tax, there are many others who are in and out of work. That is the reality, and it can be a tragedy for them. When someone in that position finds work and income, but is then subject to income tax of 25p in the pound plus national insurance stoppages, those are disincentives. It leads also to difficulties in the eventual merging of the tax and benefits system.

    I recommend that both major parties in time adopt the idea of putting the social security system within an extended arm of the Treasury, so that on one side the Inland Revenue reports to the Treasury while on the other the social security system reports to it. That would enable the Chancellor of the Exchequer to decide how the tax and benefit systems can begin to come together, to overlap and eventually to merge. I do not think that it will be possible to merge them in one operation.

    One of the innovations of the past two or three years which has not really been noticed is that child benefit changes are now announced by the Chancellor of the Exchequer. Introducing child benefit was a proper move but mistakes have been made. The first mistake is to use the term "child benefit", which suggests that the benefit is selective and is taken up only by the poorest. All hon. Members know that child benefit gives no help to those on income support because it is taken into account in assessing their income. That is proper, but to retain the term "child benefit" is a mistake.

    I hope that in time that benefit will be called the child cash allowance. It is right that it should be paid in cash and it is right that it should go to all children. It should be recognised that the present Chancellor has been right—as was my right hon. Friend the Prime Minister before him—with the support of my right hon. Friend the Secretary of State for Social Security, to make the necessary decisions as part of a Budget announcement. I hope that in future Budgets it will be possible to have real increases in child benefit, or the child cash allowance, as well as to extend the 20p rate of income tax beyond the first £2,000 of taxable income.

    Is it not a fact that the consequences of the measures that have been announced today will not work through into the pockets of the lower paid? Anything that they gain will be deducted from their family credit. The Government have put together social security benefits and taxation. The hon. Gentleman will see that it is not a Budget for the low-paid or lower-paid.

    I hope that this portion of my speech will not be extended too far. I am trying to make some non-partisan points. If my support of higher rates of child benefit is partisan and the Labour party disapproves of it, that is something that should be on the record. I was working on the assumption that Labour party policy towards a child cash allowance had not changed.

    I thought that it was not controversial to talk about stepping stones leading to the merger of the tax and social security systems. I accept the argument of the hon. Member for Leeds, West (Mr. Battle) that families in work, but on low incomes, who have children will not get an immediate increase.

    When the hon. Gentleman has finished interrupting me from a sedentary position, I shall take up his argument. There are also those families without children who will receive benefit.

    The proposals of my right hon. Friend the Chancellor for pensioners will provide them with immediate help. They will be recognised as important and they will do more in a concentrated way for 5 million pensioners than would have been done under the Labour party's proposals, which would have given an increase in pensions to pensioners whether or not they were well-off.

    A degree of selectivity is worth while. Indeed, there must be a degree of selectivity. It may be based on income. There may be a condition—for example, whether or not one is dealing with a child. I think that my right hon. Friend deserves congratulations for employing selectivity for pensioners based on income.

    I look forward to the debate continuing over the next two or three days—

    I shall not give way.

    If the debate is truncated because we are to move into a general election campaign, it will be interesting to see whether the official Opposition's leadership will make up its mind about 20p in the pound for the first £2,000 of taxable income or whether it will try to duck that and other crucial issues.

    5.16 pm

    It is not my normal practice to intervene in Budget debates. I hope that my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) will be able to catch your eye tomorrow, Mr. Deputy Speaker.

    In the absence of the leader of my party, my right hon. Friend the Member for Yeovil (Mr. Ashdown), because of the effect of Glasgow weather on his health, I shall begin by saying that when I last had a cold my doctor, who is also a friend, came through the bedroom door bearing a bottle of whisky, a jar of his own honey and a lemon. He said, "You add these to hot water and you will feel much better." I said, "This is the national health service at its best, but will it cure me?" He replied, "No, it won't do you any good at all but it will make you feel better." And this is a hot toddy Budget. It will not do the economy any good but it will make people feel better temporarily, for as long as the infusion lasts. I believe that that is what it was designed to do.

    The Budget was designed not to help the country over the months or years ahead but to get the Government through the next few weeks as they hope. The real question is whether the Budget in these terms would have been introduced by the Government after an election in precisely the same terms in which it has been introduced this afternoon. The answer is manifestly not.

    We unreservedly welcome some of the individual tinkering changes. There is relief on business rates; arrangements for value-added tax and late payments, which will help small businesses; inheritance tax changes for family businesses—they are welcome, and especially for family farms—relief for the car industry; and the increase in income support levels. These minor changes would, I hope, have been carried out by whatever Government were in office and at whatever stage in parliamentary terms.

    Our basic complaint is that the Budget's fundamental strategy is wrong. It will do nothing to stimulate the investment that the country requires. In the middle of his statement, the Chancellor of the Exchequer produced a curious little homily about the difference between public investment and private investment. The right hon. Gentleman more or less said that all public investment was somehow bad and that private investment was good. It was—[Interruption.] That was the general tenor of his remarks. We say that such is the long-term damage that has been done to our economy that we need the stimulus which can be achieved only by the public sector if we are to turn the economy round.

