The Rt. Hon. Sir John Major KG CH

Prime Minister of Great Britain and Northern Ireland 1990-1997

1997-2001 Parliament

Mr Major’s Commons Speech on the 2001 Budget Resolutions Debate – 12 March 2001

The text of Mr Major’s Commons speech on the 2001 Budget Resolutions Debate, made on the 12th March 2001. This was Mr Major’s last speech in the House of Commons.


Mr Major: “Education, education, education” was originally a cry from Lenin, who did not mean it. I suspect that the Secretary of State, who has just left, does mean it. He is sincere and, in his unavoidable absence, I should like to congratulate him on graciously adopting some of the: proposals of my hon. Friend the Member for Maidenhead (Mrs. May), who is shadow Secretary of State. That behaviour is as welcome as it is unusual, and I hope that future Governments of both complexions will be inclined to follow that particularly good example.

Turning to the Budget as a whole, I am pleased that the Chancellor has cut taxes and given back to taxpayers a small proportion of the money that he has extracted from them in the past four years. His generosity is not surprising: notwithstanding the problems of foot and mouth, a general election is pending and the public accounts show ample scope for tax reductions and, perhaps, modest expenditure increases. Yet, only a few weeks ago, when the Opposition said that, they were condemned as “irresponsible” by spokesmen from the Treasury and elsewhere. We now see how shallow those attacks were, for if the Opposition were irresponsible, why has the most prudent of Chancellors done what they recommended? In truth, my right hon. and hon. Friends were right to identify the scope for tax reduction. Not only were they right but, if the economy stays on course, there may be scope for even more tax cuts in future.

A principal reason for that remarkable leeway is the sheer size of tax increases over the past four years. We must disentangle fact from fiction. Prior to the Budget, there had been 26 increases in personal taxation and 19 increases in taxes on business in this Parliament. That number has risen slightly although, given the Chancellor’s remarkable gift for sleight of hand, one must study the small print carefully to find out precisely how many tax increases there are. However, their sum total is enormous. The abolition of tax credits on dividends alone will cost shareholders about £6 billion in the current tax year. The reorganisation of advance corporation tax at the beginning of this Parliament has affected the quality of pension funds for millions of elderly people and cost those funds more than £5 billion during the course of this Parliament; it will do continuing damage until it is changed.

Even after offsetting tax reductions – of which there have been some, mostly minor, examples – the Inland Revenue’s overall tax yield has risen by an astonishing one third during this Parliament. No wonder the savings ratio has fallen so badly. That is not a wicked Tory calculation; an independent survey shows the average family to be worse off than it was in 1996. The old tax-until-the pips-squeak bruiser Lord Healey must be salivating enviously at the extent of the tax rises forced through by the Chancellor.

More people have been dragged into tax. An extra 2 million now pay tax; 28 million pay it, compared with 26 million three years ago.

Mr. Mackinlay That is just nonsense. What about unemployment?

Mr. Major If it is nonsense, it is Red Book nonsense. Those figures come from the Red Book. Before the hon. Gentleman mutters into his non-existent beard, he should read the Red Book and check. It is possible that the Chancellor has given us more duff facts; we are used to that. However, if they are duff, that is his responsibility, not mine.

There are 2 million more taxpayers and 700,000 more higher-rate taxpayers than there were four years ago. In addition, mortgage interest relief at source has been scrapped, although I do not object to that particularly. However, not only has MIRAS been scrapped, but stamp duty on home purchase has been increased and national insurance contributions for middle-income earners have risen sharply. So much – on the eve of the next general election – for the promises that the Labour party made to middle England and middle-income groups throughout the United Kingdom on the eve of the last one. Those groups may also care to note that the yield from inheritance tax has soared 50 per cent. during this Parliament. The Chancellor still has no concept – I genuinely believe that he does not understand its value–of letting more of the fruits of a lifetime of work filter down to the people whom the earner most cares about: his own family and the next generation.

It is no wonder, with such tax increases, that the ratio of tax to gross domestic product has risen 2.5 per cent. to 37.7 per cent. The Chancellor, despite all his promises, has not so much wooed middle England as assaulted it.

