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House of Commons
Thursday 18 April 1991
The House met at half-past Two o'clock
PRAYERS
[Mr. Speaker-- in the Chair ]
PRIVATE BUSINESS
Killingholme Generating Stations (Ancillary Powers) Bill
[Lords] (By Order)
Order for Third Reading read.
To be read the Third time on Thursday 25 April.
Cattewater Reclamation Bill
(By Order)
Order for Second Reading read.
To be read a Second time on Thursday 25 April.
Hook Island (Poole Bay) Bill
(By Order)
Order for Second Reading read.
To be read a Second time on Tuesday 23 April.
Mr. Speaker : As the next six Bills have blocking motions, I shall put them together.
London Docklands Railway (Lewisham, etc.) Bill
(By Order)
East Coast Main Line (Safety) Bill
(By Order)
London Regional Transport (Penalty Fares) Bill
(By Order)
London Underground (King's Cross) Bill
(By Order)
Redbridge London Borough Council Bill
(By Order)
British Railways
(No. 3) Bill-- [Lords] (By Order) Order for Second Reading read.
To be read a Second time on Thursday 25 April.
London Underground (Safety Measures) Bill
[Lords] (By Order) Order for Second Reading read.
To be read a Second time on Tuesday 23 April.
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Oral Answers to Questions
NATIONAL FINANCE
Government Policies (Impact)
1. Mr. Maclennan : To ask the Chancellor of the Exchequer what indices he relies upon to measure the impact of his policies upon the economy of the nations and regions of the United Kingdom.
The Chief Secretary to the Treasury (Mr. David Mellor) : The Government use a wide range of indicators.
Mr. Maclennan : I recognise that the paucity of the information on regional matters, including regional unemployment--so startlingly increased today--shows that the Government are having difficulty managing fiscal aspects of the economy in the regions. Would not decentralisation of government to the nations and regions of the United Kingdom increase and improve economic performance?
Mr. Mellor : That does not follow. On unemployment, it is interesting how well the Scottish economy has been holding up compared with what has been happening further south.
Mr. Leighton : Is unemployment one of the indices? The Prime Minister said that he wants a classless society, which I understand to be an opportunity society. Has the Chief Secretary seen the news, out today, that the Government have destroyed all opportunities for 100,000 people, that there are now over 2 million people with no opportunities at all and that that figure is rising rapidly to 3 million? What is he going to do to apologise to those 2 million or 3 million people for whom the Government have destroyed all hope of opportunity?
Mr. Mellor : The other statistics that the hon. Gentleman will not have failed to see are that 26.5 million people are in employment and that the number of jobs in Britain has increased by over 3 million in the past eight years. The rise in unemployment is regretted, but there is no reason why, as the upturn recommences, employment should not grow. It is not just the Government who might have something to do about that. What about the hon. Gentleman's friends in the trade unions and their attitude towards wage bargaining? Some of the wage increases that are being sought at a time of difficulty for many companies can result only in higher unemployment.
Mr. Ward : Will my right hon. and learned Friend contrast the effect of a Government taking positive action to get the economy right with the actions of their predecessor, when Labour Members were responsible for near bankruptcy?
Mr. Mellor : That is absolutely right. All the key indicators in the 1980s showed a great recovery from the problems of the 1970s. Unfortunately, the Labour party has not learnt its lesson. Only yesterday it reiterated its proposal for a national minimum wage. Even if that led to only half the differentials being eroded, it could lead to 750,000 more people unemployed. Since Mr. Bill Jordan said that the differentials of his members will not be eroded
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at all, that could add 1 million to the dole queue. The Labour party has nothing much to teach us about managing the economy.Mr. Butterfill : One of the indices that certain expert economists seemed keen on a little while ago was the pound's parity within the exchange rate mechanism. They said that we had entered at much too high a level and that this would cause terrible damage and prevent us from cutting interest rates. Should not those people be eating their words now?
Mr. Mellor : There is no doubt that we have been able to live within our place in the ERM. In our six months of membership, interest rates have fallen from 15 to 12 per cent., which is less than the average level of interest rates since 1979.
Gross Domestic Product
2. Mr. Orme : To ask the Chancellor of the Exchequer what is the average annual growth rate for gross domestic product at factor cost from 1979 to 1991 using his Budget forecast for gross domestic product growth in 1991.