    My hon. Friend the Member for Berwick-upon-Tweed put the matter well in his pre-Budget submission when he said:
    "Most economies were not as badly managed as Britain's was during the late 1980s, and few of our main competitors have Britain's underlying weaknesses of a poorly-skilled and educated workforce, an inadequate transport infrastructure and a poor record of investment in research and development."
    That is why we have suggested that a programme should be brought forward which would include school and college building; energy conservation measures—how little there was in the Budget on the improvement of the environment and energy conservation; a tiny fiddling around on the margins on unleaded petrol and that was all, nothing else—major investment in railway infrastructure and, in particular, in housing because Britain is suffering from an increase in homelessness. It is one of the standing condemnations of the Government that, having introduced an excellent programme of council house sales, they have not allowed local authorities the freedom to spend the income derived from that on housing.

    To give a brief example from my constituency, I had to take a deputation to see a Scottish Office Minister the other day because one of my housing authorities is unable to proceed with a programme to improve the housing stock in my constituency, including improvements such as double glazing, which surely the country should welcome; colour-washing to improve the environment of some of our rather dowdy housing schemes; internal improvements and the construction of new homes, which are needed because the waiting list in my area has risen by 37 per cent. in one year.

    The key point is that, while the Government are restraining local authorities from carrying out such sensible programmes, 10 per cent. of the labour force in my area is in the construction industry which is suffering chronic unemployment.

    Our alternative proposals to the Government's Budget strategy would result in a 400,000 drop in unemployment in the first year and a 600,000 drop in the second year. As each unemployed person costs the Exchequer £8,500 today, we are talking about a consequential saving to the Exchequer of £2·5 billion by the end of the second year. In all the waste of public expenditure there is no greater waste than the money spent on the growth of unemployment benefits that are paid out under the Government.

    The Government are aiming for a snapshot election. What the country will want to look at is not the record over 13 days but the record over 13 years. They will look at the record unemployment, the unprecedented number of home repossessions, the unprecedented level of debt in our society, the record homelessness, the growth of the cardboard cities and, in particular, the squeeze on young people whether through the reductions in social security or in education assistance. When the Government are judged on 13 years as distinct from 13 days in the aftermath of a Budget, they will be found by the country to be severely wanting.

    5.22 pm

    There has been a certain air of unreality in this afternoon's Budget debate in that most people know that a two point cut in interest rates would do more than anything else to revive the economy, but we know that that cannot be done because of German control. As an Englishman, it grieves me that we have handed over control of our economic and monetary affairs to a foreign bank. That is a non-party point, as the Opposition are even more keen on the exchange rate mechanism than are Conservative Members. I fear that the ghost of an independent bank rate decided by ourselves alone in these islands will haunt this country and its people for many years to come.

    That, of course, is not my right hon. Friend the Chancellor's fault. I congratulate him on what he has done. I expect to see clarity of purpose and execution coming from this Budget—as I am sure we shall—with its principle of low taxes, protection of private property under the law, limited state intervention in social and economic affairs, emphasis on non-state institutions such as the Church and the family and rejection of bureaucratic attempts to centralise and standardise. I object to the state telling me what to do in any aspect of life where an individual should have free choice according to his conscience. I am glad, therefore, that my right hon. Friend the Chancellor has not made punitive increases in the taxation of tobacco and alcohol.

    Looking at the country at large, and my constituency in particular, those in work have never been better off. With low inflation and average pay rises of 7 per cent., their standard of living has continued to rise. All that would be put at risk by a Labour Government. What is needed now is to help industry and commerce to recover as much as possible and to give individuals more confidence about their future, including those who, unfortunately, have become unemployed.

    Looking back over previous years, I wish that we had been able to cut taxes by a larger amount, even if that meant paying less back in borrowing. I hope that we can still find a way to make local government more accountable to its electorate in terms of spending, which was the merit of the original community charge. I am also concerned about the increasing numbers in the exceedingly popular national health service, which is good and getting better. But we must watch the numbers. I think that I am right in saying that, with the disintegration of the Soviet army, the national health service is now the largest organisation in Europe. If its staff continues to increase at the present rate, in due course half the British people will be employed in the health service. Therefore, we must be careful, as I am sure the Government are, to ensure that we get full value for all money that is spent.

    I welcome enormously the reduction in the business rate and the increase in VAT thresholds, as the contribution that small firms make to the economy is immense. As a Member from the west midlands, I am delighted that the tax on new cars is to be reduced. That will be greatly welcomed in my constituency and elsewhere. The reduction in inheritance tax on small businesses and farms is splendid. One hopes that those reductions will continue in the years to come with future Conservative Governments.

    I welcome the lower band in income tax which has long been needed. That will help those who are in and out of work and who find life difficult. It is a splendid measure which I am glad the Government have introduced. Altogether, the tax cuts will stimulate investment and the economy and enhance confidence at consumer level. We must continue to help people to be more self-reliant and to provide more and more for their education, health and retirement.

