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5.49 pm
Mr. Robert Sheldon (Ashton-under-Lyne): The right hon. Member for Wokingham (Mr. Redwood) says that we are worse off as a result of the Budget. I do not know how often he visits his constituency at weekends, but that is not the position as I see it. People think that this is not a bad Budget--they have not got everything that they wanted, but that is the nature of life. This is certainly a reforming Budget. As with all major reforms, it will take time before we are able to assess its full impact and the extent of changes to the conduct of our economic affairs.
The highlight of my right hon. Friend the Chancellor's work is undoubtedly the welfare-to-work programme. In my constituency, I have frequently met unemployed young men who live next door to houses where the
windows are rotten and the doors are falling off. Our inability to bring together people who want to work and jobs that need doing, and our failure to address what is being done and what needs to be done, is disgraceful.
People spend a great deal of money to go out to work. It was not always an expensive business: when the cotton industry was the mainstay in my constituency, we had one of the highest levels of working women in any industrialised country, and they did not need encouragement to work. The work was down the road, earning a living cost hardly anything, grandmothers and aunts looked after children, there were no transport costs and income tax was only for the better off. Those are now large expenditures that, together with the tax-benefit mismatch, have great disincentive effect.
Fundamental changes have been necessary for a long time. Ideally, transport costs, which are a major expense, would be tax deductible, but problems are associated with that. Child care allowance is an acknowledgement of work-related expenditure and, although I am not sure that I understand the way in which child care centres will be set up and accounted for, I applaud my right hon. Friend's determination to implement the necessary changes.
When I was at the Treasury, the replacement of child tax allowance with child benefit recognised the extra cost of raising a family and their reduced taxable capacity. We acknowledge taxable capacity to only a limited extent, such as in working tools allowance and some working clothing allowances. Income tax allowance did not benefit parents who did not pay income tax, but for once the two major parties agreed on a fundamental issue and changed tax allowance to a benefit. The Government and the Opposition reached a sensible decision together, and there was 20 years of agreement on it. I wish that such long-term agreement was more frequent: it should be the basis for everything other than a one-Administration reform that the Opposition intend to repeal. Such reforms are a disgraceful waste of time and effort and should be avoided wherever possible. Although I understand the needs of the Revenue, I support the recognition of the cost of child rearing.
The Government took office accepting that manufacturing industry faces problems, and I had hoped that they would help by improving capital allowances and making the pound competitive. Figures in the Red Book suggest that the future does not look good. The forecast growth in manufacturing output is 0 per cent. to 0.5 per cent for 1998, against an increase in gross domestic product of 2 per cent. to 2.5 per cent; 1 per cent. to1.5 per cent. for 1999, and 2.25 per cent. to 2.5 per cent. for 2000. The conjunction of those figures with forecast balances of payments of minus £6.5 million for 1998, minus £6.75 billion for 1999 and minus £6.5 billion for 2000 shows the importance of manufacturing industry.
Manufacturing industry is important not for the number of people it employs, but for the wealth it creates and for its foreign earnings. I welcome improved capital allowances and the 40 per cent. rate, although I am sorry that we have not continued with the short-term capital allowances. I had hoped that the rate would be 60 per cent., which would have been worth while in the light of the difficulties that manufacturing industry faces with the high pound and high interest.
The right hon. Member for Wokingham must have forgotten the wanton damage that the previous Government did with their $2.40 pound and their
17 per cent. interest rates. I shall never forget it, because more than 30 per cent. of the firms in my constituency closed their doors in two years. Germany and Japan--indeed, every country in the world--have similar medium-tech and high-tech firms. The sacrificing of manufacturing industry on the altar of dogma was disgraceful, and the previous Government should never be forgiven for it. Current exchange rates and interest rates are nowhere near such levels, but service industries are able to ride them out, which is why GDP is still increasing respectably. Manufacturing industry has suffered most. Having given control of interest rates to the Bank of England, my right hon. Friend the Chancellor has to take account of their requirements in the running of the economy. His Budget strategy is bound to be limited by that, and he will therefore be judged not so much on demand management, as he would have been in the past, but on the important tax and other measures that he has introduced.
The quickest way to reduce unemployment is through aggregate demand, but that is not easily open to the Chancellor. However, my right hon. Friend's redistributive approach is clear, and I look forward to it featuring prominently in future decisions.
