Below is the text of Mr Major's comments during the Budget Resolutions and Economic Situation debate, made on 15th March 1989 in the House of Commons.
Mr. John Smith (Monklands, East) Yesterday the Chancellor of the Exchequer presented his Budget for 1989 without a word of apology for the damage done to our economy and to our society by the Budgets -
The Chancellor was warned by the Opposition and by a few voices elsewhere about the dangers of a deteriorating balance of payments deficit on the current account. His response was to predict -
The Chancellor's forecasts for the trade deficit are worse than ever before, but they may still be an under-
We hear a little less today, but occasionally, in tones of fading echoes, we hear about the economic miracle wrought by the Government. It could, of course, be thought to be a miraculous achievement to turn a £3 billion surplus in manufactured goods into a deficit of £20 billion, all within a decade in which the Government gained the enormous windfall of £78 billion of North sea oil revenues, but, unfortunately, it would be a miracle in the wrong direction. The truth is that it is the Government's pretensions, their glosses on the truth, the hype that modern advertising has perfected to an alarming degree and the absurd claims and exaggerations, which are so faithfully repeated by acolyte organs of communication, that are miraculous. The reality is depressingly not so good.
Let us take as examples three critical and indisputable facts about Britain's economy. We have the highest balance of payments deficit in our history, the highest interest rates in the industrialised world and, with the exceptions only of Greece and Portugal, the highest rate of inflation in the European Community. We clearly have the highest rate of inflation among the G7 countries.
However, let us cast our minds back to just one year ago -
There was no talk then of a soft landing or a hard landing. I suppose that some perception of reality must have penetrated the Treasury over the year, as it now recognises that there must be a landing. However, if we are still involved in an economic miracle, it is difficult to understand why we do not keep on flying. Perhaps we are landing just to refuel or to change the pilot, or perhaps -
When, in the period between the Budget of 1988 and now, it became clear that the Chancellor had gravely underestimated the boom in demand that the huge expansion of credit and his irresponsible tax handouts to the rich had caused, he started the relentless increase in interest rates that moved up from 7.5 per cent. to the current 13 per cent. -
The Chancellor dare not. Higher interest rates are the Lawson risk premium that must be paid to the foreign holders of the short-
Home owners have borne the brunt of the Chancellor's chosen instrument of credit control. They have seen any tax benefits that they received in last year's Budget vanish like snow from a dyke. To be fair, not all those who received tax cuts are worse off -
Let us consider those with more modest means. For the vast majority of home owners their mortgage payment is by far their largest domestic outgoing. A family with two children on £12,000 per year -
I state those figures in a moderate way, because I know that my right hon. and hon. Friends will tell me of constituents who pay £60, £70 or £80 more in mortgage repayments per month -
The Chancellor described his Budget last year -
Of course, the high interest rate -
It is invidious of the Government to disclaim the inflationary effects of increased mortgage payments; and offers precious little comfort for hard-
The Chancellor's forecast of the rate of inflation has proved only slightly less reliable than his forecast of the trade deficit. Last March he said that inflation would be 4 per cent. Last September he told us that there was only a "temporary blip". But yesterday he confirmed that inflation is 8 per cent. and, even on his own estimation, it will stay high for the whole of 1989. According to the Chancellor, it will fall to 5.5 per cent., which I think even he might view as being relatively high.
To make matters worse, the Government themselves have created those inflationary own goals. [Interruption]. I hope that Ministers will pay attention, because this matter is one for which they are uniquely responsible. The Ministers seated opposite me on the Conservative Front Bench are responsible for heavy extra charges for water, electricity, public transport and National Health Service prescriptions. Those price rises sharply increase the cost of living. It is within the power of the Government not to have caused them and to reverse them. The Government are responsible for a very large part of the inflation from which we suffer.