The Economic Secretary to the Treasury (Mr. John Maples) : 1 per cent.
Mr. Orme : Does the Minister agree that that figure does not compare favourably with the record of the Labour Government between 1974 and 1979? The unemployment figures disclosed today, and the further decline in manufacturing industry, are partly responsible for the problems that we face. What will the Government do to rectify them?
Mr. Maples : My hon. Friends will be amazed that the right hon. Gentleman should give me the opportunity to remind the House of the terrible state of the British economy in 1979 after five years of socialist mismanagement. Public spending was out of control, public borrowing was more than 5 per cent. of gross domestic product and there was incipient hyper-inflation. It took a little time to sort that out, but between 1981 and 1991, under this Government, the economy grew at just under 2 per cent., compared with 1.4 per cent. between 1973 and 1979.
Sir William Clark : Will my hon. Friend make a conjecture about what would happen to gross domestic product if income tax were increased from 50 to 59 per cent., with an income surcharge of 9 per cent., giving a total of 68 per cent? Would not that terribly affect our gross domestic product?
Mr. Maples : My right hon. Friend is right. It would be a rerun of the last half of the 1970s, when annual capital formation fell to one third of 1 per cent. a year, manufacturing output declined by 1 per cent. a year and inflation averaged 15 per cent.
Mr. John Smith : Will the Minister reflect on the significance of his answer that growth under the Government is 1.75 per cent. below the trend growth of the previous two decades? Is not that ample proof that the so-called transformation of the economy is complete rubbish? Growth is well below 2 per cent. and negative growth is causing high, dramatic unemployment, from which our people are suffering.
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Mr. Maples : I said in answer to the right hon. Member for Salford, East (Mr. Orme) that we inherited an enormous problem. What happened in the first two years of this Government can be laid at the door of five years of socialist mismanagement. In the 1980s, the British economy grew faster than the German, French or Italian economies, investment and manufacturing productivity grew faster and we were on top of a league which, during the 1960s and 1970s, we were bottom. What is the difference? In the 1960s and 1970s we had Labour Governments.
Charities
3. Mr. Latham : To ask the Chancellor of the Exchequer what representations he has received from charities about the value added tax increase in the Budget ; and what reply he has sent.
The Financial Secretary to the Treasury (Mr. Francis Maude) : We have received a number of such representations.
Mr. Latham : Is my hon. Friend aware that charities estimate that the increase in VAT will cost them £33 million a year, bringing their total VAT payable to about £250 million. Help the Aged alone will have to find an extra £90,000 a year. This was an otherwise excellent Budget, so will my hon. Friend reconsider this most unconservative tax on charities?
Mr. Maude : European obligations mean that there is little flexibility in the extent to which zero rating of VAT for charitable purposes can be extended. Tax reliefs for charities amount to about £800 million a year, including about £150 million of reliefs on VAT. Charities benefit to a considerable extent. It is worth putting it in context : the cost of the increase in VAT to charities is no more than a quarter of 1 per cent. of charities' annual turnover. In almost every Budget since the Government took office, we have done something with tax to help charities, as we did this year.
Mr. Alfred Morris : Is the Minister aware of the effect of the increase on cancer research work at the Paterson Institute in Manchester? Does he know that its vitally important and humane work has already involved it in paying more than £1 million in VAT and that it faces a charge of £200,000 more, every penny of which has been raised from private donations? Is not that a worrying comment on the Government's approach to voluntary funded cancer research?
Mr. Maude : I do not believe that it is. I am sure that the work about which the right hon. Gentleman speaks is excellent and is fully supported by the Government. I have spoken about the total amount of tax relief given to charities and I believe that it should be given. I have also made it clear that any Government, Labour or Conservative, have only limited flexibility, because of obligations within the European Community. I see no scope for making the changes that the hon. Gentleman suggests. The amount of voluntary giving to charities has doubled in real terms since 1979, and that is admirable.
Mr. Andrew Mitchell : Although it must be true that the modest increase in VAT will not benefit the incomes of charities, will my hon. Friend make it clear that no fewer
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than six specific measures have been introduced in the past five Budgets, which have had a massive effect on the amount of charitable giving?Mr. Maude : That is entirely right. As I said, the amount of charity giving has increased and the Government have sought to encourage charitable giving by means of the gift aid scheme, which we introduced last year and extended this year, and the payroll giving scheme. They have been effective incentives to people to give generously. Everyone in the House will agree that it is good news that people have responded so generously to those incentives.
