The Rt. Hon. Sir John Major KG CH

Prime Minister of Great Britain and Northern Ireland 1990-1997

1990Chancellor (1989-1990)

Mr Major’s Comments During Budget Resolutions Debate – 26 March 1990

The text of Mr Major’s comments during the Budget Resolutions and Economic Situation debate, made on 26th March 1990 in the House of Commons.

Mrs. Margaret Beckett (Derby, South) Many excellent speeches have been made in this debate, as in the three preceding debates on the Budget, on both sides of the House – not that I agreed with everything that was said.

The Budget was presented in a different and quieter style – more in the style of the present Lord President of the Council than that of the right hon. Member for Blaby (Mr. Lawson) – although we had a refresher course today when the right hon. Member for Blaby made it plain that, whatever he has lost, he has retained his arrogance intact.

Moreover, the present Chancellor managed to give the impression of being relaxed, almost of enjoying himself. That goes to show that he is a much better actor than he is given credit for. No Chancellor of the Exchequer in his right mind, or out of it, could enjoy presenting a Budget and forecast in which he tried to explain away the worst trade deficit in our history, rising inflation and peak interest rates, especially when the Government have been in power for 11 years.

I had come reluctantly to the conclusion that I would never hear Ministers stop answering embarrassing questions about their own record by talking about what the Labour Government did 12 or 13 years ago. However, I was wrong. I freely admit my error, and apologise to the Conservative Members whose ingenuity I underestimated so profoundly. They have found a new way of not talking about their own record: they have moved triumphantly and seamlessly from talking about the record of the last Labour Government to inventing a record for the next.

Let me turn to the overall balance and judgment that the Budget represents. Is it, as some commentators have suggested, short-term panic, because we are nearer to recession than the Government admit? Or is it long-term boldness – a gamble on everything turning out all right after all?

There is of course a third option, which is appearing more and more in the views of commentators: that the Budget does not address the long-term prospects of the economy, but – as we feared and warned – addresses the shot-term prospects of the Conservative party. It is the Budget that Conservative Members needed to restore their morale, instead of the Budget that the country needed to restore the economy.

The gamble – if that is what it is – depends for its success on the electorate’s failing to recognise its nature. That is why the Chancellor is so annoyed with my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who has suggested that he may be aiming for a boomlet in 1991–92. Not that that is not true; predictions of the speed and scale of the resumption of growth shown in the Red Book imply a pre-election boom. What really upsets the Chancellor is the fact that, if the electorate realise what he is up to, he may have risked our future for little short-term gain.

To be charitable, there may be another, slightly different, reason for the Chancellor’s annoyance. Perhaps since those predictions were made he has realised – as the economy deteriorates before our very eyes – that perhaps he cannot engineer a pre-election boom; so, making a virtue out of necessity, he claims credit for what he may not be able to escape.

This is, of course, an intensely political Chancellor. We are told by some – perhaps even, implicitly, by the right hon. Member for Blaby today – that the Chancellor is not as brilliant as his predecessor, but has a lot more sense. He is not going to come to the Dispatch Box and tell us that we are just too stupid to understand his brilliance; he picks his words as carefully as he picks his excuses. That was already apparent when he addressed the Treasury Select Committee. He carefully won its sympathy, first by being polite – which it was not used to – and secondly by selecting the range of lesser economic crimes to which he would plead guilty, making a frank and open statement of error but confessing only to minor crimes, and only when he could shuffle off the blame.

Some commentators have expressed surprise at the nature and scale of the Chancellor’s gamble. I am not sure why. He may have been, if not the silent partner, at least the quieter one, but he was the partner in the great gamble of 1988, for which we are paying such a heavy price today. That 2p off income tax, and the letting rip of the economy that went with it, is now matched by today’s heavy increase in interest rates. The present Chancellor was a partner when, together, he and his predecessor gambled and lost. Now he is going for double or quits.

Those with gambling fever, often quiet souls, may applaud the right hon. Gentleman’s daring; more prudent souls – and Labour Members are very prudent because of the stock from which they spring; by definition, there is no one to pick up the pieces if it all goes wrong – will worry about the extent to which the Chancellor is risking our future. Nor is the gamble the only real resemblance between this Chancellor and his predecessor. There is never enough money to do everything that we might wish, but it is when the room for manoeuvre is least that we see most clearly the nature of the choices made – and the nature of those choices differs not one whit from the nature of the choices made by his predecessor.

