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8.12 pm
Mr. Shaun Woodward (Witney): Rarely has the House been subjected to a Budget that has been so highly trailed, so widely leaked and based on so much rhetoric and so little substance. As my right hon. Friend the Leader of the Opposition said yesterday, the Budget makes many claims but is ultimately a step-by-step betrayal both of the Labour party's election promises and of the British people.
The Government have produced a Budget that I believe will be viewed as an abdication of responsibility. It will go down as a Budget delivered by a Chancellor who ducked the real challenges of the British economy and confused opportunity with opportunism. It will go down as a Budget of which the magician Paul Daniels would have been proud.
Yesterday the Chancellor made much of the fact that this is a once-in-a-generation Budget. Yet, if we examine the Chancellor's claims, something appears to be missing--perhaps the Budget's centrepiece has been left out. One can only conclude that the right hon. Gentleman and the Prime Minister had conversations at Chequers last weekend that led to some distortions of the Budget statement.
The Chancellor told us yesterday that the Budget would end the unemployment and poverty traps--indeed, much has been made of the working families tax credit. However, it is difficult to see how, at a cost of just a few billion, it will be possible to wipe out poverty. That is a laudable aim with which all hon. Members agree, but it is difficult to see how it will be achieved with that sort of money. How will it be funded? Funding this year will be provided largely by the road fuel escalator. We must consider that many of those at whom the working families tax credit will be directed will also be hit hardest by the increase in fuel duty.
I know that that is the case in my constituency. I have received many letters today from constituents describing their real worries about how they will get around in rural areas. Those worries are not alleviated one jot by the promise of an extra £50 million spread over three years. I am afraid that that simply shows that the Labour Government do not understand the real needs of the countryside and the rural areas of our country.
This Budget has ducked the true challenges of our country. It has exercised opportunism at every turn. The Government could have taken many opportunities to help this country, but they did not do so--undoubtedly because the focus groups did not reveal to the Chancellor and the Prime Minister that the time was right.
I take the example of the proposed reforms to capital gains tax. The report entitled "Budget 98 Alert" produced by Ernst and Young and released this morning states:
The Chancellor announced yesterday a cut in corporation tax--a move welcomed by all Conservative Members. Yet, as my right hon. Friend the Leader of the Opposition revealed this afternoon, if one looks closely at the figures, one can see that, while the Chancellor gives with one hand, he uses the hands of every Minister on the Treasury Bench to grab back. Business will lose as a consequence.
This Budget does nothing to address the imbalances built up in the economy as a result of the appreciation of sterling--imbalances that have worsened significantly since July. It appears that the Chancellor thinks that he has washed his hands of short-term macro-economic policy since last June. Ernst and Young describes that as "benign neglect". The Opposition will hold the Chancellor to account for that benign neglect because it is an abrogation of his responsibility as Chancellor.
Yesterday the Chancellor had nothing substantial to offer manufacturing. The figures for the fourth quarter of 1997 show that manufacturing grew last year by 0.9 per cent.--less than 1 per cent. Next year, it is estimated that output growth will be between zero and 0.5 per cent. Last November--just four months ago--the Treasury issued the optimistic projection that manufacturing output would grow by 1.5 per cent. to 1.75 per cent. There has been a pretty dramatic revision in just four months, and that is a serious problem for manufacturing in Britain. What hope did the Chancellor hold out in his Budget to those in manufacturing?
The Prime Minister this afternoon made much of how business welcomed the Budget. Perhaps it would be better if he stopped reading the newspapers and went out of his bunker in Downing street and his anaesthetised road shows, and met some of the people whose incomes he is clobbering so hard. What would he see, if he went out? The hundreds of thousands of people who do not have subsidised jobs but real jobs, and who are facing the prospect of real unemployment.
Those are the kind of people throughout the country who know that sterling is overvalued. Labour Members were unable to tell us this evening what sterling closed at against the deutschmark, such is their disregard for the consequences of their Budget. Those people face the prospect of a life on the dole. It is all very well for the Government to invent wonderful schemes such as the welfare-to-work scheme, but at the same time they must guarantee the jobs of the people who are in work at present. The Budget will not do that.
If the Chancellor and the Prime Minister had taken the time to read the releases from the Engineering Employers Federation, they would see that it gives a cautious welcome for the cuts in corporation tax, but the real issue for the EEF is the exchange rate. Export orders have been severely declining over recent months and matters are expected to get worse over the coming year.
