Tag: Taxation

Below is the text of Mr Major’s statement to the House of Commons on 9th June 1993 in the Economic Debate.

PRIME MINISTER:

The Prime Minister (Mr. John Major) : I beg to move, to leave out from House’ to the end of the Question and to add instead thereof : welcomes the widespread indications of economic recovery in the United Kingdom at a time when many other major economies are in deepening recession ; recognises that the interests of industry are at the heart of the Government’s policy and acknowledges the comprehensive programme of training and employment opportunities for unemployed people that the Government has put in place; welcomes the Government’s commitment to its Manifesto pledges including its commitment to improving the efficiency and effectiveness of public services through the Citizen’s Charter ; deplores the scare-mongering stories about public spending peddled by the Opposition ; and applauds the Government for its determination to maintain low inflation, sound public finances and firm control over total public expenditure upon which a sustainable economic recovery depends.’. As the right hon. and learned Member for Monklands, East (Mr. Smith) sits down, I have little doubt what is in his mind : “That’ll keep John Edmonds quiet for a week or so.”

Before I turn to the substance of the debate, I wish to say a word or two to my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) regarding his remarks at the commencement of today’s debate. In his speech, my right hon. Friend spoke of a number of matters of very great importance, including the case that we have discussed on many occasions over the past two years for an independent central bank.

I share my right hon. Friend’s loathing of inflation. That is an issue that we discussed frequently. We both saw the case for an independent central bank, able to take decisions on the implementation of monetary policy. There is a genuine case for that. I do not dissent from my right hon. Friend’s remarks about it. The very real concern that I have always faced is one that I believe is spread widely across the House : the need for accountability to Parliament for decisions on monetary policy matters. Were a way to be found to get the benefits of an independent central bank without the loss of parliamentary accountability, my views would be very close to those of my right hon. Friend, but I have to say to my right hon. Friend–I believe, from our many discussions, that it is a view he shares– that what is more important than the institutional arrangements is the underlying policy that is actually being followed. On that, I do not believe that an independent central bank would have brought down inflation any more rapidly than we have been able to achieve.That is something for which I am happy to pay tribute to my right hon. Friend.

Also, I entirely share my right hon. Friend’s vision of the economic goals of this Government and of the difficult path that we have had to follow to achieve and maintain low inflation and restore sustainable growth and employment. My right hon. Friend and I– [Interruption.]

Madam Speaker : Order. The House must settle down. Hon. Members do not have to listen, but whoever is speaking has to be heard. There is a great distinction between those two statements. The Prime Minister.

The Prime Minister : My right hon. Friend and I faced crises both before and after September last year. We worked together towards objectives that we shared, and we were always agreed as to our main goals : low inflation, sustainable economic growth, an increase in prosperity for all our people as medium and long-term objectives. I believe that history will look favourably on my right hon. Friend’s economic and financial skills, but a strong Government need political skills as well– [Interruption.] –when leading a democratic society and, in particular, when handling a lively House of Commons with a small majority.

Dealing with the problems of a small majority is a fundamental fact of democracy that no one dare or should even attempt to overlook. However, as we have shown in the battle over inflation and in our pursuit of European policy, against great difficulties in this House, we were not prepared in the Government to allow short-term difficulties to deflect us from what were the right long-term policies for this country. That was the position, and it is the position.

I am grateful to my right hon. Friend for his support and help throughout the past two and half difficult years. I acknowledge the difficulties that he has faced and the courage with which he has faced those difficulties, and I accept the support that he has offered to the Government for the future. I welcome the opportunity to debate economic policies at a time when output is up, exports are up, productivity is up, confidence is up and, as announced today, when business starts are up.

The right hon. and learned Member for Monklands, East has just made the speech that we expected of him. At the end of it, we are no better informed about his economic policies than we were at the beginning of it–or even about whether he has any economic policies or whether he has progressed beyond the sound bites that so frequently construct them. We do know something about the right hon. and learned Gentleman. We know that he is the man who announced the biggest tax increase in peacetime history, just before the general election. He is the man who said confidence would carry on falling, just before the CBI announced the highest level of confidence in 10 years, and he is the man who calls for a debate on the economy just as the economy is recovering. I hope that, with timing like that, the right hon. and learned Gentleman never takes up boxing, because it would be very painful. Many things can be said about him, but “floats like a butterfly, stings like a bee” is clearly not among them.