For all the kind words for small businesses, the cost of the Chancellor’s measures for them pales into insignificance beside the cost of his gesture to the City. He told us that the abolition of stamp duty on stocks and shares will cost £120 million in 1990–91. He did not mention that it will cost £800 million in a full year. The Chancellor has introduced tax relief for charitable giving up to £5 million. That is very nice, but how much is intended to give extra encouragement to private donations to city technology colleges which help a tiny minority of the nation’s children at the expense of the rest? The concessions on workplace nurseries, the composite rate of tax and poll tax rebates are all welcome, but the Chancellor is only alleviating the burdens imposed by the Government.

The concession on the poll tax will help fewer than 1 per cent. of poll tax payers, and in any case the figures were wrong. The clawback of such help as is given will be severe, assuming that people are earning 20 per cent. on their capital, and the shambles over Scotland exposed once again the incompetence and the injustice of Government policy.

Let me give the House an example of someone who assumes that he will get help from the Chancellor’s concessions on the poll tax. Someone with savings of £13,000 would have been debarred by the capital limit under the old system. The assumption of the income from that capital means that a person facing a poll tax of £400 who is eligible for the maximum rebate of 80 per cent. and had to pay £6.15 a week would find that it was offset by the potential income of £6, so there would be no rebate whatsoever.

People will have to apply for the concession on the poll tax. As always, under the means-tested schemes introduced by the Government, help is what they call targeted only on those in the greatest need. Speaking of prudence, I contrast that with the help given in last year’s Budget to people such as the Prime Minister to subsidise their private health insurance. That was not targeted on people in any need and will be given automatically and people will not have to apply for it. Perhaps the Chancellor will tell us about the prudence of that.

I now turn to the Budget analysis of the state of the economy. In the Chancellor’s speech and on the succeeding four days we have heard about the Government’s brilliant record in economic management – the record that led us to the biggest balance of payments deficit and the highest mortgage rates in our history, inflation higher than that of our major competitors, and falling investment.

One of the claims repeatedly made in defence of what we are told is a temporary setback is that, under the present Government, we have seen the longest period of expansion in 50 years. Sometimes we are told that it has been the longest period of expansion in our history. That sounds good, but unfortunately it is not true. Before the OPEC price increase in 1973, all the usual measures of growth in gross domestic product show steady growth under all Governments, including the last Labour Government – from at least 1958 to 1973, or, if one chooses the measure of disposable income, from 1948 to 1973. There were stop-go cycles then, but what are we experiencing now? Without the cushion of North sea oil, we would probably have seen an earlier example of stop-go under the present Government, as balance of payments constraints would have occurred far earlier.

We are told about the remarkable growth in output after 1982, greater than that in Germany, France and Italy. However, if one examines the entire period from 1979 to 1989 – the period during which the Government have had responsibility – the growth in output was average. We were out-performed by Italy, and relatively our position in the OECD, Europe and the G7 countries declined. We are told that exports stabilised as a percentage of world trade after falling for decades. Yet the volume of exports grew less than the volume of world trade in all but the two years 1982 and 1987, and the volume of imports grew massively more in every year except 1980 and 1985 and was roughly the same in 1989.

We are told that total investment has grown since 1980 because of the growth of business confidence, and that total United Kingdom investment has grown faster than that of any other European country. In fact, from 1980 to 1986, gross domestic fixed capital formation as a percentage of gross domestic product was lower than in 1979. In 1981, it fell to the lowest level since 1959. Even in the boom year of 1989, it did not reach the post-war record achieved in the period 1968–70 under a Labour Government.

In any case, manufacturing investment – the engine of recovery – was lower in every year between 1980 and 1987 than it had been in 1979, and from 1981 until 1983 it was at levels not seen since the mid-1950s. As for the claim that it grew faster than in any other European country, one can only say that it evidently needed to recover. In fact, in the period 1979–89 the growth of investment in this country was exceeded by Spain, Portugal, Finland, Turkey and Norway – and that is only in Europe. Moreover, all this growth in investment still leaves us near the bottom of the league – 18th out of 23 OECD countries – in levels of investment as a percentage of GDP. And we had the benefits of North sea oil.

The Government claim also that, since 1983, they have created more jobs than any other European country – sometimes they say, more than all the others combined. Again, that is just not true. According to the most recent reliable figures, we made up a quarter of the total number of jobs created in the EEC Twelve – not more than all the rest put together. Percentage gains in employment were greater in Italy, the Netherlands, Denmark, Luxembourg, Greece and Portugal.