Last night, as Ministers were offering soundbites all over the media, the Chief Secretary was pressed repeatedly by Jeremy Paxman on "Newsnight" to say whether he believed that sterling was overvalued. Could he give an answer? No. Five times he was pressed for a simple yes or no, and five times we were subjected to paragraphs of verbose effusion but no simple answer.
If the Chief Secretary spent a little more time out of the television studio and travelling round the country, he would see the damage that the Government's terrible policy is doing to our country.
We do not have to take hon. Members' word for it. Numerous firms today produced their reports of the consequences of the Budget, and it is very bad news for manufacturing. Goldman Sachs expects at least two quarter point rises in the coming weeks. Charterhouse expects the same. The Hongkong and Shanghai Banking Corporation describes the Budget as a "considerable disappointment" in its approach to macro-economic policy. As KPMG say, unless the Budget is quickly followed by interest rate falls, the problems of manufacturing industry will remain and the prospects for economic activity this year and next may end up looking even more pessimistic than the Chancellor's own forecast.
That means that there is the prospect of recession. Manufacturing output is at record lows. Alongside that, we have the problems of managing a dual economy, with the service sector output up almost 4.5 per cent. last year.
Co-ordination of monetary and fiscal policy in the medium term is a matter for a Chancellor, yet yesterday we saw the Chancellor abdicate that responsibility because he believes that, since last June he no longer has responsibility. He gave it away. The problem is not for him now, but for those in manufacturing. The Chancellor had the opportunity, but he threw it away, leaving the prospect of a hard landing.
The Chancellor said that he wanted stability, but what sort of stability is there for those in manufacturing who face the prospect of a return to boom and bust--the stop-go policy that the Chancellor claimed yesterday he intended to eschew?
What sort of stability is it, when the Government revise their figures in just four months, from a growth of manufacturing at almost 2 per cent. to zero. Even on their own figures, a recession is in sight, but what did the Chancellor do?
We must look at other challenges, not least the challenge of controlling a consumer boom. It still exists in the high street, although the figures are marginally declining. The Chancellor again ducked the issue, because he wants to be the iron Chancellor, and he has his eye on the house next door. Consumer spending this year is forecast to grow between 3.75 per cent. and 4 per cent. That is higher than previous estimates, and the Budget has done nothing to restrain demand.
The combination of strong consumer demand and low industrial output is projected to lead to a deterioration in current account balance. After a surplus of £4.5 billion in 1997, the current account is now projected to fall to a deficit of £6.5 billion this year and £6.75 billion in 1999. The glossy book entitled "New Ambitions for Britain" will all too soon become for many people an ambition to survive in Britain. [Interruption.]
Hon. Members may laugh, but the laugh will be removed from their faces when they must answer the questions from those in manufacturing whose jobs they will have destroyed through the Budget. Betrayal is the hallmark of the Budget. Step by step the Government are betraying each of their promises. Step by step they betray the British people.
Labour Members make much of what the Government are doing with taxation. The hon. Member for Croydon, Central (Mr. Davies) was unable to understand from the Red Book that not only is the tax burden going up next year, 1998-99, but that it goes up in 1999-2000 and 2001. Unless I am wrong and the hon. Gentleman expects the quinquennial Act to be repealed, at the next election we will see that the figures have gone up and up. Under Labour, as sure as eggs is eggs, taxes go up. The tax burden of the United Kingdom will go up with this Government.
People were led to believe that there would be no new taxes under Labour and that the tax burden would fall, but the reality is quite different. Over the next few years, measures will be announced whereby the personal sector will be hit by tax increases of at least £4 billion in 1998-99, which is equivalent to 2p on the basic rate of tax. What kind of way is that to honour a pledge? The Government are putting taxes up and pretending to the public that they are doing nothing of the kind.
Despite the smoke and mirrors of the Budget, taxes are going up as a percentage of GDP. Even before the Chancellor stood up yesterday, taxes had gone up by £790 a year for the average family. It will not stop there. On 1 April, mortgage interest relief will be cut from 15 per cent. to 10 per cent.--another hit at middle Britain. Furthermore, there is the not too thinly veiled promise of child benefit being taxed in the future.
"The taper does not encourage risk taking since it benefits success but offers no relief for losses. In fact, losses on investment become less valuable, as they reduce gains before tapering."
The devil is always in the detail, and I suspect that, as the details emerge, we shall identify many faults with this Budget--just as we did with the last Budget.
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