Mr. Geraint Davies Does the right hon. Gentleman know that, taking tax and borrowing together as a share of GDP – given that borrowing is deferred taxation – the figure went down two points from 38.2 per cent. in 1996–97 to 36.2 per cent. in 1999–2000, and down to 34.1 per cent. in the current year? The current figure is due to the spectrum auction of mobile phone wavelengths, but for the previous period, those two points represent the equivalent of an increase of 7.3p in income tax. In other words, the right hon. Gentleman simply borrowed instead of taxing, and tried to fiddle the figures.

Mr. Major The hon. Gentleman ought to know that his Chancellor changed the way in which the figures are quoted in the Red Book, and the actual equivalent of what he has done is an extra 10p on tax The hon. Gentleman may care to examine that matter. [Interruption.] If it is nonsense, it is the Government’s nonsense in the Government’s own figures. Those are the figures that I am using. I am glad to hear from Labour Members that they do not believe them.

It is ironic that the Government and the Chancellor have increased taxes so much. During the last Parliament, I remember vividly the present Chancellor and his colleagues, ever ready to find a catchy slogan, repeating the slander of 22 Tory tax rises, with no acknowledgement whatever of any offsetting tax reductions. To call their attacks disingenuous would be kind. They were patently untrue, and a forerunner of the manipulation of facts that has characterised so much – not all, but so much – of what the Government have said and done in the past four years.

The Government cannot deny that, because the figures for tax increases are now clear. The statistics cast light where the slogans cast deception. Before this Budget, the real increase in taxes over this Parliament was about 4.5 per cent. a year. Obviously, that figure is now a tiny bit lower, but not all that much. That compares with 1.8 per cent. between 1979 and 1997. I am indebted to the Institute for Fiscal Studies for pointing out that there were tax rises of 2 per cent. a year between 1979 and 1990, and of 1.3 per cent. between 1990 and 1997.

So much for the 22 Tory tax rises, or, indeed, the unsustainable proposition – unsustainable except by malice – that the previous Government wrecked the Tory tradition of low taxation. Some of my right hon. and hon. Friends who rather timidly accepted that fiction in the early part of this Parliament can now feel comforted that it was not true and refute it. They need not concede, but may safely move on and reassert our traditional tax credentials. Taxes were not unduly increased, despite the pressures of a recession that began in the 1980s and cast its shadow into the 1990s – although not, from the point of view of the health of the economy, much beyond 1992.

The Chancellor is ever ready to gloss over the excellent parts of his inheritance. He cherry-picks the bits on which he can make party political capital, and I do not blame him for that: most politicians do. However, he misses other bits. He is, after all, a very political Chancellor who wishes to be Prime Minister, and he is doing a bit of image building.

We need more facts and less of the fiction that we so often hear. The economy has been growing steadily since 1992, before – some hon. Members may not wish to hear this next point – sterling left the exchange rate mechanism. Unemployment has also been falling since that economic recovery began, and the very welcome job growth across the country – in both the number and the variety of jobs – has been consistent throughout the previous Parliament and this one. Inflation, too, began to decline in the early 1990s and has remained low. It looks set to fluctuate only within historically narrow parameters.

Mr. Mackinlay The Chancellor has been skilled, but I put that in perspective. Other factors have contributed, such as the ebb and flow of the economy, and I accept, to an extent, that employment growth was under way during the right hon. Gentleman’s stewardship. I have intervened only because of his breathtaking assertion that people are somehow worse off than in 1996, which defies both belief and the litmus test of what one sees and feels. There was extensive unemployment, particularly among poor and unskilled people, during the period to which he refers, and although I do not apportion credit or blame in respect of employment, people are now in jobs. Demonstrably, they are better off.

Mr. Major Demonstrably, the people in jobs are better off. That is undeniably so, but I was referring to the scale of tax increases. If the hon. Gentleman reads some of the independent research, he will see precisely why I made that comment.