We staged the strongest recovery after 1983, but between 1979 and 1983 we lost more jobs – 1.8 million out of a total EEC job loss of 2.8 million. In addition, all the figures for jobs created in this country include Government schemes. If the numbers of people employed on Government schemes are stripped away, one finds that the number of jobs created in the 1980s was much the same as the number created in the 1970s, when we had no oil – indeed, we had a huge hike in the price of oil – and when we had less favourable terms of trade. Yet we claimed no miracle.

Mr. Richard Page (Hertfordshire, South-West) How does the hon. Lady contrast her figures with the 5.6 per cent. average in the United Kingdom and the 8.8 per cent. average in the EC? Is it not a fact that, in terms of employment, we in this country are better off?

Mrs. Beckett I do not know whether the hon. Gentleman was listening, and I do not know what figures he is quoting. I have just said that the Tory Government claim to have created more jobs in the 1980s than ever before, and that is simply not true.

Even if all these claims could be made without qualification – and they cannot – to boast of their achievements, as this Government continuously do, without mentioning oil is like someone claiming credit for having prospered more than his neighbour without mentioning that he had won the pools.

But the Government do not make misleading claims just about their overall record. They claim, most misleadingly of all, that the underlying problems of our economy – our lack of competitiveness and our low rate of growth in traded goods and services, what we sell abroad to make our living – has been resolved. Again, the figures give the lie to that claim. Manufacturing output fell by 19 per cent. between 1979 and 1981 and since then it has grown roughly in proportion to total GDP. So, while GDP grew by 24 per cent. in that period, overall manufacturing output grew by only 13 per cent., and is again flat. No wonder we remain 17th out of 20 OECD countries for the rate of growth in output over the period.

The significance of that low place lies also in the fact that, with growing internationalisation and inter-penetration of markets, we need to hold on to our market share at home, as well as sell abroad, if we are to succeed. We all know that this is one of our major problems. The export volume may have risen by almost 50 per cent. between 1979 and 1989, but the import volume rose by 110 per cent. While our output growth has been 13 per cent., our expenditure on manufactures has risen by 30 per cent. Hence, again, we have the deterioration in our trade balance in manufactures, from a £2.7 billion surplus in 1979 to a deficit of nearly £17 billion in 1989 – the first deficit in manufactured trade in our history, and it appeared under this Government.

The Government used to argue that this was all totally unimportant, as the income from invisibles – from traded services – would keep us going. The forecast now is for a surplus of £1.5 billion on invisibles, compared to £2.5 billion in 1989 and £6 billion in 1988. This suggests that perhaps last month’s deficit was not quite the aberration that we were told it was.

The export volume of all services rose by under 15 per cent., and of those financial services contributed by far the greatest growth. We have seen a collapse in earnings from merchant marine and tourism, from which, as usual, the Government have stood aloof, and we are all now reaping the consequences. While the export growth of traded services rose by 15 per cent. between 1979 and 1989, the import growth of traded services rose by over 50 per cent. Although our service trade balance has not yet disappeared, it has fallen as a percentage of gross domestic product.

Tragically, it appears that the Government are not ready even to recognise that problems exist, let alone that they have any duty to help to remedy them. We called in our pre-Budget background briefing, as my hon. Friends have done in the debates, for support for investment, training, research and development and the inputs that have made, and are making, the performance of our competitors superior to ours – the inputs without which we approach 1992 with not one but both hands tied behind our backs.

What did the Chancellor say about training or research and development? In effect, that everything was wonderful. In an unbelievably complacent speech, the Secretary of State for Employment said the same. My hon. Friend the Member for Sedgefield (Mr. Blair) demolished that argument this afternoon.

The Chancellor said that spending on business research and development had risen by 50 per cent. in the past five years. That is good, because between 1981 and 1985, the last period for which good international comparisons are available, we had the lowest rate of growth in total research and development expenditure in real terms of all the OECD countries, except Yugoslavia. We were the only OECD country, except Turkey, to experience a fall in total research and development as a percentage of gross domestic product.

Within those figures, the rate of growth of business-financed research and development was the worst of all OECD countries, except Australia and New Zealand. We were one of only three countries – the others being New Zealand and Eire – in which Government-financed research and development declined in real terms. Since then, Government support has been cut further, while our most successful competitors continue to spend a higher proportion of wealth on research and development than us.

The danger in which that places us is highlighted by two recent press reports. The first appeared yesterday in the Mail on Sunday and is only the latest in a series of articles on the brain drain from this country of qualified scientists and technologists. Until recently, the Government refused to acknowledge that the brain drain existed, and have taken no steps to resolve it.

The second article appeared in The Guardian on a report from the IFO Institute in Munich, that some 40 per cent. of all manufacturing products that will be internationally traded in 1995 are not yet in production.