    It is vital that the Government and the Chancellor should be committed to minimising Government intervention in favour of the free market and individual choice. That is the essential difference between the Conservative and the Labour parties. We must also make it clear that we commend a Conservative Government who know what they want to do, who are confident that they can do it and who will have the chance to do it, too. My right hon. Friend the Chancellor has shown confidence and competence and for that reason the Government deserve to win the next election.

    I have two personal sadnesses which arise not from the Budget but from the way in which we spend or save our money. The cuts in the Army, in the armoured regiments and the infantry battalions, will prove to be a dangerous and false economy and I hope that the Government will reconsider them in a few weeks' time. I am also concerned about the headlong rush to enable more young people to go to university. More students may mean a lower standard. There are better ways of bringing on our young people than by making them mad to get a degree in all kinds of absurd subjects.

    Finally, a Conservative Government must protect and defend the institutions for which Britain is so renowned—the Queen, Parliament and especially the House of Lords with its hereditary element, the Church of England, the judges, the armed services and the police.

    I hope that we can emerge from this long recession, which is world wide, with more confidence. I hope that we can show that we have the will and the purpose to make our country great again, so that we can be an example to other nations, particularly on the continent, which so badly need a lead from us.

    This may be the last speech that I shall make in the Chamber. I want to say how very much I have enjoyed being here. What a privilege it has been to represent my constituents and to stand up for all that is best in our country at home and abroad. I thank Mr. Speaker for his unfailing courtesy to me and everyone on both sides of the House for their kindness and companionship, which I shall never forget.

    5.30 pm

    It is a pleasure to follow the hon. Member for Halesowen and Stourbridge (Sir J. Stokes). We shall miss him very much in the new Parliament. He invariably claims to speak for England, so he will understand it if I say a few words in favour of Wales.

    It would not be unduly prejudiced to suggest that the Budget is being used by the Government to try to win the forthcoming general election. After 13 years of their rule, Britain is in the worst depression since the 1930s. A desperate attempt is being made to save the skins of Conservative Members and to keep the Government in office. I believe that they will not succeed.

    I shall consider some of the proposals put forward by the Chancellor this afternoon. I say "proposals" because the real Budget will be brought forward after the general election by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith).

    Earlier, there was much speculation about a reduction in the basic rate of income tax. The Chancellor has approached that proposal in a round-about way and under the guise of helping the lower paid. It goes without saying that we would all like to pay less tax. Nevertheless, many people realise that the amount involved would be better spent elsewhere. Income tax cuts will invariably suck in imports. In addition, the Government's proposals, including the reduction in income tax, will mean that they have to borrow to pay for them.

    Those tactics are completely contrary to the previously declared attitude of the Prime Minister. On 22 February 1990, he said:
    "For decades, successive Governments had spent more than they were prepared to raise honestly from taxation and they made up the shortfall by borrowing. They left the bill to be picked up by future generations."
    No further comment is needed from me, but certainly we shall hear much about the Prime Minister's earlier attitude in the forthcoming general election campaign.

    Has the hon. Gentleman seen the recent written answer in Hansard which shows the public sector borrowing requirement for each year since 1974 in real terms and adjusted for inflation? It shows the figures for 1974–75 and 1975–76 and so on, and compares them with those for the past five years. There has been no net PSBR since 1984. That puts the words of the Leader of the Opposition into perspective.

    I could have cited other quotations to reveal the Prime Minister's earlier attitude and the fact that the Budget proposals are a complete contradiction of it.

    The cuts in tax which have been announced will not help the unemployed of whom there are no fewer than 2,600,000—the total is continually rising. The tax cuts will not help the homeless. What is needed is a boost for housing. The capital receipts held by local authorities from the sale of council houses should be released on a phased basis. Besides giving ordinary people the homes that they need, such a measure would provide badly needed employment to the construction industry. The cuts will not help people on hospital waiting lists or reduce exorbitant prescription charges. They will not help children in inadequate schools, which have no text books. The Chancellor is borrowing to bribe. As my right hon. Friend the Leader of the Opposition clearly pointed out, that can only mean future tax increases. The Opposition believe that the reversal of Britain's economic decline and the elimination of social squalor are the main priorities.

    I want to be fair to the Chancellor about the reduction of the special car tax. I agree with that reduction and I am glad to note that my right hon. Friend the Leader of the Opposition also agreed. I am sympathetic to that proposal because it is justified. The car industry is vital to the economy. It has taken some bad knocks recently. Sales have plummeted, output has been cut and workers have been laid off.

    The ripples from the car industry go far and wide in Wales. We do not have a car assembly plant, but we are very reliant on car component industries for employment. For example, we have an important Ford car engine plant at Bridgend and another Ford plant at Swansea. Bosch—the major German company—is now well-established in the vale of Glamorgan and employs hundreds of people. Lucas Girling, the brake manufacturer, is a major employer in Gwent. There are many other examples.

    More importantly, the steel industry in Wales relies greatly on the motor industry to take up much of its output. In employment terms alone, the car industry is vital and we ill-treat it at our peril. That is borne out by Germany and Japan, which have encouraged and fostered their car industries. They are the two most successful trading nations.