It was no doubt for that reason, among others, that the Financial Times commented: Inflation is simply a headache for Finance Ministers who get things wrong. As the United Kingdom's inflation rate surges upward. the Chancellor's headache is getting worse. One might imagine that we suffer from a world contagion, but if one examines the inflation rates of competitor and analogous countries one realises that our inflation is significantly higher than theirs. We are not receiving inflation in some contagious way from those other countries, and the Chancellor has had the good fortune to be in office during a period of remarkably low commodity prices. Inflation in this country is a home-
The Chancellor of the Exchequer is a disillusioned monetarist who displays no real understanding of the contemporary causes of inflation. [Laughter]. The Chancellor may laugh, but I can easily demonstrate the extent of his lamentable ignorance. Inflation can either be demand-
In a celebrated phrase, the Chancellor said that inflation would be his "judge and jury". Let us, in an exercise of charity, overlook the Chancellor's attempts to fix the evidence by arguing that mortgages should be removed from the retail prices index. However much he wriggles, he will be unable to avoid the verdict. It is not for us to suggest an appropriate sentence for the criminal, because the Prime Minister is about to inflict a very severe punishment. Few of us would relish the prospect of daily tutorials in economics from Sir Alan Walters.
Mr. Tim Smith (Beaconsfield) Is there not an element of being wise after the event in all of this? Does the right hon. and learned Gentleman recall the policies that he advocated in the House on 5 November 1987 when, on an Opposition motion, he called for significant cuts in interest rates and increases in public spending? Is it not clear that, if those policies had been followed, interest rates and inflation would be back at the levels that we associate with the last Labour Government?
Mr. Smith I suppose that the Chancellor might be wiser after the event of his daily tutorials from Sir Alan Walters. I shall answer the hon. Gentleman's question very directly. Neither I in any speech, nor the Opposition in any motion, commended the Chancellor's credit boom and his irresponsible relaxation of credit. We voted against his irresponsible tax cuts for the rich. As we are talking about being wise after the event, I ask the hon. Member for Beaconsfield (Mr. Smith) -
The Chief Secretary to the Treasury (Mr. John Major) It is within my memory and that of the right hon. and learned. Gentleman that on "Newsnight" last night he expressly denied that just after the stock exchange crash he called for further public expenditure and tax cuts. My hon. Friend the Member for Beaconsfield (Mr. Smith) mentioned a motion moved by the right hon. and learned Gentleman, and I have several press releases in his name suggesting precisely that. Perhaps he would care to withdraw.
Mr. Smith The right hon. Gentleman knows perfectly well that I said I was in favour of the small reduction in interest rates that was made at that time. That was made perfectly clear, and it does not do the right hon. Gentleman or the House any credit for him to try to change chat. We can look at the transcript of the television interview.
Mr. Major The right hon. and learned Gentleman is wriggling.
Mr. Smith Treasury Ministers are experts on wriggling.
I remind the hon. Member for Beaconsfield that in the debate to which he referred massive public expenditure was called for by one of the leading apologists for the Government on the Government Back Benches.
Of course we have asked for increases in public expenditure. If well-
Having fuelled inflation, the Chancellor now finds himself stuck with the consequences. Surely it is clear that Britain needs to invest. It needs to invest more in education and training to reduce the skill shortages by which many British companies are harmed. It needs to invest more to improve roads and railways to ease congestion, reduce pollution and promote safety. We need to spend more on the National Health Service to retain more qualified nurses and improve the quality of health care.
Every opinion poll shows that the British people want better roads, hospitals and schools. All the evidence shows that this would be good for the British economy. Above all, we need to invest in the talents of our people so that Britain produces quality goods that other countries want to buy. As we approach the 1990s, we need an economic miracle if we are to compete successfully against the Germans, Japanese and Americans in the world market place.
Labour Members make no apology for saying -
Public investment is not only vital to strengthen the economy but, for most of us, it is the key to improving the quality of our lives. Across the range of public services -
There are one or two items in the Budget that we welcome. Some 10 years after it was promised, the Chancellor has abolished the earnings rule for pensioners. He has given a tax preference to the use of lead-
The Chancellor of the Exchequer (Mr. Nigel Lawson) The right hon. and learned Gentleman is being censorious.
Mr. Smith The Chancellor says that I am being censorious, but I am only being fair. I have old-
The Chancellor should have done much more for the lower paid. He increased income tax personal allowances by the bare minimum he was obliged to give, as opposed to the minimum he dared to give, and by an amount less than the present rate of inflation, and below the increase in average earnings. As a result, as he knows well, the proportion of income paid in income tax, even for the lowest paid, will increase.