The pace of innovation in products is quickening, and if we are to remain competitive, there must be more investment and research. Manufacturing investment is falling, and the Government’s Budget predictions show that they expect it to fall, yet they continue to stand aside.

The international comparisons made for the Japanese company Yamaichi are bad enough for this year. They show us at the bottom of the growth league, at the top of the inflation league and with the highest trade deficit in Europe. More worrying, they show no change in the position in their forecasts for 1990 or 1991.

Mr. David Lightbown (Lords Commissioner to the Treasury) This is depressing.

Mrs. Beckett I agree – it is depressing.

There is no vision in the Budget, nothing to prepare us for the 1990s and no fiscal incentives, however minor, for good environmental policies, apart from the differential on lead-free petrol. There is nothing for those struggling to pay the extra charges that the Government have imposed on them. The excess price increases in electricity, water, fares and rents have all been imposed as a consequence of Government policy.

There is nothing for the small business or mortgage payer to alleviate, by even the smallest degree, the burden of interest rates, and nothing to create the conditions in which they might be lowered. All we get is a series of little exhortations – “no gain without pain”, as the Chief Secretary said. That makes one wonder what Treasury Ministers are reading these days. I have a theory: the Prime Minister has embroidered a couple of samplers with those mottoes, and the Chancellor and the Chief Secretary have been forced to hang them over their desks and read them each morning.

As I contemplate the Government’s continued reliance on their one-club interest rate policy, the proverbial blunt instrument approach, I am strongly reminded of the descriptions I remember from school history lessons of the mediaeval practice of medicine – what I believe later and wiser generations called “heroic medicine”. It seems that what we are experiencing at the hands of the Government is heroic economics.

I see the Chancellor as a sort of economic equivalent of the mediaeval barber surgeon, someone who knows only a limited range of drastic remedies to cleanse the system – all that purging and cupping, cures that were frequently applied with such ferocity that they killed more people than would have succumbed to the disease. Who can doubt that the mediaeval barber surgeon would have said to the patients and their anxious families, as he drained that last fatal pint which weakened the patient beyond the point of recovery, “If it isn’t hurting, it isn’t working.”

Almost every Opposition speaker, from whichever party, and even some courageous souls on the Conservative Benches, have identified the Budget as yet another missed opportunity for the nation, perhaps even a missed opportunity for the Conservative party. The truth is that we are all paying for the sins of 1987, 1988 and 1989, and those who benefited least are paying most.

There is a clear attempt to put much of the blame on the right hon. Member for Blaby, but most of the Government’s policies have, with a few honourable exceptions, been not just supported, but supported wholeheartedly – as many hon. Members made clear in the Budget debates – by all Conservative Members, including all the potential contenders for leadership. I see that no one seems to want to take a bow. Collectively, they have frittered away the greatest windfall that this country has ever seen, not just in our lifetime, but for many generations. They have frittered away £83 billion, at today’s prices, of income from the North sea. They have frittered away our opportunities, our children’s opportunities and our grandchildren’s opportunities, as well as their own.

In the words of the most destructive, damaging and unjust piece of legislation that even this Government have passed, we intend to hold them, one and all, “jointly and severally liable”.

The Chancellor of the Exchequer (Mr. John Major) The hon. Member for Derby, South (Mr. Beckett) ended the Opposition’s contribution to this debate in much the same manner as her right hon. and learned Friend the Member for Monklands, East (Mr. Smith) opened it on Wednesday. Her speech was amusing, occasionally opaque, statistically selective, strong on criticism, but almost totally devoid of any detailed alternatives.

In the hon. Lady’s statistical selections there were, alas, some facts that she missed. She missed the fact that between 1980 and 1989 this country grew faster than any major European country except Spain. She missed the fact that, even with slower growth forecast for 1990, the United Kingdom will have recorded higher growth in the past 10 years than either France or Germany. She missed the fact that, since 1980, the United Kingdom’s manufacturing output has grown faster than that of either France or Germany, in stark contrast with the 1960s and 1970s when the United Kingdom was bottom of the growth league. Those are just a small selection of the facts that the hon. Lady missed.

Opposition Members have now been in opposition for a decade or more. After such a lengthy period, it is a little puzzling that they have so little constructive to say about the future. Either they do not have policies or they will not say what those policies are. I know that the right hon. and learned Member for Monklands, East is an intelligent and perceptive politician and, therefore, after 11 years of being an intelligent and perceptive politician he must have policies. If he does not have policies after 11 years, he is too incompetent to be in government. If he does have policies and he will not say what they are, he is too shady to be in government. The Opposition are now secretive to the point of deception.