    I know that we are all green now. It is one thing to prevail on our motor manufacturers to step up research to curb the effects of fuel emissions. However, we should bear in mind that ordinary people are attached to their motor cars. Private transport was once the prerogative of the rich. Now people use their cars to travel to work, many housewives find them indispensable for shopping at the local supermarket and many families find their cars indispensable for leisure purposes. We should step up investment in rail and other forms of public transport, but we should realise how reliant we are on road transport. No magic wand can be waved to change the position overnight.

    Training provision is also important. As far as I am aware, the Chancellor made no mention of that vital subject. Surely the disastrous cuts made in the training budget in 1991 and 1992 should be restored. What sense was there in cutting training in a period of heavy unemployment? I believe that we should increase the number of training opportunities for the long-term unemployed, and give all young people a guaranteed entitlement to quality training. That would constitute real investment in Britain's future prosperity.

    Then there is the matter of help for small businesses. Here again, I support my right hon. Friend the Leader of the Opposition, who welcomed the proposals concerned. Of course small businesses need help—but that help is long overdue. Only yesterday, I received a telephone call from a constituent whose husband was in a small-business partnership. The company had run into difficulties, and a leading firm of merchant bankers—in pursuit of its pound of flesh, so to speak—is threatening to take over the family home. That personal tragedy is only one example of what is currently happening.

    Essentially, the current recession is a product of the Government's own policies. When he was Chancellor, the right hon. Member for Blaby (Mr. Lawson) allowed a free-for-all, with easy money and easy credit; now, we are reaping the whirlwind. The Prime Minister and the Chancellor are apparently on record as saying that unemployment is "a price worth paying". I certainly do not agree with that contention, or with their attempt to blame the so-called world recession for our current troubles. Comparisons are said to be odious, but let us take Japan. It was said that Japan was in recession in 1991. Some recession! In that year, its output grew by 4 per cent., while ours fell by 4 per cent.

    This is the Chancellor's second Budget. He is not a Welshman, and it is extremely unlikely that he will have a third try. Today is his date with destiny. If things go wrong on 9 April, he will book himself a one-way ticket to the pet-food canneries at Melton Mowbray; how can he escape the dogs and the tin opener? Let me make it clear that that inelegant language is not my own. It is taken from the authentic voice of the Conservative party—last Friday's Daily Telegraph. On page 19, Christopher Fildes went on to point out that, in the Tory party,
    "the pack instinct … is one of its nastiest qualities".
    I am sure that the right hon. Member for Finchley (Mrs. Thatcher) would bear out that observation.

    There is little doubt that the Chancellor's head is on the block. Let us be fair: he has faced a difficult task, given that more than 2·6 million of the working population are unemployed, the figure has risen consistently over the past 22 months and the trend is likely to continue unabated. Bankruptcies are at a record level, with 200 businesses going bankrupt every day. Home repossessions and mortgage arrears are also at record levels: there were 75,000 repossessions in 1991, with all the misery and unhappiness that that involves.

    After 13 years of the present Government, business confidence is at an all-time low. Leading Government figures, such as the Secretary of State for the Environment and the Chief Secretary to the Treasury, have tried to cover up the catalogue of disaster with bluster coupled with music-hall humour. I can only say that that is not going to work. The game is up; "you can fool some of the people some of the time …" Conservative Members will know the rest of the quotation. I believe that, on 9 April, the people of Britain will elect a Labour Government.

    5.45 pm

    I well recall the speculation that heralded today's Budget and, as I look across at Opposition Members, I see them knee-deep in shot foxes. I ask them to remember what we are going to do for pensioners by means of income support and what we will do for people on lower incomes by introducing a 20 per cent. band for the first £2,000 of taxable income. That is a significant move on the Conservatives' part: the party is recognising the poorer members of society, and giving them some help in a particularly difficult time. [Interruption.] I used to represent Workington, one of the tougher parts of the country. I have observed the improvements that have been made there and, over the past 12 years, I have observed a general increase in standards of living throughout the country.

    One of the attractions of speaking on the first day of the Budget debate is the ability to make comments that are unsullied by any outside views or pressures—in particular, to make comments before the combined wit and wisdom of the press have been brought to bear. Many people outside the House do not realise that the press operates as a series of wolf packs: the Sundays prowl the corridors, desperately trying to keep stories from the dailies in case they are filched from them before their publication date, while the dailies compete with each other, exchanging titbits of news and information. Thus, when the papers hit the stand, we see an underlying similarity between them.

    Bereft of the combined wit and wisdom of the scribes of Fleet street, I am nevertheless convinced that their judgments on the Budget will prove that it is to be deemed one of the most ingenious, caring and clever Budgets produced for many a long year.

