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Mr. Ian Taylor (Esher and Walton): The hon. Member for South Ribble (Mr. Borrow), who came in at the last general election, did not pay due tribute to the fact that economic growth in this country--which has delivered some of the benefits that the Government have attempted to give to his constituency--actually started before 1997. There was a pre-1 May 1997 history and, in terms of economic growth, the Government took over considerable benefits.
The Government are near the end of their first term. To be truthful, I see this Finance Bill as a fag-end Bill. It has none of the gusto and excitement of a Government who expect to be re-elected, yet many Labour Members think that that is a possibility. However, it does not show any of the radical drive and determination that would make the House sit in awe, saying, "My goodness--what a Government! What are they going to do in the next Parliament if they get back in?"
This is a tired Finance Bill, very much lacking in ingenuity. That is, of course, why most of this Second Reading debate has been about anything other than the Finance Bill. Hon. Members have talked about the economy, or about what the Bill might have contained had the Conservatives had the opportunity to write it. I know that your generosity of spirit is enormous on these occasions, Mr. Deputy Speaker, and I hope that it will extend to me as well.
There was controversy in each of the Finance Bills that I have experienced after coming to the House in 1987. This is the least controversial of them all. However, some of the policies behind it--the Government's policy on tax and spend and their broader macro-economic judgment--involve some interesting and controversial issues.
The Government had the real misfortune, as the Chief Secretary said in response to my intervention, of having written the Budget before the economic climate began to change. The foot and mouth problem is immense, and I do not blame the Government for not taking that into
Economic confidence in the United States has almost fallen off the cliff, which is obviously having a big effect on US growth projections. That is bound to have a knock-on effect on us. The United States has been living beyond its means for a long time. We tend to be tolerant about that, because the US economy has undoubtedly been successful. However, its deficit and its desire to suck in funds from the rest of the world to cover economic difficulties could be put at risk during this year.
If American interest rates fall and the Fed decides, for domestic reasons, that it must cut interest rates, there could be a point at which--even if the dollar is regarded as a safe haven at a time of economic concern--investors in the United States may hold back or withdraw.
In those circumstances, the Americans would suddenly find that they had to put their own house in order. They would also find that the rest of the world would be that much more sympathetic if the American Government stopped behaving as if "America First" were the only policy that they could adopt. President George Bush has had an inauspicious beginning to his period as President. As a Conservative, I am almost tempted to say, "Come back Al Gore, all is forgiven" but I will suspend judgment. However, I should draw attention to the fact that the American President has decided that the word "compassionate" never appeared in his manifesto.
Other factors affect the domestic economy. The Chancellor will have carefully to reconsider some of his assumptions. For example, a rise of £5.7 billion in corporation tax revenues is predicted in the coming year. However, such buoyancy of corporation tax revenues may be delayed, or a thing of the past. Most of the companies now reporting are certainly reporting sharply lower profits.
In the overall Budget, there is always too little emphasis on the state of our home market, by which I mean not the United Kingdom, but the European Union. The 2000 trade figures from the Office for National Statistics should always be borne in mind when we discuss our domestic position. Some 57 per cent. of UK goods exports go to the EU, and only 16 per cent. to the United States. Some 54 per cent. of those exports go to eurozone countries, and more than half our total trade in goods is with the eurozone, while the United States accounts for 14 per cent. More than half our total trade in goods and services is with the EU.
It is highly significant that the 12 countries in the euro represent, in population and in other ways, 80 per cent. of our home market. That sector of our home market has a single currency, and a higher-than-tolerable sterling value causes difficulties for our jobs market and results in decline in our manufacturing base. The good news in the constituency of the hon. Member for South Ribble is welcome, but if we do not soon resolve the imbalance between sterling and the euro in our home market, our manufacturing industry will suffer even more. According to figures that I have seen, 83,000 jobs have been lost since the euro was introduced through direct or indirect association with investments from eurozone countries. That is serious, and we should watch the position closely.
The Budget statement did not draw much attention to that situation, and nor did it assess our position against the convergence criteria that the Chancellor has set for the euro. Perhaps we shall hear more about that on the first day after the general election.
The factors that depress domestic demand are important. The Institute for Fiscal Studies has said that if spending is to grow by more than GDP growth beyond 2003-04, further increases in taxes will be required. We heard earlier about the difference between monetary and fiscal policy, but fiscal policy is very important in a single monetary zone.
In both the single currency zone that is the United Kingdom and in the European monetary zone, Governments must recognise the importance of fiscal policy levers. Any party that wants to be in government must accept that the overall burden of taxation must sometimes go up and sometimes go down. There is no magic about the percentage of GDP that a Government should take in taxation at any given time: the point is whether the figure taken is the right one when the economy is expanding or contracting. We hear too much cant from both sides of the House about that. Everyone now accepts that we have given independence to the Bank of England, and we shall possibly give it in the end to the European central bank, too. We must understand that fiscal policy needs to be a good deal more energetic than it has been in the past.