There is a new tendency in the Labour party. The “don’t say, won’t say” tendency is now running the Labour party from the Opposition Front Bench. That tendency is led by the right hon. and learned Member for Monklands, East – a distinguished Queen’s counsel – and under his guidance the Labour party has opted for the right to silence, for fear that it will incriminate itself by telling people its policies.

Labour Members are not silent only in the House. These days they are also silent in the media. When did we last see a significant interview with the right hon. and learned Member for Monklands, East, with the right hon. Member for Islwyn (Mr. Kinnock) the Leader of the Opposition, the hon. Member for Dunfermline, East (Mr. Brown) or any of the Opposition Front Bench in which they have exposed themselves to discussion of their policies? Not having seen such an interview for some time, can we ever expect to see one again?

Over the past few days, we have had a wide-ranging debate. There have been a number of compelling speeches to which I wish to refer. Today there were a number of outstanding speeches to which a reply is merited. My right hon. Friend the Member for Blaby (Mr. Lawson) made two specific points in a compelling speech. First, he said that a tax increase at present would be unwise and I will refer to that later, as the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and others also referred to that issue. Secondly, my right hon. Friend the Member for Blaby called for early entry into the exchange rate mechanism of the European monetary system, and that call was echoed by my hon. Friend the Member for Horsham (Sir P. Hordern) and others.

I reaffirm to my right hon. Friend the Member for Blaby and to my colleagues that progress is being made towards entry and that we will enter the exchange rate mechanism when the conditions that we have set out are met fully. As my right hon. Friend the Member for Blaby will be aware, we wish to see inflation fall before we enter the mechanism. That concern is not shared simply by us; it is shared also by the governor of the Bundesbank. When sterling enters the exchange rate mechanism, it may well be turbulent not only for us, but for our European partners. There should be no doubt that join we will, when the conditions that my right hon. Friend the Prime Minister set out have been met.

My right hon. Friend the Member for Blaby also referred to the Opposition’s policy – or lack of it – on the exchange rate mechanism. Of course the Opposition say, “We will join the exchange rate mechanism”, although the hon. Member for Newham, North-East (Mr. Leighton), in a speech that I was sorry to miss, apparently has a different view about that. The Opposition’s promise is so hedged by codicils as to be almost meaningless. They are not so much proposing to join the exchange rate mechanism as to abolish it. Their conditions for entry would drive a coach and horses through the existing system.

Last year the right hon. and learned Member for Monklands, East told the House that the conditions that the Labour party attaches to joining the mechanism, apart from the difficult condition of joining at the effective rate – which he did not identify – are that there should be adequate swap arrangements between the central banks, a well-organised regional policy within the Community and that the thrust of economic policies within the Community should be for growth not for deflation.

As Brian Walden pointed out to the hon. Member for Dagenham (Mr. Gould) –

Mr. Paul Boateng (Brent, South) Brian Walden is the Government’s friend.

Mr. Major Mr. Walden was a distinguished member of the Opposition Benches.

Mr. Walden said that Labour’s terms for entry are much tougher than the Government’s. For instance, he said that Labour wants a huge regional policy. It wants a guarantee that weaker currencies will be defended much more effectively than at the moment. Labour wants the whole purpose of the exchange rate mechanism to be changed.

The truth is that Labour’s commitment to the mechanism is a sham. It is an attempt to take a soft option, but the exchange rate mechanism is not a soft option. As my hon. Friend the Member for Horsham made clear, it is a discipline, not a soft option. Financial discipline is something that the Labour party never has understood and never will understand. We understand it, and, in due course, we will join the exchange rate mechanism.

Mr. A. J. Beith (Berwick-upon-Tweed) Will the Chancellor say here and now whether we will join as long as the right hon. Lady is Prime Minister?

Mr. Major For the hon. Gentleman, that question is uncharacteristically cheap. My right hon. Friend the Prime Minister made the decision that we would join and, in Madrid, set out the terms under which we would join.