    I shall not develop any of the points that have been made about help for pensioners and for those who will benefit from the 20 per cent. tax band. Those points have already been made and I am convinced that, as the days go by, other hon. Members will trawl over the same ground. Let me simply make one brief comment: even if we had knocked one penny from the basic rate of income tax, we could have acted with integrity and honesty. That would not have been an election bribe. Over 12 years, we have consistently lowered the basic rate: from 33p in the pound to 25p, and we aim to bring it down to 20p. That is a committed aim and, if the Chancellor had felt that that was the way in which to act, it could have been done with integrity.

    Let us suppose that the roles had been reversed, and that Opposition Members had been involved, with their commitment to higher taxation and increased centralisation. In that event, such action would have been deemed to be an electoral bribe, but that does not apply to the Conservatives, because we are committed to bringing down the tax rates. I hope that that will be a continual programme, followed over the next four to five years of Conservative government.

    Last year, I talked about small businesses. Then, my right hon. Friend the Chancellor devoted a substantial part of his Budget to helping them and I am delighted that he has listened further to the calls of those interested in small businesses and has brought together a series of measures that will give them even more help and support.

    Let us consider in particular what my right hon. Friend the Chancellor has done with the uniform business rate. For me to be able to tell the small businesses in my constituency that the increase will be limited to the rate of inflation will be an enormous benefit to them. There is no doubt that in the south we have suffered an increase in the UBR to subsidise businesses in the north. I do not object to that because I want to see an equal spread of wealth across the country, but it has been a blow in a time of difficulty, and the fact that any increase is to be held to the rate of inflation is to be commended.

    Last year, I was especially fulsome about the move to raise the value added tax threshold to £35,000. As I understand it, it is now to be raised to £36,600 which is a significant improvement. It must make sense for VAT inspectors not to have to rush around to small companies, picking up tiny sums of money. It must also make sense to allow the businesses—the one-man bands—that are getting started to do so without the aggravation of filling in VAT forms and the difficulty that that brings until they are established, until their turnover increases and until they are able to launch out and participate in the normal run of tax collections as they get bigger. I appreciate the raising of the threshold, but we should consider whether it could be even further improved in the years to come.

    One issue mentioned in the Budget was the declaration—and it was a declaration—that larger companies must pay smaller companies on time. It is absolutely disgusting that some large companies have bled small companies white by using their power and muscle and by not paying bills on time. It would be invidious to name those larger companies, but they are household names. I go out of my way to avoid buying their products if I have an alternative. The comments by my right hon. Friend the Chancellor about small businesses being paid on time were necessary. I know a small business man who is in desperate trouble because a large company is refusing to pay a very large outstanding bill. All I can say to the larger company is, "Shame on you".

    The consideration in the Budget of the cost of appeals to the special commissioners is another move in the right direction. Too often when small businesses have made claims they have met intransigence and it has cost a fortune to fight a case. At the end of the day, the costs have not been recoverable, but now a step has been made in the right direction, and that can only be beneficial.

    Does my hon. Friend agree that it is wrong that taxpayers should be intimidated by the thought that they might not be able to recover their costs when they have a legitimate case to take to appeal and that consideration of that anomaly is long overdue?

    My hon. Friend puts the case in a nutshell. I know of instances in which people have said that the game was not worth the candle because it would take too long, and the intransigence of some tax inspectors has wrongfully won the day. Again, I know of a case in my constituency which is proceeding on exactly those lines, but now my constituent will be able to take action. I have considered his case and it is genuine. He will now know that he has the opportunity to recover some of his costs.

    My right hon. Friend the Chancellor also listened to the problems of people handing on their companies to ensure that they are not broken up. We all know of the vast costs involved in getting a company started and of the impact of inheritance tax on those who have built a business and want to ensure that it stays in one piece and that it retains its essential individual character. They have the opportunity to do so—now, such companies will not necessarily be swallowed up and become part of yet another branch of a large conglomerate.

    It would be wrong of me to speak about the help for the car industry without declaring an interest. What is being done in this context will be a fillip to get motor manufacturers going and will, of course, have a ripple effect across the country. I believe that many people deferred their buying decisions until today, and perhaps what has been said today will encourage them.

    My last point might be slightly contentious. Although I welcome what is being done for the British film industry—the one third write-off on a straight line over three years—I have to say that what is sauce for the goose is sauce for the gander. I wish that we could in some way extend that provision to manufacturing industry. If one removes from our manufacturing industry the inward investment and the investment by a few large companies such as British Gas, British Aerospace, Rolls-Royce and ICI, one finds that very little manufacturing investment is being made in this country. In fact, until 1988–89 the growth rate since 1979 works out at only 1 per cent. In a world of increasing mechanisation, of more robotics and more automation, it is absolutely right that we should have increased growth in investment.

    However, we have a culture in this country whereby we do not invest, and the hon. Member for Newport, East (Mr. Hughes) mentioned the lack of commitment to training and to research and development. I am afraid that that strand runs through this country and it must be broken. Our foreign competitors have a different culture. We suffer from short-termism, which is unhealthy for long-term survival. Let us consider, for example, Germany. It gives a 20 per cent. allowance against tax for dividends, but no more. If one pays a dividend of more than 20 per cent., one begins to eat into the residual profit of a company. Perhaps we could have some guidance to help to gain investment in our companies.

