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Mr. John Hayes (South Holland and The Deepings): Does the hon. Gentleman agree that, before the car,
people in those types of communities were restricted to their communities? To increase the cost of car travel for people in rural areas would limit people to travelling only short distances to hamlets and villages, which would be sad. Today was a bad step in that direction.
Mr. Ross: Moreover, the shopping facilities enjoyed by the pre-car population no longer exist. They have disappeared as a result of the car, so this is a two-edged sword to some extent. People now want choice and they must go to large towns to get it.
I am also deeply concerned about the effect of steadily increasing taxes on tobacco. I do not smoke--thank God. Last year, Customs and Excise admitted--the Chancellor gave a similar figure today--a loss of some £560 million in tobacco tax due to smuggling and cross-border shopping. In the Budget debate earlier this year, Northern Ireland Members drew attention to the fact that hand-rolling tobacco can leave Gallaher's factory in Ballymena in Northern Ireland, go to the continent and, within two weeks, be sold on stalls in Northern Ireland for little or nothing. That happens to many other tobacco products, too. The Tobacco Alliance believes that the lost revenue is not less than £600 million but nearer £1.6 billion a year.
Raising taxes on tobacco can be counterproductive. I wonder whether we are trying to raise money from tobacco for the Exchequer or whether we are raising taxes, as some would allege, for health purposes. I should be happy if nobody smoked because it is a dangerous occupation. We know that it causes lung cancer and all sorts of problems, but it is legal and people do it. If we want to reduce smoking on health grounds, we should try other ways of doing it rather than constantly raising revenue from tobacco, which simply proves counterproductive.
We must also consider whether the concept of green taxes--taxing petrol, for example--is counterproductive. We now have a tax on the dumping of waste. Northern Ireland has a problem with certain types of waste. We have no facility to treat it because there is not enough of it, so it is not economical and must be shifted out of the country to be treated and recycled. Taxes raise the cost of doing that enormously and put an inordinate burden on certain industries in Northern Ireland. I therefore hope that the Government will look carefully at that matter.
Northern Ireland has another problem because it has a land frontier. The Chancellor said that he was looking at the environmental implications of quarrying, the extraction industries and the pollution of water supplies. If we start to pile more burdens on that large industry in Northern Ireland, it will close down and move across the frontier where there is no environmental tax. A whole industry and the manufacturing capacity in building products will be wrecked as a result.
Before the Chancellor goes too far down that road, will he look at the implications for the Province of an environmental tax? People in England will not face that problem--they will have to carry the burden--but folk in Northern Ireland will avoid it and, given the common market, nothing can be done about it.
The Chancellor also touched on the conversion of building societies. I understand that that means an injection into the economy this year of some £35 billion. I have often wondered what the effect of the repayment of public debt was the last time that we got round to it,
when quite large sums were repaid. Some was repaid to people overseas and some into our own economy. When I ask economists in the House what effect that has, they simply look blank and say, "I don't know, Willie." May I ask the Minister whether the Treasury knows what the effect was. Has the effect of that input of money into the economy finally been determined? Did it lead to inflation? Was it part of the problems that we encountered in the late 1980s and early 1990s, or did it have no effect whatever? Was that money invested elsewhere?
What will be the effect of the injection into the economy of the present windfall from building societies? It is not going into the pockets of a few people or into a few companies. It is going into the pockets of millions of people, many of whom will go out and spend it, so we can expect a rise in retail sales. Given the present state of the economy, those will be sales of imported goods, so we could be adding to our problems, unless the Government find some way of making it attractive for people to keep that money in savings.
Today, we saw the first instalment of the Chancellor's programme--a programme which I think will be comprehensive and far reaching. No doubt some aspects of it will have merit and, as with all Chancellors, other aspects will go horribly wrong. Some measures may be based not on the sound principles of financial prudence that he expressed today, but on other, more political considerations, and something will go wrong. As there is so much to come, we shall have to wait until his spring Budget to find out the Chancellor's final conclusion after his assessment of the financial state of the country, and where he wants to go.
Having handed to the Bank of England control over such a large part of our financial affairs, will the Chancellor be able to do what he desires to do? I think that the Bank of England does as the Bundesbank does, and that getting ourselves into that position is neither wise nor far-sighted. It will bring us grief. We should have learnt from the past that, whenever the crunch came, the central German bank did what the German Government said.
There must be a political input into national finance. Ultimately, the Government must face the electorate, as the previous Government did and lost. Some day, the present Government will have to do so. It is up to politicians--to the Government--to take political decisions as to what is best for the nation's economy and its people.