What does seem right about the right hon. and learned Gentleman was said by the right hon. Member for Chesterfield (Mr. Benn). I remind the right hon. and learned Gentleman what his right hon. Friend said about him : “I do not think that Members of Labour’s Front Bench would have even two ideas about what to do with the economy if they came to power a series of sound bites glued together and called an economic policy is not an economic policy.”–[ Official Report, 20 May 1993; Vol. 225, c. 420.] That remains as true at the end of the right hon. and learned Gentleman’s speech as it was before.

Today’s debate goes right to the heart of the fundamental divide between the Conservative party and the Labour party. The Labour party stands for higher public spending, higher taxation and more state interference in business and industry. We stand for controlling public spending, bringing direct taxation down where we can and getting the state off the backs of businesses and individuals. Let me deal with one matter that was fundamental to the right hon. and learned Gentleman’s speech. Let me turn immediately and clearly to social policy. I did not come into politics to dismantle the welfare state. I have no intention of doing so and neither does my party. At the moment, in different parts of the country there are many vulnerable people who are worried. They are worried because the Opposition systematically, day after day, leak after leak, sound bite after sound bite, have sought to frighten them. The Opposition have peddled scare after scare–

Several hon. Members rose —

The Prime Minister : I will give way later. The Opposition have peddled the man to spread scare stories; surely not a man to condone scare stories, so let me be charitable to him. Perhaps he did not know–had no idea–when the hon. Member for Livingston (Mr. Cook) swore that we would privatise the national health service, when the right hon. and learned Gentleman must have known that that was untrue. He could not have known about that, because he is an honourable man.

What did the hon. Member for Holborn and St. Pancras (Mr. Dobson) say? He said that the Government were “threatening to cut pensions and benefits for the worse off.” In the autumn statement 13 days later, pensions and benefits rose. I am sure that the right hon. and learned Gentleman did not know what his hon. Friend would say, because he is an honourable man and would not have sanctioned it.

It was the right hon. and learned Gentleman’s party that repeatedly claimed that trust hospitals were leaving the health service. They were not : the Labour party knew that they were not, yet it needlessly scared sick people for a vote or two, time after time. The right hon. and learned Gentleman could not have authorised that, because he is an honourable man–or so I had thought. But then I discovered what he had to say : “What’s going on will lead to the privatisation of the NHS.” That was flatly untrue, of course, and another scare. I wonder who could have spread it? The right hon. and learned Gentleman spread it. In the Labour party the scares come from the top and behind that moral righteousness is someone who has no scruples whatever.

The right hon. and learned Gentleman claims that the Conservative party won the election by telling untruths. Let me remind him about that election. It was his party that published 10 patient case histories and had to withdraw them when it turned out that it had made them up. It was his party that made up untruths about a sick little girl and spread them across the country. That is the party that dares to talk to us about standards. There is a word for that, but it is not parliamentary.

Let me turn to the subject of public spending. The Government know that, if the economy is to grow, the tax man cannot take more of the proceeds than the country can afford. In the Conservative party, we understand that people want more money in their own pockets and do not want the Government to spend their money for them. Of course, in the recession, spending had to increase. I do not apologise for that increase in spending–it was necessary in the recession and it was necessary to protect the vulnerable. I saw no support from Labour Members for any expenditure reductions throughout the recession and every support for dramatic increases week after week from every Member of the Opposition parties.

Mr. Calum Macdonald (Western Isles) : Will the Prime Minister give way?

The Prime Minister : Later. During that recession, not only did expenditure necessarily rise but income necessarily fell and that added to the borrowing requirement. Even though a great deal of that will reverse as growth returns, it is going to take time. That is why we have embarked on the public spending review. Governments have to take difficult decisions. We have to face structural increases in public spending, as any Government would. There are demographic changes, changes in student numbers and more elderly people, especially the very old. As we address those problems, the Opposition gaily spread mischief–a little fib here, a little scare there–yet as it does so it is carrying out a review into social expenditure. It does not have the courage to do it directly ; it has farmed it out to the commission on social policy. The only form of contracting out that the Labour party approves of is contracting out difficult decisions to other people.