My hon. Friend the Member for Croydon, South (Sir W. Clark) also made a powerful speech in which he particularly welcomed the introduction of the tax-exempt special savings account. I was sorry to learn recently that my hon. Friend will retire at the end of this Parliament. Conservative Members will miss him and his contributions to our debates. As he said, the new tax-exempt savings scheme represents a considerable incentive for saving. We have already seen the success of personal equity plans, the brainchild of my right hon. Friend the Member for Blaby, in encouraging saving in shares. TESSA offers similar incentives. It is tailored for savings with building societies and banks which, for many people remain, and will remain in future, the most convenient and popular vehicle. I hope that the tax privileges of TESSA will get many people started on the saving habit and enable many more people to feel that it is worth building up savings for the future. I am glad to see that banks and building societies have responded positively to this innovation. For example, the Royal Bank of Scotland said: This is what the banks and building societies have wanted for years. It will do a great deal to encourage the small saver and we will be aiming to introduce the TESSA account as soon as possible. I hope that many others will follow that lead and that many people will take up the new savings incentive to build security and independence for themselves and their families.

During the span of the debate, a number of Opposition Members have chosen to quote relatively disobliging remarks from brokers’ circulars and from other sources. Tempting though it is, I will not respond by quoting what some of those very same people recommended just a few days before the Budget, but it is striking how warm a welcome the Budget has received from business and industry.

Mr. Jack Straw (Blackburn) What about the electors of Mid-Staffordshire?

Mr. Major The trouble with the hon. Member for Blackburn (Mr. Straw) is that he fears that the strategy will work, and he is right – it will.

The particular help that the Budget offers for smaller businesses has been acknowledged not only by Opposition Members but by the Association of British Chambers of Commerce, which welcomed the combination of a powerful boost to savings with control of inflation. It added: the business community should be well pleased with it. The Confederation of British Industry, the Institute of Directors and others have offered their full support for the determination to bring down inflation.

There was support, too, from many business leaders such as Sir Denys Henderson of ICI, Mark Boleat of the Building Societies Association, and many others, including Peter Morgan of the IOD. Most of those people know that, in present circumstances, we cannot offer this as a giveaway Budget, nor do I think at present that business would thank us for one.

Businesses know that the one overriding risk to our economy and to everyone in it would be to give up the battle against inflation. They remember only too well that rapidly rising prices in the past have destroyed planning, investment and motivation, and, above all, industrial relations, because inflation is the mother and father of industrial conflict. They know, too, that that was in the 1970s – not the 1980s – When the Labour Government were in power.

Business men know that with increasingly open markets and tough competition in the future, Britain simply cannot afford that sort of self-inflicted wound. That is why business understands and approves both a tight fiscal stance and a tight monetary stance. I offer my right hon. and hon. Friends the promise that that is precisely what we will keep – in the short term, in the medium term and in the long term, because we are determined to bring inflation down and to keep it down. British business does not contain many adherents of the sado-masochistic school of economic policy – those who think that the first Budget to put up taxes since 1981 did not put them up enough. It is not surprising that that doctrine has more supporters among those whose business is writing than among those whose business is business. Not many people in British industry would derive much comfort from a gratuitous helping of fiscal austerity.

City fashions come and they go. At the moment, the fashionable view may be that the fiscal brakes should be jammed in an emergency stop. However, that ignores all the evidence of recent years about the way in which fiscal policy works, as my right hon. Friend the Member for Blaby made clear. If one looks at our economic history, it is clear that when Governments have attempted to fine-tune fiscal policy to beat the cycle, more often than not that has turned out to be precisely the wrong thing to do at precisely the wrong time. Contrast that with the highly beneficial effects of stable or falling tax rates on the supply side of the British economy. It does not make any sense to set them at risk by a panicky fiscal reaction which, in retrospect, might turn out to be overdone.

I make no apology whatsoever for the fiscal judgment that I made when I framed the Budget. The right hon. Member for Ashton-under-Lyne spoke in his usual thoughtful and gracious way. In doing so, he questioned both the Budget judgment and the fiscal judgment and referred to market difficulties, as did the hon. Member for Durham, North (Mr. Radice). In so doing, they did not mention – although I reminded the right hon. Gentleman of this – that even as they spoke sterling was higher than when I delivered the Budget speech last Tuesday. When I pointed that out to the right hon. Gentleman in an intervention, he said that we must await the longer term. Of course that is right – and perhaps the Budget’s critics would be wise to wait for the longer term as well before making their criticisms.

In all our debates, the one substantive criticism has been that fiscal policy was not tight enough. The right hon. Member for Llanelli (Mr. Davies) made that same point. I agree neither with the right hon. Gentleman nor with the critics. Sometimes the right thing to do is to stand still with a neutral fiscal Budget. That is what I chose to do on this occasion. If I had judged that it was necessary to raise taxes, I should have raised taxes, but I did not reach that judgment. My right hon. Friend the Member for Worthing (Mr. Higgins) shares that view. He accurately pointed out the difficulties of making such a judgment at present, not least difficulties with the statistical base, which I am considering how to improve.