For many others, the Chancellor has done nothing at all. The freezing of child benefit at £7.25 a week is a scandal. Child benefit replaced the children's tax allowance, which would have been updated every year if the Conservatives had kept to an all-
While we are on the subject of taxation, I should say that one of the more sedulously spread myths of this Administration is that the tax burden has been reduced. It should be well enough known that the burden of tax as a percentage of national income is substantially higher now than it was before the present Government came to office. But I regret to say that that is still not widely enough appreciated, and I am always on the lookout for pieces of evidence in the presentation of the Government's own statistics that reveal this important fact yet again. I found one of some interest on page 18 of the "Financial Statement and Budget Report" -
We discover that, on the basis of this analysis, the tax percentage of GDP in the six years of the present Chancellor's period of office has moved from 37.75 to 37.5 -
When we look at the effects of these tax changes and at the failure to increase benefits, we see how sad they are for many people in this country. Every time the Conservatives refuse to uprate child benefit they deny even modest help to the poorer families. We proposed that the Chancellor should increase child benefit to £8.35 -
Of course, the living standards of the most vulnerable people in our society will fall still further this year because the Chancellor has chosen to increase pensions and unemployment benefit by less than 6 per cent., even though, as he told us yesterday, inflation will reach 8 per cent. But it is hardly surprising that this Government overlook the less well-
Many pensioners receiving transitional payments, which were to protect them from some of the effects of these changes, will receive no net increase in payments this year. Their transitional addition will be reduced by the amount of any uprating. My hon. Friends and I see such people at our surgeries every week. I had an unfortunately large collection at my most recent surgeries. For them, the uprating will be not just insufficient -
But there is one proposal, which was mentioned only briefly by the Chancellor yesterday and with which we shall deal when we consider the Finance Bill, which we believe to be not only wrong but grotesque. I refer to the strange idea that the taxpayer should find a subsidy for private medical insurance for people over retirement age.
It may be that that was not the Chancellor's idea. There was a rumour when it emerged during the health review that it was being resisted by the Chancellor and the Secretary of State for Health. But, as we know, resistance to the Prime Minister does not last long in this Administration. In what we might well imagine as an exercise in the adopted royal prerogative, the gentlemen concerned would have been told, "We have decided." In an exercise of a distinctly non-
I confess to having listened with some impatience over the years to lessons in the virtue of targeting benefits from the Prime Minister, the Chancellor and nearly every occupant of the Government Benches, but I confess that it is not immediately evident to my hon. Friends or to me that we should subsidise from our taxes the private medical insurance of people such as the Prime Minister who are already well provided for.
Mr. Ian Taylor (Esher) Since many thousands of trade unionists benefit from private health insurance, why is the right hon. and learned Gentleman trying to deny pensioners the same rights?
Mr. Smith As far as I know, neither trade unionists nor non-
My constituents, many of whom, I am sorry to say, are in the poor category, when they apply for income support or housing benefit are subjected to the most rigorous tests of income and capital. For even small and modest amounts of savings, they are completely excluded from any assistance from the taxpayer because, we are told, benefits must be strictly targeted.
Why does the same principle not apply in this case? What is the justification for an open-
No test of income or capital is applied in this case. There is no invidious inquiry into means. We know that every time Conservatives want to advance their own interests they forget about targeting, particularly when it helps the better-
Mr. Neil Kinnock (Islwyn) Sumo Lawson.
Mr. Smith -
We know that this is not a Budget of much substance. None the less, it is highly revealing. It reveals how fearful and defensive the Chancellor has become as he contemplates the results of his misguided policies. He has been forced to promise to maintain high interest rates for as far ahead as he can see. But with falling growth, rising inflation and a worsening deficit in our overseas trade, our economy is clearly not under wise or prudent supervision.
The Chancellor yesterday did not dwell on the perils which lie ahead, but he knows only too well the dangers of being dependent on the good will of the foreign holders of short-
This country has, under Conservative rule, not only seen the dissipation of North sea oil revenues which could have been used to rebuild our industry and achieve civilised standards of service and opportunity; we have also seen this country move from a position of oil strength to a position of dependence on short-
The Chief Secretary to the Treasury (Mr. John Major) This is my right hon. Friend's sixth Budget. In these Budgets his measures have dramatically improved the supply performance of the economy and simplified the corporate and income tax system to an extent that few people anticipated. He has reduced the rates of tax and the number of taxes. He has abolished more taxes than any other Chancellor this century. He has reduced tax distortions and tax breaks and moved steadily towards a much simpler and more efficient tax structure. No Chancellor for generations has so reformed our fiscal structure, and that work has continued in this Budget.