The right hon. and learned Gentleman cannot run away from what he said : “We” –that is, the Labour party– “should be prepared to re-examine everything. I have not ruled anything out”. That is its position on social policy and Labour Members nod in agreement. Daily, the Labour party invites us to rule things out, while it examines everything–pensions, child benefit and every other aspect of social policy.

How responsible the right hon. and learned Gentleman is. I suppose that that comment shows that he wants to grapple with real problems, but when he faces other audiences, he wants to rule everything out. Which is the real right hon. and learned Gentleman? The gritty, determined facer of problems who wants to examine everything where nothing is ruled out, or the wriggler, twisting and turning, saying one thing to one audience and another thing to another audience?

Mr. John Garrett (Norwich, South) : Could the Prime Minister, First Lord of the Treasury, tell us what he was doing during the long period of recession, which has caused so much misery throughout the country? Was he looking the other way? Was he train spotting? Was he walking into cupboards? Has there ever been a more wimpish approach to the problems that face this country than that which he has shown?

The Prime Minister : I shall tell the hon. Gentleman directly : we have been presiding over a policy that brought inflation down to 1.3 per cent. and interest rates down to 6 per cent. so that this country is now poised for the largest growth in the European Community this year, next year and probably for the years beyond that. We have been taking the long- term view, not the short-term, option. That is what we have been doing–I am grateful to the hon. Gentleman for giving me the opportunity to point that out–while he has opposed every policy that has brought down inflation and interest rates.

The Opposition will be glad to know that our review of public spending will be careful and thorough. There will be two criteria : are any changes fair, and are vulnerable people protected? When the answer is no, we shall not make the changes. When the answer is yes, we shall set out to the House the implications of those changes. There are no soft options. The Government’s duty is to examine them all and pick the right ones. We know that we need to reduce public borrowing, which is why, in the last Budget, we decided that some increase in revenue was necessary.

We decided to introduce value added tax on fuel and power, not least because it would help meet our Rio commitments, commitments that the Opposition urged us to extend. We had every reason to expect cross-party support. The Liberal Democrats had stated in their green paper : “Liberal Democrats advocate as a first priority the imposition of a tax on energy The UK is unusual amongst EC members in not applying even standard rates of VAT on domestic fuels we would press forward by ending the anomalous zero rate of VAT on fuel”. Where were those men of principle in the Division Lobbies after the Budget?

What did the Labour party say? It said : “Zero rating on items such as food, fares, books and children’s clothing should remain as an essential part of the VAT system.” That was quite clear. It continued : “We will also use the tax system, as well as regulation, to help protect the environment.” That can mean only one thing. In the list of zero-rated items, there is no reference to zero rating for domestic fuel. The Opposition intended to put it up, and they know it. If they did not, will they tell me now why it was not in their list of zero-rated items? The right hon. and learned Member for Monklands, East does not answer–no doubt, as a QC, he believes in the right to silence for an accused.

When we introduced VAT on fuel and power, we made it clear that there would be extra help for less well-off pensioners and others on low incomes. I am glad to repeat that commitment. In recent months, the right hon. and learned Gentleman has made a great deal of the VAT increase, as have his hon. Friends.

Ms Harriet Harman (Peckham) : So have the voters.

The Prime Minister : So did the voters, says the right hon. Lady. What the right hon. and learned Gentleman did not mention is that he was the Energy Minister who let electricity prices rise. What was the increase–5 per cent., 10 per cent., 15 per cent.? No, it was 30 per cent. over and above inflation.What did the right hon. and learned Gentleman do to help the less well-off? I shall tell the House what he did–absolutely nothing. The position is clear. The right hon. and learned Gentleman cares about pensioners when he is in opposition–how he cares about pensioners in opposition–but in government he disregards them absolutely. One may think that that was a single lapse but, in case anybody thinks that that is so, let me say that the right hon. and learned Gentleman was a member of the Government who twice held back the Christmas bonus and cut capital spending on the health service. That is his record, and he should be ashamed of it.

There is another case where the right hon. and learned Gentleman’s actions do not match his words. Today, he again attacked our borrowing levels, but his election promises would have put up borrowing way above the present level. He is still at it. “Let’s spend £6 billion of capital receipts,” says the right hon. and learned Gentleman. “Let’s spend an extra £1.5 billion on public sector pay.” The shadow Chancellor says, “Let’s renegotiate our rebate and pay more to the European Community.”