    That issue has what could be described as more insidious consequences because German Members of Parliament are given a specific allowance of more than £650 a month which is ring fenced for equipment such as computers, word processors and faxes. That is the way that they think—they think of investment in automation and of using equipment to ensure a more efficient operation.

    The Government have set the seal on the Conservative party proceeding to the general election. Over the years, cutting the rate of tax has left us with more taxes to put into hospitals and schools but, at the same time, we have managed to leave more money in real terms in people's pockets for them to spend as they think fit. That is the opposite of the double whammy. I have absolutely no doubt that the success of the Budget was evident in the faces of members of the Opposition, and it will be reflected in the results of the election.

    5.57 pm

    Coming prior to an election, the Budget must face the acid test of whether it is irresponsible in budgetary terms and pure electioneering. As I understand it, the Chancellor has added to the public deficit £1·6 billion, which is rather less than many people had thought.

    I judge that, by limiting the amount of tax changes, it can fairly be called a prudent Budget and should, in a rational world, allow the Chancellor to reduce interest rates by at least ½ per cent. I strongly wish they could be reduced by a full 1 per cent. in the next couple of days. Whatever was said in the Budget, what will greatly help the British economy and British industry is a further reduction in interest rates. That must be the main essential of any strategy. It would be irrational of the markets to exclude a reduction in interest rates in the next few days. I profoundly hope that a reduction is possible.

    As for overall economic strategy, the fundamental requirement for the economy seems to be to improve its competitiveness. Inflation shows every sign of dropping to 3·2 per cent. or 3 per cent. by the end of the year. We must not only achieve but maintain that level of inflation if British industry is to compete in the next three to four years. Those will still be difficult years for our economy because we must overcome the disadvantages of entering the exchange rate mechanism at a rate higher than was attractive for British industry.

    The errors of the past five years in handling the economy have been fairly considerable and were predicted. The pre-election Budget of 1987 fed inflation. Then, of course, we had the miscalculation following the stock market collapse in the autumn of 1987. I am less censorious of the right hon. Member for Blaby (Mr. Lawson), the then Chancellor, than many people.

    First, I thought that the right hon. Member for Blaby was right to respond to prevent recession and lack of confidence. It has to be said that most people believed that. They believed that the world response was an enlightened response. Nevertheless, we all got it wrong. But the right hon. Member for Blaby, as well as the right hon. Member for Finchley (Mrs. Thatcher), cannot escape serious criticism for their Budget judgment of April 1988. That Budget was grotesquely irresponsible. I and many others said so at the time.

    But it was worse than that. It was the one opportunity that we have had to restructure the tax system, abolish the threshold for national insurance contributions and take the steps that the hon. Member for Eltham (Mr. Bottomley) rightly suggested today to bring the tax and social security systems into an integrated pattern. Abolition of the national insurance contributions threshold must be done but must be done at a buoyant time. The right hon. and learned Member for Monklands, East (Mr. Smith) will have great difficulty with his proposal on national insurance contributions if he implements it at a time of economic difficulty. It is a structural change that must be made and it should have been made in 1988. It would have been appropriate in 1988 and the disadvantages could have been offset by changing the 60 per cent. tax rate to only 50 per cent.

    However, it is no use looking back. The basic facts were that in 1989, with inflation running as high as it was, we had to rein back the economy. I sometimes think that the Prime Minister is too embarrassed by the phrase that he coined at the time, "If it isn't hurting, it isn't working." There was no escape from the fact that, having fed and stoked up inflation so irresponsibly in 1987 and 1988, coming to grips with inflation in 1989, 1990 and 1991 would be painful. It does not serve anyone's purpose to deny that it would be difficult. But the question is whether we compounded that difficulty.

    As I said, we went into the exchange rate mechanism at too high a rate. But we all know that the political difficulty of persuading the then Prime Minister to accept that we should enter the ERM was formidable. We should have entered it in the early 1980s, and certainly when the right hon. Member for Blaby wanted to do so in 1985. There are penalties for having entered the ERM so late.

    I wish that some of the people who have so glibly advocated a single currency in the past few months and yet have railed against the constraints of the ERM would face up to the reality that the constraints of a single currency system would be far greater than anything that we have experienced in the past two years inside the ERM. I and the Social Democratic party advocated entering the ERM during the whole of the party's existence. I believe that that discipline is necessary. It is uncomfortable, but it is no use trying to get out of that discipline. It is the price that one pays for being within the ERM.

    In the summer I hoped that we might reduce interest rates somewhat faster than we did. But these are difficult judgments and clearly the Chancellor of the Exchequer, certainly with an election approaching, felt that it would be damaging to confidence to reduce interest rates and then risk being forced to raise them again. So he has adopted a cautious approach of ½ per cent. at a time. It is a matter of the utmost importance that we reduce interest rates in the next year to 9 per cent. or perhaps lower.