Other factors will affect the Chancellor's ability to adjust taxation. We are increasingly realising the problems that arise from lack of tax harmonisation within the European Union. I am not, incidentally, arguing that there should be such harmonisation: I have already said that fiscal judgments should be made by Governments nationally, so that they may adjust to the economic circumstances of the time. My point is that there is a problem with holding the opposite view; if all judgments are made in isolation from what is going on in the rest of the home market, we shall have massive difficulties.
Excise duties provide an illustration of that point. Smuggling is one of our major growth industries. In brewing, the volume of smuggled beer equals the output of at least three British breweries. The figures are extraordinary. The cigarette industry also has huge smuggling problems, which the Government have not reflected in the Finance Bill. They have fiddled with excise duties but not tackled the fundamental problem of how to stop smuggling if there is a financial incentive for doing it.
Another matter for consideration in the European Union is value added tax. The Daily Telegraph today carries a story suggesting that there is a European Commission threat to our VAT flexibility. I am afraid that the story is yet another that has much more to do with that newspaper's policy objectives than with news reporting. In reality, the agreement on VAT--that there should be a minimum rate of 15 per cent. unless there is some dispensation--was made under the previous Conservative Government, who were much more shrewd than the reporters of The Daily Telegraph seem to recall.
There are many aspects for consideration within our home market. Perhaps because the Government do not want to be too exposed on the European issue, they constantly hold back from explaining to the British people the full facts of life. I admit that the Front Benchers of
The European central bank also needs to get its act together. Much more attention should be paid than seems to be paid by the current president of that bank to changing economic conditions. I hope that there will be an interest rate cut. However independent the ECB is, there is no reason why the UK Parliament should not send it a signal that it should cut its rates. We have no official Government or central bank representation on the ECB because we have not yet joined the euro, so I must hope that the voice of a humble Back Bencher--and an Opposition one at that--may be heard.
Let me turn to the detail of the Finance Bill. The climate change levy is touched on, somewhat abstrusely, in clause 103. I wish that that had been examined in much more detail. I shall not go into the arguments about its overall purpose: there is no doubt that reducing emissions is a vital objective. Whether that is best done, however, by giving incentives for technological adaptation or by a levy is a matter on which I am much more comfortable with my own party's policy.
I want to mention Air Products, a company in my constituency. Incidentally, and just to raise a competitive edge, I should point out that the chief executive of British Oxygen is a constituent of mine, but now I want to discuss the position of Air Products. The Government simply have not listened to the arguments of the industrial gases industry about the unfair and damaging impact of the levy. The separation of air into oxygen, nitrogen and argon by cryogenic distillation is the most energy-intensive process in the country. It is much more so than chlorine production and aluminium smelting, but they have been exempted from the levy. The process does not pollute the environment, so it is not covered by the regulations that the Government have insisted on as the criteria to define those processes that are eligible for an 80 per cent. discount.
Air Products challenged the Government by arguing that air separation is a chemical process, as defined in paragraph 17(a) of the eligibility table in paragraph 51 of schedule 6 of the Finance Act 2000, and that it should thus be allowed to enter the Chemical Industries Association agreement for the 80 per cent. discount. The company has provided written independent expert opinion from a professor of chemical engineering at Bath university that supports that interpretation.
The interpretation has been rejected and may be subject to a legal challenge, but I ask the Government to understand the consequences. Air Products has had to announce to its customers that, from 1 April, it will make a surcharge to recover the cost of the levy. That will have a further impact on the international competitiveness of industries such as chemicals and steel, and will add inflationary costs to the domestic sector in the food industry, in which liquid nitrogen is, of course, used for freezing, and in hospitals in respect of oxygen. I visited Air Products recently to open a combined heat and power plant--that is a small way in which the company can try to reduce its costs. However, I urge the Government to be
I have no interest in Air Products other than the fact that it is a constituency company. I have some separate business interests that are in the Register of Members' Interests. Given that the Finance Bill affects any company, I make that declaration for the avoidance of doubt.
I have some comments on something that is close to the heart of the Paymaster General: IR35. [Interruption.] Perhaps it is close to some other part of her anatomy, but if it is not her heart, I do not want to speculate too much.
There is still confusion about IR35 in the industry. The Government have done many good things--stimulating entrepreneurial spirit, trying to make the economy capable of accepting the inward investment of high-tech companies, and stimulating the high-tech industry itself over a longer period--so why oh why is IR35 still a blight on the landscape and causing confusion? The court case last week may have pleased the Inland Revenue in some ways, but it certainly added to the confusion. It took an 88-page document from the High Court even to try to clarify the existing position.