Is there any area of Government spending that the Opposition are prepared to cut? Perhaps the shadow Chancellor can tell us. Perhaps we could have another sound bite to tell us where he would find the necessary savings. Or perhaps the deputy leader of the Labour party can tell us; after all, she came into government to implement the cuts in education that her hon. Friend the Member for Eccles (Miss Lestor) refused to make.

Mr. Geoffrey Dickens (Littleborough and Saddleworth) : Will my right hon. Friend explain why, if the Opposition are sincerely worried about the disadvantaged people of this country, they demand more and more overseas aid, day in, day out? [Interruption.]

Madam Speaker : Order. We all like a little bit of fun and hilarity, but we also want to hear the Prime Minister.

The Prime Minister : The fundamental point about overseas aid is that, in order to sustain it as the Government have done, one needs to pursue the right economic policies, as we have also done. I am glad that the motion mentions manifesto promises–glad, but a little surprised because the right hon. and learned Gentleman has scrapped all his election promises. We stand by our manifesto policies. We promised action on trade unions, housing, lotteries, railways, education and asylum, and we have kept our promises. Bills on each of those matters have already passed through the House. We promised to uprate pensions and benefits, and we have done so. We promised to maintain child benefit, and we have done so. We promised to increase real resources for the health service, and we have done so; year on year, spending is at record levels. They are the promises we made, and we have kept each one.

Mr. John Fraser (Norwood) : When the Prime Minister went on his trip down memory lane to Brixton and other ethnic areas, did he tell the people that he was going to take away the right of appeal for visitors?

The Prime Minister : The hon. Gentleman knows as well as any hon. Member that the great improvement in race relations in this country is directly related to the firm but fair immigration policies pursued by this Government. I am surprised to hear him venture down that track, in view of his record of favouring good race relations. We promised to deliver low inflation, and we have delivered on that promise. We promised to resume economic growth, and it is now resuming. Inflation, at 1.3 per cent., is at the lowest level for 30 years. Interest rates, at 6 per cent., are the lowest in the Community. There are now too many signs of recovery for even the Opposition to ignore them. Manufacturing output has increased for months in succession and unemployment has fallen three months in a row. It is too high–I share that view–but it is moving in the right direction, and sooner than most people expected.

It is certainly sooner than the hon. Member for Dunfermline, East (Mr. Brown) expected, because, after the Budget, he said : “I make one Budget forecast–that, after the Budget, unemployment will rise this month, next month and for months afterwards”.–[ Official Report, 17 March 1993 ; Vol. 221, c. 289.] One day later, unemployment fell. The next month, it fell again, and the next month, it fell again. Another sound bite is needed, I think. The recession has been damaging, and recovery has not come easily, but it is now under way– [Interruption.]

Madam Speaker : Order. Hon. Members must come to order. The bawling and shouting coming from the Back Benches this afternoon is utterly disgraceful. [Interruption.] I know who the Members responsible are, and I need no one to point them out for me.

The Prime Minister : Some time ago, the right hon. and learned Member for Monklands, East admitted : “we change our policies as we move towards a different election, we’d be a very foolish Party if we went into an election in 1995-96 with exactly the same policies”. That is certainly true. But whose policies were they? They were the right hon. and learned Gentleman’s. He was the undisputed author of Labour’s defeat. He was the man who drew up the disastrous shadow Budget. Hon. Members may remember the hype, the fake presentation, as if it were a real Budget, and the responsible tone–the right hon. and learned Gentleman even posed for photographs outside the Treasury. Lots of passers-by do that, but they never get into the Treasury. The right hon. and learned Gentleman talks of broken promises, as does the shadow Chancellor, the hon. Member for Dunfermline, East. That is a good sound bite, but for the wrong party. The Labour party has broken every promise that it made about future policy at the election. Every one has gone to the social justice commission. The right hon. and learned Gentleman said : “We must be prepared to examine in an open-minded way some of the fundamental features of our approach. What is the right balance between universal and selective benefits”.