Value Added Tax
4. Mr. Madden : To ask the Chancellor of the Exchequer if he will make it his policy not to extend the range of goods and services subject to value added tax.
The Chancellor of the Exchequer (Mr. Norman Lamont) : I have no plans to extend the range of goods and services subject to VAT.
Mr. Madden : Bearing in mind the burden of VAT, which means that the average family now pays £19 a week in VAT, and the fact that many people on low incomes, including pensioners, are having to pay the full VAT increase to finance the £140 reduction in the poll tax yet will not receive the full reduction, will the Chancellor of the Exchequer give a firm assurance to all families with children that items that are currently zero-rated, especially children's shoes, will continue to be so after 1992?
Mr. Skinner : What about whips?
Mr. Lamont : The hon. Member for Bolsover (Mr. Skinner) knows more about them than I do.
The hon. Member for Bradford, West (Mr. Madden) asked me to give an assurance and I have stated our policy. He will know that the extent of VAT is the subject of discussions within the European Community and the Council of Finance Ministers. We have made it clear that we regard the protection of zero rating as essential. Because basic necessities are exempt or zero- rated, we consider that it is right to make that switch in the Budget, which has been well received. It means that the poorest families will not suffer in any way.
Mr. Mans : Bearing in mind the comments of the Financial Secretary a moment ago, will my right hon. Friend confirm that he would be prepared to make concessions on the VAT paid by charities, were it not for the restrictions imposed by the EEC?
Mr. Lamont : As my hon. Friend the Financial Secretary said, we already have many reliefs--worth up to £800 million--for charities. That must be contrasted with the £35 million additional burden that the Budget placed on charities. Every year, the Budget contains additional measures to help charities, just as it did this year.
Mrs. Beckett : Does the Chancellor recall saying last summer that the underlying rate of inflation was important because it left out the distortion of housing costs? Will not his VAT poll tax surcharge further increase an already worrying underlying rate? Does not that show two things? First, as last year, the Government are running risks with
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inflation and secondly, when the Prime Minister spoke of taking inflation by the throat, he meant that he was force feeding it.Mr. Lamont : I should be interested to know whether the hon. Lady would reverse the VAT switch that we made in the Budget, because Labour has been extremely equivocal on that point. Inflationary pressures in the economy are measured by the underlying rate of inflation, producer prices, and the gross domestic product deflator. When one strips out one-off additions such as the VAT addition, it is clear that underlying as well as headline inflation continues to fall.
Mr. Watts : Is my right hon. Friend aware of the considerable support for the maintenance of zero rating and for his policy of shifting part of the burden of local services from the local taxpayer to central taxation? Is he aware that there would be considerable support for taking that principle further, to avoid the need to reintroduce an unpopular property tax? If my right hon. Friend did that, he would share the credit for having taken part in the abolition of two unpopular taxes.
Mr. Skinner : Come on, crack the whip.
Mr. Lamont : The hon. Member for Bolsover (Mr. Skinner) seems to be obsessed with a certain subject-- [Laughter.]
Mr. Speaker : Order. Let us return to the question.
Mr. Lamont : I am grateful for the support that my hon. Friend the Member for Slough (Mr. Watts) gives to the change that we made in the Budget, but he must wait for the local government finance proposals, which we shall announce shortly.
The Gulf
5. Mr. Dalyell : To ask the Chancellor of the Exchequer what is the latest estimate for the cost of military action in the Gulf so far.
Mr. Speaker : Mr. Dalyell--I am sorry ; I was thinking of other things. [Laughter.]
Mr. Mellor : Will you tell the House what you were thinking about, Mr. Speaker. No? I am disappointed, Sir. I shall have to answer the question.
The latest estimate for the addtional defence costs, to be spread over several years, is that they are expected to be of the order of £2 billion.
However, I expect the bulk of these costs to be covered by cash contributions generously pledged by other Governments. In particular, although the Ministry of Defence's expenditure in 1991-92 is likely to be about £1 billion above its planned level, I do not expect any significant net claim on the public expenditure reserve in the current financial year. Total cash contributions made or pledged by other Governments now total £2 billion, including the recent most generous pledge--which I am pleased to confirm and welcome--from the Government of Saudi Arabia of $1 billion.