Let us consider the fiscal position and record. In recent years, the country has been repaying its debts year after year. No. G7 country, except Japan, either is doing that or has been doing it in recent years. Moreover, the sheer scale of our repayments has already made a sizeable inroad into our public sector debt.

As for the future, under the fiscal judgments that have been reached, fiscal policy will knock out a further £17 billion of debt over this year and the next two years. As a result of that, we shall have reduced national debt, which stood at the beginning of this year at around £160 billion, by massive sums in total. That is the reality of the fiscal judgment. Our fiscal strength also means that debt as a proportion of GDP will continue what has been a headlong fall – from 50 per cent. in 1979, to 32 per cent. in 1989 to a forecast of 28 per cent. in 1990. It is now down to levels not seen since the beginning of the first world war. It is hard and intellectually indefensible to suggest that the fiscal position is neither satisfactory nor tight.

It is tight for other reasons, too, for we plan to repay £7 billion this year – and £7 billion next year. Even though this year has had the benefit of cyclically stronger growth than next year, the debt repayment next year will remain the same. The reason why it turned out at £7 billion and not £14 billion this year was not because fiscal policy was artificially relaxed. There has been no change in tax rates or structure. It was the one-off effect of the corporation tax shortfall as a result of the build-up of allowances for high investment, of the results of the national insurance rebates, as so many people took out personal pensions, costing the PSBR £2.5 billion, of the result of slightly lower privatisation proceeds than we had imagined and of the result of truly massive overspending of local government as councils sought to avoid new capital controls. To call that a loosening of policy is a perversion of logic. It may fill the columns of newspapers, but it ought not to fill minds as being the reality of what has happened. [HON. MEMBERS: “Oh.”] If Opposition Members listen, they may learn something.

Mr. Boateng We need no lectures from you.

Mr. Major It is, I grant, unlikely that they will listen, but we shall try.

My right hon. Friend the Member for Worthing pointed out what advocates of higher taxation would say if such taxation generated either lower growth or higher wage demands. He was, as ever, both perceptive and right. My right hon. Friend also welcomed a number of other measures in the Budget and especially the abolition of composite rate tax, as did my hon. Friend the Member for Isle of Wight (Mr. Field). As my right hon. and hon. Friends know, composite rate tax was introduced because it brought substantial administrative savings. The Inland Revenue did not have to check the interest on millions of accounts to collect what were often small amounts of tax. Instead, tax was automatically deducted at source. I have no doubt that we are right to abolish the composite rate. I can think of no other example where tax is collected from people who have no liability to pay it and where, in no circumstances, can it be reclaimed once it has been deducted. Once independent taxation comes into force, as many as 14 million people would have paid tax that they did not owe on their interest.

However, let me say a word about the scale of the task of abolition. There are some 34 million interest-bearing bank and building society accounts and, during the year, many of the people holding them will change from being taxpayers to being non-taxpayers. Therefore, we shall need to negotiate with the banks and building societies with the aim of introducing a simple scheme of self-certification to allow non-taxpaying savers to receive their interest gross. Those who cannot self-certificate for any reason will be able to reclaim tax. Such arrangements are not easy to introduce and it will be a great challenge to have them in place by next April. Many felt that it would take at least two years to put them in place. It is for this reason, and for this reason only, that composite rate tax cannot be abolished immediately. If it had been possible to do so, I would have done so.

A number of the measures that I introduced in the Budget last week have been widely welcomed throughout the House and outside. I am especially pleased by the widespread welcome that has been given to the proposal for a reduction in pool betting duty to contribute to the cost of safety improvements at football grounds. As we have been in the business of quotes today, particularly from Opposition Members, I shall quote the chief executive of the Football Association, who called it the start of a new era for football”. I hope that that is true, especially in terms of the conditions in which fans have to watch the game.

It is surely a measure of success that the Opposition appear to be queuing to take credit for having thought of the scheme. I have no objection to that and no party points to make about it. At Wembley yesterday, with the hon. Member for Newham, North-West (Mr. Banks), who may not care to admit to the company that he was in, and with the hon. Member for Middlesbrough (Mr. Bell), it was clear that the change is widely appreciated by both fans and administrators. The House may wish to know that the Football Trust and the pools companies will be meeting tomorrow to discuss the arrangements. I hope that they can agree on the details speedily so that we can reduce the duty without delay.