How does the Budget fit in with the forthcoming single European currency? The consequences of our self-exclusion from monetary union cause me great unease. Britain is the only major country that will not participate. Sweden, Denmark and Greece have the luxury of not joining, because they would not influence the shape of the union to any important extent, whenever they joined.
Britain is in a different position. If we had joined at the outset, we could have made an important contribution to the development of economic and monetary union. Latecomers to institutions are at a serious disadvantage in determining rules and outcomes. Sweden, Denmark and Greece would not have affected the rules, but Britain could and would have done. We have failed to join institutions at the outset again and again.
I should have wished ardently for a postponement of EMU, which is too precipitous. It will take place, and we should have placed ourselves where the action is. There may be problems with the euro. My right hon. Friend the Chancellor of the Exchequer was well received in York on Saturday. He explained what needed to change in the European Union. His advice would more likely be taken to heart if we were participating members of the single currency. The difficulties facing the participant countries are obvious. We should not underestimate the will to make changes within the European Union to deal with problems as they arise. There may be some mush and fumble, but problems will be dealt with, because member countries will not want to admit defeat and face the enormous turmoil that the collapse of the single currency would create.
We may not like some of the solutions, and I am worried that we shall not be properly involved in the initial decisions or in the subsequent changes that will affect us. Historically, we have always paid a price for our hesitancy: our voice should have been heard. We could have at least announced that we intended to join,
which would have given us a foot in the door. If it were known that we intended to join, we should perhaps be listened to more seriously.
The major advantages of the City of London have been affected. We have lost some of the financial services market to Frankfurt as a result of our indecision. What saddens me most is that we should have been the bridge between the United States and Europe, sharing the language of the one with the geography of the other.
We must decide on the arrangements for the pre-entry stage to membership of monetary union. Some companies have never had to operate dual currencies to anything like the extent that will soon be required. Daily euro transactions will be a major part of their business. Even the retail trade will have to cope with those changes. Some shadowing of the euro will be necessary, and I should like to be assured that the Chancellor is developing plans to deal with that.
It is clear to me that the cost of the national health service will rise faster than the rate of inflation or growth in the economy. The population is aging and, as wants are met, the health service will require increasing expenditure. The time will come when we shall have to consider private medicine, which I do not favour, or a special national health service tax.
Anyone who has served in the Treasury has a visceral feeling about hypothecation: it burns inside us. The road fund licence still casts its shadow 70 years later. An important weakness of hypothecation is that it does not take into account the changing patterns of priority and expenditure. One certain aspect of health is that demand will increase into the indefinite future. If people can see the consequences, they may be more willing to accept a national health service tax than other taxes that disappear in the vast generality of public expenditure. Despite the hostility aroused by such a proposal, it should be freshly examined, and I hope that my right hon. Friend will consider doing so.
Mr. Kenneth Clarke (Rushcliffe):
The Chancellor's Budget speech was commendably short in length and disgracefully short on detail--to an unprecedented degree--but it was long on rhetoric. I did not totally disapprove of some of his rhetoric: my theme was always that we should have no return to boom and bust. The trouble is that the Chancellor is not quite aware of the risk he is running of a return to boom and bust; nor does he know what to do about it.
I enjoyed the Chancellor's repetition of our slogan of welfare to work. I agree with him that one of the best solutions to the problems of poverty and social exclusion is work and the opportunity of work. Unfortunately, I am not at all sure that his repackaging of our measures is wise, and his Budget will not make it easier for businesses to create jobs.
The Chancellor added some new, portentous rhetoric about being a tax reformer, and about how this was the most tax-reforming Budget for a generation. I agree with my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley), who spoke on Thursday, that this grandiloquent language was not matched by the measures it announced, which were a ragbag of tax reforms.
Several of my right hon. and hon. Friends have made the point that the overall effect of the Chancellor's tax changes is to continue the practice of putting a considerable burden of extra taxation on the very businesses that must create jobs if more people are to move from welfare into work. When the President of the Board of Trade explained some of these tax changes, she seemed totally oblivious to the overall upward effect they will have on the businesses for which she has departmental responsibility. She was partial in her selection of examples to illustrate the changes.
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