Mr. Dalyell : I apologise to the Minister for not having brought the report to his attention earlier. I had to check it because it was so incredible. Given the wealth that is going up in flames, does not the Treasury agree that it is beyond belief that Red Adair is complaining that he
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cannot get six bulldozers? He asked for a minimum of eight, but only two work. He is threatening to pull out. Do not the British Government have some responsibility--[ Hon. Members-- : "No."] Well, they do. Do not the British Government have some responsibility ; should not they say to the Kuwaitis that, with such wealth being lost, they should do something about tackling the fires, as that will grow more difficult as times goes on?Mr. Mellor : As always, the hon. Gentleman is courteous in phrasing his questions. As he knows, I have no responsibility for that matter. I shall draw it to the attention of the Foreign Office. No doubt, if there is anything in it, it will be looked at. This is not a part of the British Government's responsibilities.
Coinage
6. Mr. Speller : To ask the Chancellor of the Exchequer, pursuant to his answer of 16 January, Official Report, columns 509-10, what recent representations he has received about his planned changes to the coinage.
Mr. Maples : Before it was decided to introduce the new 5p and 10p coins, the Royal Mint undertook extensive consultations with interested parties and the general public. We have received a few recent representations about the planned introduction of a new smaller 10p coin and copper-plated 1p and 2p coins in September 1992.
Mr. Speller : My hon. Friend received some representations on this matter. I have received representations from people who use fruit or stamp machines or coin-operated machines, such as those for tube tickets. First, one coin was changed, but now three more are to be changed. Every change adds to the operating costs of the people who own coin-operated mechanisms. Does my hon. Friend find, as I do, complete distaste among constituents for any change in the coinage, particularly with regard to Europe in the future?
Mr. Maples : I know of my hon. Friend's interest in this matter. There was an extensive period of consultation in 1987 before the changes were announced. Among the people consulted were those in the vending industry, who were given two and a half years' notice and coins with which they could test the machines. We have agreed to delay the introduction of the further three new coins from June until September 1992. The industry has welcomed that and the fact that all three new coins will be introduced at the same time. Such changes inevitably impose costs on the vending industry which, in many cases, it will pass on to the customers. However, it would not be appropriate for the taxpayer to compensate the industry for that, if only because it is difficult to distinguish between changes that are the result of changes in the coinage and changes that are caused by other matters.
Mr. Ian Stewart : When my hon. Friend next considers further possible changes or additions to the currency, will he discuss with the Master of the Mint, my right hon. Friend the Chancellor, the possibility of introducing a £2 coin for general currency, along the lines of those that are already used for commemorative purposes, as soon as the size slot occupied by the 10p coin becomes available for that purpose?
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Mr. Maples : I hear what my right hon. Friend says. I am sure that he will he agree that there are almost as many views about what form the currency should take as people giving them. At present, there are no plans to make any further changes, other than those that have been announced. As he knows, there is a £2 commemorative coin, but the consultation did not reveal any desire or need for a £2 coin or for any changes other than those that we have announced.
Corporation Tax
7. Mr. Paice : To ask the Chancellor of the Exchequer what is the rate of corporation tax in the United Kingdom ; and what is the average in EC countries.
Mr. Maude : The main rate of corporation tax will be 34 per cent. for 1990 and 33 per cent. for 1991, down from 52 per cent. in 1979. The European Community average, excluding the United Kingdom, for 1990 is 40.2 per cent. Germany's rate is 50 per cent.; Belgium's is 43 per cent. and France's is 34 per cent. Britain and Luxembourg now have the lowest main rate of corporation tax in the Community.
Mr. Paice : Does my hon. Friend accept that not only is that exceptionally good news for British business men, because it means that they can retain a greater proportion of their profits for reinvestment in their own businesses, but it ensures that the British Isles is a far more attractive place for overseas investment than anywhere else in the European Community?
Mr. Maude : That is correct. It is worth noting that 41 per cent. of investment by the United States in the European Community comes to Britain, that nearly 40 per cent. of Japanese investment in Europe comes to Britain and that there is more German investment in Britain than in any other European Community country. That shows that we have created an extremely favourable environment for business here in Britain, which is beneficial for this country. This year's Budget alone released £1 billion which would otherwise have been taken by the taxman, but which is now left for businesses to use for investment, if that is what they think right.