The right hon. and learned Member for Monklands, East (Mr. Smith) said, correctly. that the tax burden has gone up. He is right about that, and I will tell him why. It has gone up because we are repaying Labour's borrowing -
Mr. Kinnock Really!
Mr. Major The Leader of the Opposition would learn something if he listened; it would be a novelty for him.
As I was saying, had we not done that, it would today amount to a PSBR of £25 billion in today's terms. That is not a burden that we are prepared to have and to pass on to the next generation, even though Labour Members were prepared to do so.
The right hon. and learned Member for Monklands, East may not believe it, but perhaps he does not understand these matters. Indeed, he has as much likelihood of understanding how the economy works as Donald Duck has of winning Mastermind -
The right hon. and learned Member for Monklands, East has noticed none of these developments. He has also ignored many of the effects of the changes that have been brought about -
Mr. Harry Ewing (Falkirk, East) rose -
Mr. Major I will give way later in my speech.
Mr. Ewing rose -
Mr. Major The hon. Gentleman will have an opportunity to speak later. I am anxious to make some progress now.
Mr. Ewing rose -
Mr. Speaker Order. The hon. Member for Falkirk, East (Mr. Ewing) has been a Member for a long time. He knows the rules.
Mr. Major The hon. Gentleman has been here a long time. We welcome his presence and I promise to give way to him later.
The right hon. and learned Member for Monklands, East has been disparaging about the Budget. He thinks -
It is a Budget that is good for savers, is good for those in work -
When in office, the Labour party produced Budgets -
The right hon. and learned Member for Monklands, East had some critical things to say about my right hon. Friend's stewardship. Of course, it is the right hon. and learned Gentleman's job to be critical, and he spares no effort in being critical. He makes even less effort in being accurate. He accuses my right hon. Friend of losing control of demand, yet I return to a point that we have debated before. After the stock exchange crash, there were genuine fears of a widespread recession. At that time, my right hon. Friend relaxed monetary policy, as everybody advised him to do, but the right hon. and learned Member for Monklands, East and his colleagues urged both cuts in interest rates and large increases in public expenditure. If we had done that -
The right hon. and learned Gentleman has forgotten that. Indeed, he has forgotten it to such an extent that last night on "Newsnight" when I specifically asked him, he categorically denied having called for public expenditure increases and said that he had called only for interest rate cuts. As my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out, the right hon. and learned Gentleman not only called for increases in public expenditure but moved a motion to that effect. [Interruption]. Last night the right hon. and learned Gentleman denied it. Last night he neglected to remember -
The right hon. and learned Gentleman's criticisms were met fairly and squarely yesterday in my right hon. Friend's Budget. My right hon. Friend explained the origin of our trade gap. Exports are at an all-
Having explained the cause, my right hon. Friend the Chancellor explained the remedy. The right action has been taken. The only effective way to slow excessive demand is to put up the cost of borrowing. That worked before and it is working now. It will choke off inflation and the trade gap will in due course diminish, and meanwhile we have no difficulty in financing it. There is no credible alternative.
The right hon. and learned Gentleman has also been critical of my right hon. Friend's forecasts. He had some fun with them. That reminded me of something, and I wonder whether the right hon. and learned Gentleman remembers who said this in defence of Government forecasts of the trade gap: Obviously these are matters which are extremely difficult to forecast. I do not think that getting them right or wrong is the prerogative of any particular Government." -
Mr. John Smith Can the Chief Secretary tell me whether at any stage in my previous career I forecast a balance of trade deficit that was over four times wrong on a rate of inflation that was over twice wrong?
Mr. Major I can tell the right hon. and learned Gentleman what happened. As I recall, he was a very distinguished Secretary of State for Trade for five months. During that period, we moved from a surplus to a deficit, inflation rose by 3 per cent. and heaven alone knows what happened to export performance: it did extremely badly. Mercifully, the general election cut off the right hon. and learned Gentleman's career at that stage.
