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Dr. Ladyman: Will the hon. Gentleman jog my memory? The famous 1p on income tax in the 1997 Liberal Democrat manifesto was not for the national health service but earmarked for education. The increase in spending that the Liberal Democrats then proposed for the health service was to be funded by a change in national insurance contributions. Why have they suddenly become such a bad thing?

Dr. Cable: The hon. Gentleman had an opportunity to think of that intervention about a quarter of an hour ago.

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If he is asking how the Lib Dems would deal with the revenue implications of my remarks, which are about the revenue costs of foreign investment, I will tell him.

One of the undesirable consequences of the idea that it is possible to raise lots of revenue by plugging the loopholes in respect of foreign investment is that the investment flow simply slows down and corporation tax is reduced. Many of the supposed revenue-raising measures are nothing of the kind.

Let me finish on a slightly more positive note. There were elements of the Budget on the business side—we are discussing the business aspects of the Budget—that we welcome and which have been helpful. The research and development tax credit has been widely welcomed in the high-technology industries. One company that I consulted said that the Government had got it about 95 per cent. right and listened to representations that it should be volume based rather than affecting marginal R and D. In other words, the measure is based on the Canadian rather than the American model.

Several companies stressed that the 5 per cent. that the Government have not got right could be a serious problem. It relates to the Inland Revenue's definition of R and D. The Government must listen to representations made to them about the way in which, for example, the tax rules help new R and D, as in the drug industry, but do not help engineering companies, where much R and D is incremental and small scale. The Government, and particularly the Inland Revenue, must take note of the way in which innovation is supported, as opposed to scientific R and D further up the chain. Those issues can be pursued further in Committee.

I welcome the recognition of the burdens of red tape associated with the value added tax system. That is good news and I hope that it brings real benefit. The Federation of Small Businesses estimates that the savings that a small company makes from the new VAT rules will be wiped out by the national insurance charges, once a company has more than four employees. That puts the change in its modest context.

There are one or two other revenue measures that are positive. One admirable measure that has not yet been noted, let alone commented on, has nothing to do with economics, but much to do with ethics. For the first time, the Government are to outlaw bribery as a tax relief. The Liberal Democrats have argued for that and I am delighted to see it in the Budget. It appears in very small print and I hope that it survives the passage of the Finance Bill through Parliament.

The Budget contains several small but useful measures, but they are swamped by the negative effects of the increased national insurance surcharge on employers. That will be the lasting legacy of the Budget. It will do harm. It will not have an immediate effect on people's pockets, except for those who are made unemployed, but in the long term, it will act as a serious drag on the country, its growth and inward investment. We warn about the consequences of the measure.

5.8 pm

Mr. Martin O'Neill (Ochil): There has been much discussion this afternoon about the impact of what is, in effect, a payroll tax. I have two points to make. If the Government accept, as they do, that the funding of the NHS should be organised on the basis of national

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insurance contributions and taxation, they have probably chosen the best way in which that can be done. There is never a right time for the imposition of any tax, but if there is to be a payroll tax, it is probably better to introduce it when unemployment is very low than when it is very high—a situation of which we had examples during the Tory years.

I well remember the lies and deceptions that were the hallmark of the 1992 election campaign, and the abuse that the late John Smith had to suffer when he was arguing for changes in national insurance contributions. For many of us, this measure is the completion of unfinished business—an expression that John used in another context, but which in this one is just as relevant.

In talking about the increase in expenditure on the NHS in a trade and industry debate, may I ask the Secretary of State to keep tabs on expenditure on equipment as a consequence of the added resource that the health trusts, hospitals and the health service generally will receive. It is vital that British manufacturing gets as big a share of that as possible. I am not suggesting some chauvinistic "Buy British" campaign, but there ought to be a unit available to the industry, supported by a plethora of interested organisations, to ensure that British business can best take advantage of the opportunities to which the largesse will give rise.

I am conscious of the remarks made by the hon. Member for Twickenham (Dr. Cable) about the North sea oil industry. I shall not cross swords with him because I know of his expertise in the matter. With characteristic modesty, he said that others in the House are more experienced than him. I should have thought that a former Shell economist had a little to teach some of us, but perhaps I could remind the hon. Gentleman of one or two significant points.