By handing control to the Bank of England, we have handed it to what might be described as a peculiar quango, which is not responsible to the electorate. I deplore that and I believe that we will live to regret it.
I wonder whether, at the end of the day, the Chancellor's figures will add up.
Mr. Martin O'Neill (Ochil):
I begin by putting on record my appreciation of the speech of the Chancellor of the Exchequer, my right hon. Friend the Member for Dunfermline, East (Mr. Brown).
I remember that, when I entered the House, one of the defining moments was the speech by the then Chancellor, now Lord Howe, in his first Budget in 1979. Some of us were filled with optimism and enthusiasm. We had won seats from political opponents, and the realisation that the Labour Government had been defeated had not yet sunk in. In the space of a few short paragraphs, Lord Howe cut income tax, raised VAT and put interest rates through the roof.
I remember the sharp intake of breath in the Chamber that afternoon. We realised that power had shifted. Those of us who had not been on the other side of the House--we knew the significance, but we had not physically shifted over to the Opposition Benches--got an idea that things were on the move.
I should like to think that the Chancellor's speech today will have had a similar impact on Conservative Members. It has given great encouragement to us, which was evidenced by at least two of the maiden speeches tonight--the speeches of my hon. Friends the Members for Eastwood (Mr. Murphy) and for Brentford and Isleworth (Mrs. Keen).
My hon. Friend the Member for Eastwood, a new Scots Member, took us round his constituency and made a good, comprehensive contribution, although he omitted the other famous national drink that emanates from his constituency. He concentrated on a process a little further down the line--the toilet facilities provided by Shanks. My hon. Friend the Member for Brentford and Isleworth made a first-class speech. I hope that she will not mind my saying that she is an old hand. Many of us had been hoping since 1987 that she would get into the House. We are delighted that she is here, and we know the contributions that she has made elsewhere. I know that, from both those colleagues, there will be telling contributions in the future.
From the other side of the House, we heard contributions from the hon. Members for Witney (Mr. Woodward) and for Weston-super-Mare (Mr. Cotter). I wish them well in their endeavours. The hon. Member for Witney may find that in subsequent debates there is a 10-minutes rule and he will be constrained in the length of his speech.
I shall not detain the House unduly with such pleasantries, important as they are. I return to the boldness of the Chancellor's speech. Despite what has been said about what was or was not promised in the election campaign, no one can doubt that the windfall profits tax was to be one of the core elements in Labour's strategy. It is clear that there is no public support, political will or financial resources to return to public ownership any of the privatised utilities or companies. That is not an issue.
We have seen the movement from public ownership to privatisation to regulation and, in the case of the energy utilities, we shall see before long the process of liberalisation. In the early stages of the post-privatisation period, there was a degree of laxity on the part of the regulatory bodies in handling the prices charged by the companies and other aspects of their activity.
It is not a worthwhile exercise to try to ascribe motives to individuals. Suffice it to say that the utilities were sold too cheaply and regulated too lightly and, although the
capital gains that arose from their flotation were taxed, they were never properly dealt with. In the case of the energy utilities, the profits came as much from world market conditions and fairly obvious cost cutting as from management expertise, and led to the share options scandals and the fat cat syndrome. That, in turn, led to the windfall profits tax and attempts to disparage the tax on the grounds that it was the politics of envy.
In the previous Parliament, I was fortunate enough to chair the Select Committee on Trade and Industry. My colleagues and I investigated the regulation of energy utilities. Thanks to the herculean efforts of the Clerk and her staff and our superb advisers, we were able to squeeze out a report in the dying days of the Parliament, just before the election. We did not have an opportunity to debate the report, but, had we had that chance, it would have informed the discussion about the character of windfall profits taxes.
The report did not take upon itself the task of advocating a windfall profits tax. It was a unanimous report. The Committee consisted of six Conservative and five Labour members. The report showed clearly the extent of the excess capital gains and returns on investment enjoyed by shareholders, against the comparatively small cuts in electricity and gas bills over the same period. The figures given by the Department of Trade and Industry to the Select Committee showed that, between the fourth quarter of 1986 and the first quarter of 1996, average domestic prices for electricity fell by 1 per cent., and by 8.5 per cent. on a value added tax exclusive basis. Over the same period, gas prices fell by 25 per cent. At the same time, however, shareholders, before tax and year on year, were enjoying an 11 per cent. increase in their income. I am speaking of British Gas shareholdings.