Mr. Harry Ewing I know that the Chief Secretary's hat is in the ring for the Chancellor's job. Given the choice that the Prime Minister must make, I would say, "Better the devil you know than the devil you don't."
The Chief Secretary waxed eloquent about repaying the national debt. Will he make it clear whether it is now part of the Government's economic policy to repay the national debt rather than investing in education, research, industry, the Health Service, the environment and everything else that improves the quality of life?
Mr. Major I refer the hon. Gentleman to my right hon. Friend's Budget speech, in which he made it perfectly clear that our policy in the medium term was a balanced Budget but that it would take a period to achieve that balanced budget.
On public expenditure, the hon. Gentleman may care to recall that as a result of the public expenditure round last year there was a real increase of more than 3 per cent. in the priority programmes. That is a far more substantial increase than has taken place for many years and it was particularly well targeted. Capital expenditure rose -
The frankness revealed in my quotation from the right hon. and learned Member for Monklands, East is refreshing, although 10 years on it seems to have deserted him. As we saw a moment ago, when the right hon. and learned Gentleman talked about the growth of credit, his frankness is not all that has deserted him; his memory appears to have gone, or at least become selective.
I set out our solution to the trade gap a moment ago, but what was the right hon. and learned Gentleman's solution? It was a dynamic solution. [HON. MEMBERS: "What about the Budget?"] I am coming to that: it is a very important Budget. The right hon. and learned Gentleman told the House -
Mr. John Smith Whatever the policies for which I was responsible -
Mr. Major The right hon. and learned Gentleman will have noticed that as a result of our policies over the past few years there has been a more dramatic rise in the living standards of people in Britain than we have experienced for many years, and that is the final indicator of the success or failure of Government economic policies.
The right hon. and learned Gentleman proposed to the shadow Cabinet a shadow Budget package of tax cuts and spending which he costed at £3 billion. That was an odd piece of costing but I shall gloss over that for today. There is a curious feature about the costing of the £3 billion package. A day or so after unveiling that package of tax cuts and spending, the right hon. and learned Gentleman criticised my right hon. Friend's Budget of last year as the cause of the growth of credit and the trade deficit. That Budget cut taxes in the current year by £4 billion.
If the right hon. and learned Gentleman believes that the £4 billion tax cut last year created the trade deficit, why did he propose in his shadow Budget a further £3 billion tax cut this year? The logic of the right hon. and learned Gentleman's argument is that he should be clawing back last year's reductions, not proposing more.
If he really believes what he has said in recent months, he should not have proposed that package, or, in doing so, he should have said that it would worsen the trade gap. But he did not say that. The truth is that the right hon. and learned Gentleman has been caught out. It is now perfectly clear that he knows that last year's Budget did not create the trade gap, despite all that he and his colleagues have said repeatedly in recent months. Because he knows that, the right hon. and learned Gentleman considered it prudent to propose a tax and spending package almost as large as last year's, and larger than my right hon. Friend's proposals this year. It simply illustrates beyond doubt the sheer brass-
That brings me to the Leader of the Opposition and what he said yesterday.
Mr. John Smith What about your Budget?
Mr. Major I am referring to the right hon. Gentleman's speech on the Budget. Is the right hon. and learned Gentleman suggesting that the Leader of the Opposition did not mention the Budget? He said yesterday, and I agree with him: Governments do not have their own money … Governments only have the taxpayers' money." -
I thought that we had found a convert in the right hon. Gentleman, but that feeling lasted only for a moment. Within minutes of allocating the surplus to cuts in the basic rate, the right hon. Gentleman was allocating it to increases in public spending. He went further than ever before and allocated all the surplus £14 billion to increases in public spending. What the right hon. Gentleman had described as the taxpayers' money did not stay with them for very long. It was soon snatched back to be spent by him. But he overlooked one thing. With Labour policies, that surplus would not exist in the first place to be snatched back.
The electorate understand that very well. Labour is the party of high taxation. We are the party of low taxation and that is why we sit on this side of the House and Labour Members sit opposite and will continue to do so for a large number of years to come.
Mr. John Home Robertson (East Lothian) Will the Minister give way?
Mr. Major In a moment.