If a barrel of oil in the North sea costs $7 to $9, it is just about worth extracting. If it costs around $11, a profit is made. If the figure is $13, it is worth the company investing. If it costs $15, the profits roll in. I was not one of those who argued two years ago, when the price of petrol at the pump was rising, that we should punish the oil companies, because there had been a prolonged period of low prices so there was not as much investment as there could have or should have been, and the upstream activities of a number of oil companies were suffering from losses.

However, the truth of the matter is that since June 1999, the monthly average price of oil has never been less than $17 a barrel. Indeed, throughout 2000, the price was $29 a barrel, and in 2001, it was $26 a barrel. Today, it is $26 a barrel. Is the hon. Gentleman suggesting that the oil and gas exploration industry will somehow be deterred by a windfall tax when the price is $26 a barrel? I think that these people are having us on. The hon. Gentleman will know that, like farmers, those in the oil industry are never in a good position—if parent companies are not hammered on the upstream, they are hammered on the downstream.

Dr. Cable: The arithmetic that the hon. Gentleman sketched out is absolutely right. He may recall that I said that I thought that it was entirely fair in principle to tax excess profits. Is not the logic of his argument that if the

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price of oil fell below, say, $17 a barrel in the next two financial years, the Government would have to withdraw the measure?

Mr. O'Neill: I suspect that this measure has not been introduced in perpetuity. We are talking about it as we would a windfall tax, which should be levied only once or for one year. It would not be sensible to burden the industry if it became clear that the price of oil was falling. [Interruption.] Does the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) want to intervene? He is a big man, so when he is sitting down it looks as if he is on his feet and talking.

Sir Robert Smith: Does the hon. Gentleman not realise that there is therefore no planning horizon for those considering investing in the North sea, and that they would be better off investing in Angola, Azerbaijan, Venezuela or north-west Australia, where at least they might have some confidence in the Government knowing their plans from one year to the next?

Mr. O'Neill: I am sorry that I let the hon. Gentleman intervene, because that is the kind of repetitive claptrap that we hear from every industry when taxation is imposed on it. We are still talking about prices that are substantially higher than the minimums required to get a reasonable return. It is not unreasonable that the British taxpayer should in such a way get back some of the money that they have to pay at the pump. The fact is that the oil companies upstream have been doing extremely well for the past three years. However, I shall move on because I know that hon. Members have difficulty agreeing on that.

Much has been said about supporting industry through tax credits and the like. Many of us have argued for years that the microbrewery industry was one small business that was important to our constituencies. I accept that it is sometimes a lifestyle business. There are four such breweries in my constituency. They employ small numbers of people and have never been able to enjoy the economies of scale that have been available to even the medium-sized breweries. In many ways, they have been unfairly treated by the system and I am pleased to welcome the improved support for those businesses. Such help has been available in countries such as Germany for many years. The change is a classic example of a small business lobbying as a trade association for several years and eventually getting the Government's ear. It probably means that every small trade organisation will ride its hobby-horse into our surgeries over the next couple of years, but many of us are happy to deal with problems of that nature.

I welcome the Government's decision to sustain the winter fuel payment until the end of this Parliament, whenever that may be. However, people who are unfortunate enough to be born after the end of September in any calendar year do not receive the payment. There was a solid administrative reason for that: it was thought too difficult to provide the payment to everyone because no one knew what it would be. We now know from the Chancellor that it will be £200 for the next three years. So I hope that my hon. Friend the Paymaster General will

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give us a positive indication that people whose birthdays are after the end of September will be entitled to get the winter fuel allowance.

If my arithmetic is right, only 75 per cent. of the possible new beneficiaries will receive the payment. There is nothing more galling than to be confronted by an irate woman—it is usually a woman—who, having just passed her 60th birthday, gives us hell in our surgeries on a Friday or Saturday because of the winter fuel allowance. We are asking for a wee bit of assistance on that because the payment is a great idea and reflects a tremendous expression of support by the Government for the elderly and disadvantaged. A number of people are denied that help, and by God do they feel bitter.

I hope that that is not seen as carping criticism. There is no reason for not extending the payment to everyone who is entitled to it. I like to think that the Government will address the issue in a spirit of largesse—perhaps not tonight, but certainly a little later on. I will write to the Minister about that because it is a problem that we need to consider. Although it is a small matter, we would make a sizeable number of people very happy were we to sort it out.

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