Mr. Duffy : Although cuts in corporation tax will undoubtedly produce an increase in investment by the mid-1990s, could not the Chancellor have chosen other measures if he wished to produce a surge in investment, which is presumably desirable at this point? Would not a more fundamental measure for boosting investment in the short term be the introduction of investment allowances?
Mr. Maude : We have had that before. Contrary to what the hon. Gentleman might suggest, the real surge in investment occurred immediately after we abolished 100 per cent. capital allowances. Between 1986 and 1989, investment increased by no less than 43 per cent. to record levels. That was at precisely the moment when investment allowances of the sort to which I believe that the hon. Gentleman is referring had been abolished.
Mr. Ian Taylor : Does my hon. Friend agree that the corporation tax level in this country is a good reason for us not to try to harmonise around some mean in the European Community, but to set an example for others to follow? When they begin to follow, we shall have already
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got ahead of the game by attracting inward investment by companies which know that this is the best place for them to base themselves in the single European market.Mr. Maude : The record entirely supports my hon. Friend's point. We should be aiming for a tax system that is simple and has low rates. That is what people and businesses want ; it is what makes for a successful economy and it is what we shall continue to seek.
Miss Hoey : Is the Minister aware that in no other European country are the national governing bodies of sport required to pay corporation tax? There has been a strong lobby in this country for our national governing bodies not to have to pay it either. Is the Chancellor considering removing that requirement?
Mr. Maude : As the hon. Lady knows, we have given the matter careful consideration. She brought a group of representatives from the sporting bodies to talk to me about it earlier this year ; however, we do not think that such a move will be possible.
Businesses
8. Mr. Hind : To ask the Chancellor of the Exchequer what benefits will accrue to businesses from the measures announced in the recent Budget.
Mr. Norman Lamont : The cuts in corporation tax for businesses right across the spectrum and the measures that I announced to improve companies' cash flow will provide considerable help for businesses. In total, the Budget gives over £ billion to businesses this year.
Mr. Hind : Does my right hon. Friend agree that the reaction of business to his Budget is summed up best by the Association of British Chambers of Commerce, which said, "We are delighted"? His measures on corporation tax and VAT will give added confidence to industry as inflation falls and business optimism grows.
Mr. Lamont : I am grateful to my hon. Friend. I am not sure that I agree with him entirely, however. All the business representative organisations gave the Budget a warm welcome. The president of the CBI said that it was
"a Budget for soundly based recovery, for saving and for investment".
The Institute of Directors said that it
"addresses the immediate economic ills of business as part of an imaginative long-term fitness campaign".
Whatever Opposition Members may say, the Budget received a strong welcome from those who know about business.
Mr. Robert Sheldon : I welcome the number of clauses in the Finance Bill that deal with business taxation. Is the Chancellor aware, however, that it is estimated that perhaps £2 billion of the amount that he will receive from corporation tax will be a tax on inflation? That will seriously affect the cash flow of a number of companies. Cannot the Chancellor take further action to help companies at serious times?
Mr. Lamont : The right hon. Gentleman seems to be suggesting that we should bring back stock relief--that we should adjust the tax system to accommodate inflation. I do not agree with that approach ; I think that the correct policy is to reduce inflation.
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Mr. Nicholas Winterton : Does my right hon. Friend accept that the swingeing increase in excise duty on fuel is highly inflationary and very damaging to a vital part of our economy--the hauliers? All goods need to be taken from the point of production to the point of use. The amount that the Chancellor is giving business by way of reductions in corporation tax may well be more than offset by the increases in the uniform business rate, which takes account not only of inflation and the phasing out of transitional relief, but of the revaluation which has hoisted rates throughout the country.
Mr. Lamont : The hon. Gentleman-- [Hon. Members :-- "Friend."]
Mr. Speaker : Order. Let us have a stop to this pointing.
Mr. Skinner : He is not a therapist.
Mr. Winterton : I am not a banker.
Mr. Lamont : The hon. Member for Bolsover (Mr. Skinner) has made another significant intervention from a sedentary position. Hon. Members have always wondered what made him so malicious and malign--we now realise that he has a deep-seated problem.
My hon. Friend the Member for Macclesfield (Mr. Winterton)--[ Hon. Members :-- "Hear hear!"]--should consider the increase in excise duties alongside the freeze in vehicle excise duty at the same time, which means that the increase in transport taxes is very much less than my hon. Friend said.
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