The Leader of the Opposition said that the Government had been a bonanza for the rich and that the top 1 per cent. -
It is not only the top 1 per cent. who provide a higher proportion of the total tax take than they did in 1979. The top 5 per cent. were contributing 24 per cent. of the total tax take then and now they are contributing more than 29 per cent.
Amazingly, the right hon. Gentleman tried to pose as the friend of the low-
Mr. Home Robertson The right hon. Gentleman talks about his concern for taxpayers. May I draw his attention to what the right hon. Gentleman for Henley (Mr. Heseltine) described as the Tory tax? Is he aware that poll tax forms are being delivered to households throughout Scotland this very week? What does the right hon. Gentleman have to say about the fact that people like me, as he so charmingly put it, will end up paying less in local taxation because of that Tory tax whereas people on lower incomes throughout Scotland this year and in England next year will be paying substantially more tax?
Mr. Major I will tell the hon. Gentleman why so many people in Scotland will pay so much in community charge -
My right hon. Friend's Budget -
Mr. John Smith I repeat the question put clearly by my hon. Friend the Member for East Lothian (Mr. Home Robertson), in case the right hon. Gentleman does not understand it. Why should people who are better off receive the same treatment as those who are much worse off? Can we have a straight answer to that question?
Mr. Major The majority of local government expenditure -
The majority of local government expenditure has been met in the past, and will be met in the future, by central Government grant, which comes out of the progressive tax system. The balance is met from the community charge, and payment of this element should be according to the services received.
My right hon. Friend's Budget this year falls between the most far-
Mr. Kinnock Get on with it.
Mr. Major I am tempted to say, "Temper, temper." You will never lead the country if you cannot control your own temper.
Mr. Deputy Speaker (Mr. Harold Walker) Order. I have no aspirations to lead this country.
Mr. Major I beg your pardon, Mr. Deputy Speaker. No one would ever suggest that you would ever lose control of your temper, or anything else.
As my right hon. Friend the Chancellor of the Exchequer promised, this is a prudent and cautious Budget. It makes no reduction in the overall tax burden and provides strong fiscal backing for a tough monetary stance. My right hon. Friend continues with the policies that have produced the strongest fiscal position of any leading country. As a result, we are forecasting a further fiscal surplus of £14 billion -
This strong fiscal position has been unmatched for decades and has enabled my right hon. Friend to promote several important themes which he has pursued steadily during his six years as Chancellor. The predominant theme continues to be tax reform, designed to improve and simplify the tax system, remove tax distortions and maximise the freedom of individuals and companies to spend their own money and organise their own affairs. In that context, the main reform in the Budget is to restructure national insurance contributions. We should be entirely clear as to what yesterday's reforms mean.
At present, people earning just below the steps for each rate band face a reduction in take-
The reform not only introduces this low cost contribution to benefits, but removes distortions and disincentives in the national insurance system and increases take-
Mr. John Battle (Leeds, West) The Chief Secretary has said that people will gain £3, but those who are also on family credit and housing benefits will have their benefits deducted and will therefore lose. Simply increasing wages in this manner does not free people from the poverty trap.
Mr. Major The hon. Gentleman is right about the impact on some benefits. As a result of the changes in National Insurance contributions, however, take-
Mr. A. J. Beith (Berwick-
Mr. Major Yes. The reason for that is that -
In his shadow Budget, the right hon. and learned Member for Monklands, East also proposed a reform of national insurance contributions, but his proposal was to abolish the upper limit on contributions. That would add massively to public expenditure on state earnings-
My right hon. Friend's reform maintains the contributory principle and helps the low-
Dr. David Owen (Plymouth, Devonport) Surely the Chief Secretary is not defending the national insurance contribution on the contributory principle. The contributory principle is a fraud in NIC terms. Surely the next step must logically be to go a stage further in each successive Budget to bring the national insurance contributions and income tax into the same relationship.
Mr. Major I am afraid that I do not agree with the right hon. Gentleman, although I understand his argument and am familiar with the arguments in the Green Paper. I think that the contributory principle has much to commend it. The introductory entry fee is now very low at 86p, and I think it entirely right that we should sustain the principle now and in the future.