As it happens, I was about to give credit to the Chancellor. The economy is in good shape and he can take a great deal of satisfaction from that. I shall not be mealy-mouthed: he can take a good bit of credit for it as well. Were he to be similarly candid, he too would offer credit to his predecessors, because he has built on what they did and on a trend that was established five years before he went to the Exchequer.

For example, some hon. Members, but perhaps not all, believe that an economic miracle began on 2 May 1997. Let us take a date at random – 1 May 1997. Growth was set to be 3.5 per cent. for the next year. Inflation was 2.6 per cent. and stable. Unemployment was falling rapidly and, although still high, was down to just over 1.5 million. The fiscal deficit was falling sharply – a point that the Chancellor invariably overlooks because it embarrasses his campaign to discredit his predecessors. The trend of a falling fiscal deficit was clear, and it was falling sharply. The right hon. Gentleman can take credit for not wrecking the trend, but he cannot take credit for beginning it, for it preceded him by four years.

I thoroughly welcome the fact that economic management has reached a maturity whereby the two major parties do not feel it necessary to reverse all the actions of their predecessor. That is beneficial to the British economy, and it will remain so for as long as that is the case. I may be wrong, but I think that the Chancellor took that too far in his first two years by adopting the previous Government’s expenditure plans in toto. I can tell the House, and I hope that it is not a great shock, that we certainly would not have done that. We would have increased them in the two public expenditure rounds that followed, as we had in every public expenditure round since 1979.

Stakhanovite is one word; masochistic is another, which might perhaps describe more plainly the Chancellor’s disposition. He has been an economic masochist over public spending. We hear a huge amount about public spending, and the Secretary of State for Education and Employment was at it as well this afternoon, but despite the hype about the unprecedented sums for health and education, the fact is that the Chancellor has raised taxes by far more than he has increased expenditure. The public have not noticed because one skill that the right hon. Gentleman has perfected is that of counting, and that includes the capacity to double count, overcount and miscount, which he has done repeatedly.

Again, I am indebted to the Institute for Fiscal Studies: total Government spending in this Parliament has risen at 1.2 per cent. a year in real terms. That is not only less than tax increases, but less than economic growth. It compares with public spending of 2.6 per cent. in the previous Parliament, which is a point that Liberal spokesmen have often made, although they are not often nice about the Conservative party. I am glad to see a nod of agreement, rather than a shake of the head, from the hon. Member for Sheffield, Hallam (Mr. Allan), because that is undoubtedly the case.

I concede that much of that expenditure was not discretionary: it resulted from the unavoidable impact of the recession. However, it puts in a better context that hoary old myth about Tory cuts, which the Prime Minister is trying to recycle with his current spate of posters about potential future Tory cuts. Either he is ill-informed or scaremongering – probably the latter.

The Government’s publicity on cuts is familiar: it is an echo from the past. It was an odd experience in the last Parliament to be taunted by the Labour party over so-called cuts while hostile monetarists attacked us for spending far too much money.

Mr. Willis Nothing has changed.

Mr. Major The Rt Hon. Gentleman may be right. The health of the economy in 1997 and subsequently suggests that we may have got that balance about right.

During this Parliament, the Chancellor has benefited from the supply side reforms of the 1980s and the disinflation brought about by the policies of the 1990s. When he chants his mantra of boom and bust – I lost count of the number of times that he and the Prime Minister uttered such drivel last week – he should remember that the last unsustainable boom was well over a decade ago. That has not stopped the Prime Minister depicting my right hon. Friend the Leader of the Opposition and my right hon. Friend the shadow Chancellor as Mr. Boom and Mr. Bust. [Interruption.] The Financial Secretary to the Treasury sniggers, but that is the politics of sneer and jeer. Neither of my right hon. Friends were policy makers at the time of the last boom, and one of them had barely been in the House of Commons.

There is a boom and bust today: a boom in tax raising and a bust in the competitiveness of manufacturing industry. Perhaps the Chancellor and the Prime Minister should concentrate on that boom and bust.

Mr. Geraint Davies Will the right hon. Gentleman give way?

Mr. Major I shall make a little progress, if the hon. Gentleman does not mind.