It was not Milton Friedman who said that, nor my right hon. Friend the Chief Secretary, nor even Lord Desai–no doubt he would have been sacked if he had said it. The right hon. and learned Member for Monklands, East himself said it. Yet time after time he accuses us of examining aspects of public expenditure that any responsible Government would need to examine. He is the man who said that his planned increases in pensions and child benefits were essential, and that his tax proposals were fair, reasonable and popular. They have been so popular that he has dropped them all. So much for his promises. I would rather listen to the late Robert Maxwell on pension probity than to the right hon. and learned Gentleman.

I know that the exchange rate mechanism and economic and monetary union are matters of some importance to hon. Members on both sides of the House. Since we left the ERM, there has been substantial debate about monetary policy and the possibility of economic and monetary union. In the negotiations at Maastricht I sought and secured an opt-out on the single currency because I was sceptical of its economic impact across Europe and its artificial deadlines, and because I believed that such a decision was for the House to make. Since then, economic developments in the European Community have strengthened the reasons for caution that I set out. The European Community economies have diverged rather than converged. As we come out of recession, our main partners are heading into a recession. Some of our European partners remain keen on early monetary union, although many of their central banks are less keen. Even the keenest must now see the difficulties. The criteria for monetary union will simply not be met. When I was negotiating at Maastricht, the idea of a monetary union in 1997 looked ambitious, perhaps even a little dubious. I have to tell the House that it looks wholly unrealistic today.

The economies of Europe are not remotely ready for one currency throughout the 12, soon to be 16, countries, and I believe that they will not be ready –if they ever will be–for many years. That is not an anti-European view; I simply do not believe that the economic circumstances will be right, and if they are not right the damage that proceeding would cause the Community would be profound, and I should not wish to see it occur. If some of our partners decided to go ahead prematurely, that would be an economic mistake. I do not believe that we should go with them.

We have sought reform of the exchange rate mechanism. I make no secret of the fact that I prefer stable exchange rates, and so does industry. But I cannot accept that the present operation of the ERM is satisfactory. Sterling was forced out, in the circumstances described by my right hon. Friend the Member for Kingston upon Thames, but so was the lira. The franc, the peseta, the escudo, the punt and others have at different times been put under great pressure. Certainly, I could not recommend that sterling return at present. We should need greater convergence between the monetary policies appropriate for all the Community economies, and we should need to be satisfied that the system would be operated to the benefit of all its members.

In January, I made it clear that those circumstances would not apply this year. I now doubt whether they will apply for some years ahead–possibly they will not apply in this Parliament.

Sir Peter Tapsell (East Lindsey) : There will be a widespread welcome throughout the party for what my right hon. Friend has just said to the House, and there will be great support for the policies that he has enunciated throughout his speech.

The Prime Minister : I am grateful to my hon. Friend, and delighted to have a party at ease with itself. It is clear that the Labour party has no policies at all, and certainly no economic policies. When it had policies, they lost it the election. As the hon. Member for Brent, East (Mr. Livingstone) put it–rather cruelly, I thought–the right hon. and learned Member for Monklands, East “bears the primary responsibility for tax and economic policies that lost Labour the election.”

And now Labour has none. That is not my view alone. It is clearly shared by Mr. Edmonds of the GMB, the union that sponsors the Leader of the Opposition–or at least, it sponsored him until last Sunday. I am not sure whether things have changed since then. Mr. Edmonds says that Labour has an identity problem and asks whether the voters “know what Labour stands for”. He says that Labour must shake itself out of its lethargy. He asks : “Where was the Labour movement” during the past few months? He may well ask.

The Labour leadership cannot have been examining economic policy, because the shadow Chancellor would not recognise economic policy if it gripped him by the windpipe. The Labour leadership may have been absorbed in its falling membership, or it may have been trying to fight off the defeat of the right hon. and learned Gentleman’s party reforms. There is one area of total agreement between the right hon. and learned Gentleman and myself : he wants one man, one vote–a novel concept for Labour. He is right about that, and he has my support. Unfortunately, he does not have Mr John Edmonds’ support. Mr. Edmonds wants one member, one vote, so long as he can be the member and he, and nobody else, can exercise the vote.

So long as the Labour party remains subordinate to the trade unions in policy, a paid for and wholly owned subsidiary of the trade unions, Labour Members will sit on that side of the Chamber. I shall tell the right hon. and learned Member for Monklands, East why he and his party fail to convince even the leader of the union that sponsors him. It is because Labour is a party without policies and without principles that it will remain, in the short and the long term, a party without power.