    Another problem is unit costs. Britain simply must face pressure to reduce unit costs for three to four years. That is where we come to the strategy on tax reductions. Listening to the Leader of the Opposition, I must confess that I was nonplussed as to whether the Budget that he would propose in six days would have a reduced public sector borrowing requirement. Certainly the effect of what he said was that he would come in with a reduced PSBR.

    There was constant reiteration of the problem of borrowing to reduce taxation. By implication, he said that the borrowing requirement was too great and, therefore, would have to be restricted. However, we await his Budget.

    If we are to keep unit costs down, the section of the labour force who do not have large earnings must be given the greatest relief. That means concentrating tax relief on not only the lower paid but those who receive average pay in manufacturing industry. It is from that section that the pressure always comes to pay ourselves more than can be justified by increases in productivity. This is where we come to the reduced rate band.

    In redistribution policy, the best way of helping the poorest section who pay tax is undoubtedly to raise personal tax allowances and take people out of paying tax altogether. However, experience shows that that has little effect on the bargaining position of people in work. They do not feel that they have had a tax reduction when personal tax allowances are raised. A reduced rate band is an interesting way of grappling with the problem of keeping down unit costs and keeping wages in line with productivity.

    The Chancellor seemed to suggest in his speech that he intended to use a reduced rate band as a structural mechanism for taking income tax down from 25p to 20p in the pound. Obviously, there are several options, but I hope that he will take that one. I know that it is difficult technically, but I hope that the Chancellor will gradually take more people into the 20p rate band but come at it from below—from the lower paid up through the system. We have never done it like that before. We have simply taken slices of 1p or 2p off the standard rate. Such a reduced rate band would be an interesting development and one to be welcomed.

    I am pleased that the Chancellor did not shift the married man's tax allowance. If the tax and benefits systems are to be integrated, the allowance will have to go. The only acceptable way to do that is to allow it to wither on the vine and not to increase it.

    In the past two years the Government have shown themselves ready to see child benefit increase. The hon. Member for Eltham described a child cash allowance. That was a good description of the system that we must move towards. We must put child benefit into the tax system but retain the advantage of paying it to the woman, usually the wife, in cash.

    To the business community, the alleviations in the Budget are extremely helpful. The one that I am most pleased about is the reduction by 5 per cent. of the new car tax. I should like to see the whole thing go, but it is very expensive and it will already cost more than £600 million to take it down by 5 per cent. The car industry has been preferentially hard hit and therefore needed preferential help. The measures on the unified business rate, VAT and others are small, but they have been sensibly designed to ease where the shoe is pinching in business and to give small businesses in particular, which have certainly felt the recession quite acutely, some welcome alleviation.

    Those matters are all small in comparison with cuts in interest rates. If we continue having to keep our interest rates as high as we had to keep them throughout 1991, the recession will bite very deeply in this country. It is already biting harsher than in many other countries. I assume that the Chancellor is confident that, although the Treasury forecasts of coming out of recession have been too optimistic, there is now a real prospect of coming out of the recession in the second half of next year. I hope that that will happen, but the world is still in a difficult state to make any prediction, not least because of the protectionist pressures that are building up.

    We have still failed to have a successful general agreement on tariffs and trade negotiation—it hangs over us. There are already in the United States, as evidenced in the presidential elections, very strong protectionist measures. As yet there has been little sign of the European Commission being ready to make the necessary changes in our GATT negotiating position in relation to agriculture. The GATT negotiations are probably the single most crucial matter in ensuring that the world economy starts to move forward.

    For all those reasons, we cannot and should not have expected too much from the Budget. This is a difficult time. There is no doubt, too, that, while an election hangs in the air, there is, in terms of international confidence, a tendency to hold back until the election is over. It is probably true that, whatever the result of the election, the markets will view the British economy in a more settled way after it.

    This is the last time on which I shall speak to the House, and I do so with a certain sadness but also with the belief that it is high time I went. No right hon. or hon. Member can leave the House without paying tribute to his or her constituency. I was born in the city of Plymouth, and I have represented it in the House for nearly 26 years. That has been a great privilege and something on which I shall always look back with pride. I have also managed to beat the record of Nancy Astor, and I am now the longest serving Member of Parliament in Plymouth's history.

    My great gratitude to my constituency goes back to one single thing. The House was brought up on a dictum that Disraeli apparently taught about politics—"Damn your principles and stick to your party." That dictum has obviously been successfully followed by many people. I have turned it upside down, and I have no regrets about that. The House and parliamentary democracy survive because, from time to time, people understand that issues and principles go far beyond party and go to the root of how we regard representation in the House. It should be about how we regard and represent the best interests of our country. That must always come before our constituencies. However, at the end of the day, we must justify those decisions to our constituencies. The one thing that I shall always hold dear is that, when in 1983 my constituency was asked to endorse my decision to put what I thought were my principles before my party, it endorsed me.