The Chancellor of the Exchequer is a redistributive Chancellor. He tries to hide that fact, but it is evident, and from his perspective he should not hide it. He aims to redistribute to the less well-off, but in general he redistributes to the Inland Revenue. Even his well-intentioned schemes are not wholly successful. I do not disagree with all of them. Bits of what the Chancellor has done have been good social justice, and if I had been in government with the economy that he now has, I would certainly have taken some of the measures that he has taken, and I am not remotely shy about saying so. However, some of those schemes have not been successful.

The Chancellor abolished the married couples allowance last year, and this year – after a helpful 12-month gap for the Treasury and the Inland Revenue – he has introduced a children’s tax credit to replace it. However, many people will not receive that credit, because it is means-tested and millions will lose either some or all of it on the means-tested taper.

The organisation of that tax credit is a shambles. As it is based on the highest-earning member of the household, it throws up huge and unacceptable anomalies. If one parent works and earns £42,000 a year, no payment of the child tax credit is made, whereas if both parents are at work, with no one at home with the child, and earn £35,000 each, the full credit is payable. As a means of social justice, attacking poverty and helping low-income families with children, this scheme is nonsense on stilts. If the Chancellor were serious, he would have examined those problems and sought to correct them before introducing the tax credit in its present form.

The minimum income guarantee is the Chancellor’s safety net against poverty, but it is so complex that more than one third of eligible pensioners do not claim it. The form is so complex and absurd that a large percentage of graduates might not claim it.

The 10p band extension is right in principle. I do not disapprove of minimising tax on lower income groups. However, the proposal is so niggardly and mean as to be almost pointless. The maximum gain from the Chancellor’s measures in the Budget is 75p a week – that figure should strike a chord with Labour Members. Given pensioners’ response to that amount previously, surely he should have done it differently.

Many of the main effects of all economic management, by every Chancellor of the Exchequer, become apparent some years after the announcement of the original tax and spending decisions. This Chancellor was lucky. He was lucky in his predecessors – lucky, notably, that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my right hon. and noble Friend Lord Lamont made the painful and unpopular decisions that contributed so much to the subsequent benign situation of which the present Chancellor has made such use in this Parliament. And – unless my memory is failing – I seem to recall that they made those decisions in the teeth of unrelenting opposition, not least from the present Chancellor and the Prime Minister.

I will not be in the House to see the Chancellor’s legacy at first hand, but much of it is now predetermined. He inherited an economy of falling unemployment and low inflation, and he has maintained it. That was well done; but under his stewardship also, taxes have risen too much. The tax system has become far more complex. Manufacturing industry has declined further. Regulations have soared. Increases in business taxes are undermining competitiveness, and so in due course will the social charter, whose economic folly is not yet fully apparent but will become so. It is, in truth, a mixed record – some good, some bad – for this luckiest and most fortunate of modern Chancellors of the Exchequer.

I cannot be certain, but this may well be the last occasion on which I shall speak in the House. Let me say that it has been a privilege beyond measure to be here, in this mother of Parliaments. I hope that the next generation of hon. Members, whichever of our great parties they may represent, will feel as I did when I first came to the House; I hope that they will feel that way in future, and I hope that we shall be able to end the miserable political climate of spin and counterspin that has grown up in recent years.

We need to separate fact from fiction, substance from soundbite, information from innuendo. The public – the electorate – the people who sent us here – deserve more than to be spoon-fed a cocktail of headline-grabbing feel-good stories. They deserve the truth, unvarnished sometimes, but the truth, and every Member of this House, whether Minister or Back Bencher, has the obligation – the duty – to provide it.

Mr. Jim Cunningham (Coventry, South) I hope that that was not the last speech that the right hon. Member for Huntingdon (Mr. Major) will make in the Chamber. We can agree with some of what he says from time to time and disagree with other things he says, but we must all recognise that he has made interesting contributions to the House over the years – and, indeed, ended up being Prime Minister as a result. I hope that we shall hear from him one last time: he may say things that Labour Members do not like sometimes, but that is the nature of politics and the nature of debate.