There has been a considerable welcome from charities for the new gift aid scheme. A number of charities have said that they receive a substantial number of one-off gifts of £600 and over. In future these gifts will carry the bonus of tax relief for the charity. This alone will increase their income, but I have no doubt that if the scheme is promoted actively many more people will be encouraged to give generously to a range of good causes. As the director of the Charities Aid Foundation commented: This package of measures is the best ever by any Government. He added that the package should be worth £50 million a year if charities pull themselves together and market it properly. I hope that he is right. The CAF was joined in its welcome by the Imperial Cancer Research Fund, the National Council for Voluntary Organisations, the Charities Value Added Tax Reform Group, the National Arts Collection Fund and the Royal National Lifeboat Institution. We now have a proper structure for charities and for giving. There are covenants for the regular giver over years, a payroll giving scheme to be deducted and paid weekly or monthly, and gift aid to provide, for the first time, for one-off gifts of cash. It is the best system of charitable giving, I suspect, of any nation in the European Community.

The measure to exempt the benefit of workplace nurseries from income tax has been widely welcomed. I have been informed today that a number of employers are responding already by announcing plans to open workplace nurseries for their employees. For example, it is reported that BP will be setting up workplace nurseries for its 30,000 staff following the Budget. There are a number of other employers who will be doing likewise, notably the Midland bank, which is proposing to set up 200 workplace nurseries. That is an extremely sensible response to the labour market conditions that many employers now face. I hope that the scheme will be taken up widely.

I made it clear in my Budget speech that I wished to encourage savings and I introduced incentives to do so. I know very well the difficulties that many people face with interest rates. I wish that it were possible to promise that interest rates would come down again soon. I cannot promise that they will do so and nor can I rule out a further rise if I judge that necessary. If they have to rise, they will rise. I can promise the House, however, that interest rates are working. They are encouraging saving and discouraging spending and borrowing. I have no doubt that they will get the economy back on track, and in the time scale that I set out in the Budget judgment. Opposition Members who doubt that should not underestimate the crucial importance of savings. Higher saving is not merely a short-time objective. On the contrary, I believe that high levels of saving will be extremely important throughout the 1990s if the British economy is to compete as it should.

If there is a high level of savings, we can sustain a high level of investment, which we all wish to do. The tax changes add considerably to the armoury of measures already in the system to encourage saving, and which have already resulted in massive culture changes in British society. Some 11 million shareholders and millions of other people will, I hope and believe, be able to save free from the victimisation that they suffered under the policies of the Labour Government. I find it ironic that Opposition Members mock the savings incentives in the Budget. Let people be warned – if there is ever a Labour Government again, the savers can forget about keeping up with inflation or obtaining a decent return on their money.

We hear a great deal about how the Opposition have changed. The right hon. and learned Member for Monklands, East and his loyal lieutenant the hon. Member for Dunfermline, East tell us, in every newspaper that we open, that Labour has changed and that as they lunch their way around the City, as they do day after day, they are finding a very appreciative audience. [Interruption]. They look very good on it. They sit on the Front Bench, the house pets of the board room in the 1990s. I have no doubt that the right hon. and learned Gentleman is an extremely entertaining lunchtime companion. We have never questioned his entertainment value, but I wonder whether he is deluding himself about the esteem in which he is held. I was amused by an article by the City firm Goldman Sachs – which is not exactly run by closet Conservatives – entitled: Meeting the Challenge? – Labour’s Policy”. Goldman Sachs said that it did not very much like what it had seen of the right hon. and learned Gentleman’s policies. It said: Monetary, fiscal and exchange policy will be used to promote the competitiveness of British industry … This implies a willingness to depreciate. They are devaluers today just as they always were. Indeed, the policy review states that Labour will end the reliance on high interest rates and an uncompetitive currency. Goldman Sachs concludes: this seems to undermine Labour’s commitment to join the exchange rate mechanism of the EMS and to threaten its counter inflationary policy. Indeed it does. Labour has no counter-inflation policy.

The problem with Labour’s economic policy is the lack of any means to control inflation. There is no incentive for people to control costs. Labour is now in the age of glitznost – let the glitter be the substance. There has been a great deal of fraud and a few facts during the debate. My right hon. and hon. Friends should make no mistake – we have seen all that we are going to see of Labour’s plans to deal with inflation. On that they are implementing Labour’s election strategy – smarten up and shut up.

How many basic rate tax payers will be worse off? Labour Members will not say. How many people will suffer from the increase in the national insurance ceiling? They will not say. How much will people lose by the loss of the married couples allowance? They will not say. That is the reality. They will not vote for a policy that will reduce inflation and recreate growth. In this Budget we have a policy to bring down inflation and to create growth. I commend it to the House.