    6.14 pm

    It is a great privilege to follow the speech of the right hon. Member for Plymouth, Devonport (Dr. Owen). As he said, it was likely to be his last speech in the House. It is a privilege because all hon. Members recognise his distinguished career and the contribution that he has made to British political life over a number of years. I know that the right hon. Gentleman will not take offence, but there is some irony in the light of that privilege. I was a public servant in the Foreign and Commonwealth Office when the right hon. Gentleman was Foreign Secretary. The reason I decided to make the extraordinary leap from the warm bosom of the Foreign Office to the hurly-burly of political life was that I was appalled at the state of Britain under the Labour Government of which the right hon. Gentleman was a distinguished member. I often say that the right hon. Gentleman himself was responsible for my coming to this place.

    I was happy to agree with much of what the right hon. Gentleman said. However, in his criticism of the policies that were followed by my right hon. Friends in 1987 and 1988, the right hon. Gentleman was luxuriating a little in the benefits of 20:20 vision which the advantage of hindsight gives to observers. I say that as someone who can honestly claim that in January 1988 I was one of those—there were not many of us—who were warning about the dangers of relaxing the fiscal stance, whereas my right hon. Friend the Member for Blaby (Mr. Lawson) was under pressure from Opposition Members to reduce interest rates to relax the stance still further.

    The indicators that were available to the Treasury and to my right hon. Friend suggesting that the air was going out of the balloon were inaccurate. That shows that Chancellors of the Exchequer, of whatever political complexion, need better indicators, but that matter is for the past.

    I agree with the right hon. Member for Devonport about the undoubted difficulties that there will be in achieving a single currency. I am positive about Europe and optimistic that we can achieve that happy state in a relatively short time, but it will undoubtedly take a number of years. There will undoubtedly be the difficulties to which the right hon. Gentleman referred. The facile Labour party, having twisted its policy on Europe six times, has now leapt into the single currency issue. That is another manifestation of its unfitness to govern.

    The right hon. Gentleman is absolutely right to suggest that this is a responsible, prudent Budget and that the tax changes which have been announced and which seem to add about £1·6 billion to the PSBR should be well regarded by the financial markets and should give the opportunity for a further reduction in interest rates, which is badly needed. I hope that the right hon. Gentleman is right, and I endorse his sentiments.

    Undoubtedly, Britain faces a difficult economic situation, as does the rest of the industrialised world. When all the political cant is swept away, right hon. and hon. Members must recognise that, if they are to treat the present difficult situation with the gravity and responsibility that it deserves, it does no good to pretend that it is just a British problem. Sadly, the problem may be exacerbated if we cannot make proper progress in the Uruguay round of the GATT negotiations, as my right hon. Friend the Chancellor of the Exchequer pointed out. From my humble position on the Back Benches, I strongly endorse my right hon. Friend's argument. I urge some of our European partners, particularly our friends in the French Government, to consider their policies and attitudes carefully and take account of the needs of the world trading community.

    It is not only the European Community that has to make a move; America and other countries involved in the negotiations must also do so. We all have a responsibility, particularly the Heads of Government of the G7 nations who, when they last met under the leadership of my right hon. Friend the Prime Minister, gave a personal pledge that they would do all in their power to ensure that the Uruguay round was successful. That pledge has yet to be honoured.

    It is against that background that we should decide whose hands are required on the tiller of the nation's economy at this difficult time—with the Budget and an imminent general election. I have no doubt that today's events and what has been said in the House, by Opposition and Government Members, make that answer crystal clear—as has the Government's overall sound record of economic management since 1979.

    My right hon. Friend the Chancellor was faced with an extremely difficult problem. As many of my right hon. and hon. Friends continually and rightly stress, it is true that conditions have now been created for the economic recovery that we so badly need. Inflation is down to an encouraging level, and the forecast given by my right hon. Friend the Chancellor of further reductions in inflation is greatly to be welcomed.

    The interest rate cuts—we have already had eight in 18 months—are also to be welcomed. In addition, the rise in company and personal savings has set in place the conditions for recovery. Now we need the restoration of confidence, which means a general election and a Conservative victory. I have no doubt that my right hon. Friend's Budget will contribute mightily to that.

    As for my right hon. Friend's judgment, all of us with an instinct for financial rectitude will consider carefully the fact that we have a public sector borrowing requirement of £14 billion this year, which will move to about £28 billion next year. In order to be satisfied that that is the right policy, one has to take a close look at the facts. I am absolutely convinced that it is the right policy, and a glance at the record of past years serves to highlight that.

    Try as they might, politicians can never eliminate the trade and business cycles. We are in the dip of a particularly severe trade cycle. It is due to the depth of that recession that we must take a flexible approach to public sector funding and borrowing, albeit always within the tight parameters of a responsible fiscal stance. Our achievements since 1979 give us every right to take credit for adopting the proper approach.

    The Hansard report of 6 March, at column 322, makes it clear that, from 1984 until this financial year, there was no net borrowing requirement. That is the background against which to judge that our country's finances are strong enough to take the £28 billion public sector borrowing requirement now in prospect. It is interesting to compare that figure of £28 billion—if it is reached—to the sort of figures to which we grew accustomed in the years of the Labour Government.

    In terms of 1991–92 prices, in 1974–75 the public sector borrowing requirement reached £38·9 billion and the nex