Regional electricity shareholders were seeing a before-tax return of between 32 and 46 per cent. per annum over five to six years. The figures were slightly different for the Scottish and Irish companies because they were privatised at a higher price than the other electricity companies and were subject to a different basis of price regulation. In simple terms, it was the cost of living minus the X factor rather than the cost of living plus that factor that was the core of the utilities' problem in England and Wales.
It is correct that due account should be given to differing circumstances. There are complications when considering the position of Scottish Power, for example, because it is now a multi-utility. The three elements that make up the company have all been subject to different forms of regulation. I am sure, however, that my hon. Friend the Paymaster General is more than up to the task that faces him. The figures for dividend yield and capital gain have been of the order of those to which I have already referred. If anyone wants to look them up, I suggest that he or she reads pages 63 to 67 of the report of the Select Committee on Trade and Industry.
There are those who argue that all that I have said is irrelevant because many of the companies are under new owners. I have taken the trouble to talk to some of the predominantly north American owners of the companies. It might well be put to them that the companies were purchased in the knowledge that there was more than a chance of a change of Government, and that the Labour party had flagged up repeatedly that there was to be a windfall profits tax. How would the directors go to their annual general meetings, having to say, "I am sorry but
our profits from our UK operation are not as high as we would have hoped because, out of the blue, there has come a windfall profits tax"?
I spoke to senior managers and directors of those American utilities. They gave me an old-fashioned look and said, "We have made provision for this." They made provision in the financial structuring of the company or they discounted the price when they purchased the company in the first place.
I am aware that, in this morning's press, consideration has been given to the tactics adopted by Southern Electricity, which has been one of the most prominent opponents of the windfall profits tax. Before the election, it was talking at one stage about raising legal actions on such a tax. We have heard no more about taking the matter to the courts. I presume that Southern Electricity has been given additional legal advice to the effect that it would not be worth spending too much money on such actions. At the same time, however, the cupboards were stripped bare. There was a process of asset stripping.
Concern arose over the regulation of electricity companies when Northern Electric was to be taken over by Trafalgar House, a British firm. It appeared that £500 million was found out of nowhere to provide a fighting fund to withstand the predatory approaches of Trafalgar House. Another company was able to clean out £470 million from the accounts and shift it elsewhere.
Those companies will complain, or moan. They would not be doing their job if they did not take that approach. When it comes to increasing prices, however, a company that is regulated and operating under a licence granted by a regulator and approved by the Monopolies and Merger Commission--I am talking of increasing prices for reasons that go beyond the licence--has first to approach the regulator to convince him or her of the need for a change. The regulator then has to pass the matter to the MMC for its consideration and approval.
Before the application, as it were, can go to the MMC, it must go to the Secretary of State of the appropriate Department. At that stage in the process, I cannot envisage a Labour Secretary of State not vetoing any further movement on the renewal or review of the licence in between terms. Even at the end of the period covered by the licence, I cannot see that regulated companies would be able to make their consumers pay. The new licence that would be sought in the new round would not, I think, be acceptable to the regulator or to the MMC.
Those who talk about the consumer paying are not sufficiently aware or they are being wilfully dishonest. My right hon. Friend the Chancellor of the Exchequer referred in passing to the regulators, but it was clearly stated in evidence that my Select Committee took from regulators that the companies had the ability to make consumers pay again. It must not be forgotten that the purpose of the windfall profits tax is to take account of the fact that the people paid too much in the first place. The companies are sufficiently cash rich to deal with a windfall profits tax and I do not think that there will be a problem.
The exciting feature of the tax is that it will give usthe opportunity of introducing the welfare-to-work programme, which is central to the Government's ambitions. When sitting on the Opposition Benches, my right hon. and hon. Friends became impatient in the knowledge that large sections of our communities were
languishing on the dole for long periods in the absence of pump-priming facilities to get people back into employment. It was the greatest frustration that we experienced in our period of opposition. That is why we place such great importance on the Budget. It is a defining moment in our political lives. My right hon. Friend the Chancellor of the Exchequer has identified the means and the objectives to achieve a reduction in unemployment and so to eliminate people from that disease.
I think that it was the hon. Member for Witney who talked about 1.5 per cent. unemployment in his constituency. There are villages in my constituency where unemployment is in excess of 40 per cent., where virtually no young people have ever worked for an employer in their lives. I am speaking of men of 22 and 23. I say to them, "Are you interested in better dole money, better social security or a job?" They say, "We are sick and tired with social security. We want a job."
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