If the Opposition support the national insurance changes, the possibility of a parliamentary novelty will be opened up -
Another significant measure in the Budget is my right hon. Friend's pensions proposals. We believe that they will make an important contribution to simplicity and flexibility in pensions provision. The change follows the overwhelming logic of previous deregulation policies to maximise freedom and minimise Government interference. The proposals effectively take the Government out of the business of artificially limiting pension arrangements, and will leave employers the freedom to offer their employees whatever pensions they see fit to offer. No longer will their decision be determined by the tax regulations of the Inland Revenue.
The restriction that my right hon. Friend does propose is the limiting of tax relief to pensions based on earnings of £60,000, with full protection of existing rights, for existing members of occupational pension schemes. Their current arrangements will not be adversely affected. The £60,000 tax relief limit will be increased in line with inflation to ensure that it retains its value. Those earning more than that and others who find the Inland Revenue limits restrictive, will be able to receive a top-
Mrs. Maria Fyfe (Glasgow, Maryhill) On the matter of employers who would like to do something of benefit to their employees, why has the Chancellor not lifted the high burden of taxation on workplace nurseries? Does he not want to get more women back to work in Britain to fill the jobs gap? Does he not talk to the Secretary of State for Employment?
Mr. Major I understand the sensitivity of that issue, but it is predominantly a matter for employers, not for the tax system. We look to employers and employees to make those arrangements.
Mrs. Fyfe rose -
Mr. Major I have answered the hon. Lady's question and I have nothing further to say to her on that issue. I have made it clear that we will not change that tax and that it is a matter for employers and employees.
As a consequence of removing those artificial restraints -
Mr. John Smith The right hon. Gentleman was asked a straight question by my hon. Friend the Member for Glasgow, Maryhill (Mrs. Fyfe). He was asked to justify why workplace nurseries are the subject of taxation. That is a Treasury responsibility. Will he give us the answer?
Mr. Major It is a benefit in kind and all benefits in kind fall into that category. We are not in the business of dividing up benefits in kind in the arbitrary fashion proposed by the right hon. and learned Member for Monklands, East. It is not a' wise way to proceed.
As a consequence of removing those artificial tax restraints, my right hon. Friend has also been able to make some other worthwhile changes in the pension regime. The rules affecting those who retire or leave early have been simplified and the arrangements for personal pensions and additional voluntary contributions have been improved. Contribution limits have been increased substantially for those over 35 and, for the first time, people will be able to manage their own personal pension investments. Taken together, those reforms will increase choice and reduce bureaucracy for employers and employees. I hope that these and earlier pension reforms will remove much of the complexity and mystery in pension provision.
Last year, the Inland Revenue published a consultative document setting out three main options for reform of the life assurance industry. As a result of the representations made, my right hon. Friend has accepted that reform was necessary but that it should be achieved within the existing system. The measures he proposes have three advantages: they remove current anomalies; they enable my right hon. Friend to reduce the rate of tax on policy holders' investment income from 35 per cent. to 25 per cent. and the rate of 30 per cent. on capital gains to 25 per cent; and they also enable him to abolish entirely life assurance policy duty. We believe that those measures will result in a fairer and more effective tax regime as well as removing uncertainty and anomalies and establishing a stable regime for a unique industry.
The second theme that runs through this and previous Budgets is the Government's determination to widen the ownership of property and capital. In this Budget my right hon. Friend has proposed a number of measures to encourage saving and capital growth through wider share ownership. Ten years ago, share ownership by individuals appeared to be a dying habit. There were only 3 million shareholders of equities, and the number was dwindling. As a result, companies found it increasingly difficult to raise equity capital from individuals. All that has changed. Partly as a result of the extensive programme of denationalisation -
The Budget proposes a range of measures to give further encouragement to share ownership again building on schemes already in place. The most important of those is the personal equity plan scheme which is to be expanded by increasing the annual investment limit from £3,000 to £4,800 and by relaxing the limits on investment in unit and investment trusts. Furthermore, shares from new issues can now be held in a PEP. The scheme has been simplified and better tailored to small investors.
A further characteristic of the Budget is that it removes a number of fiscal injustices and anomalies. The most obvious example is the ending of the cliff-
Secondly, we are reducing to well below 40 per cent. the marginal rate of tax in the short band of income where age allowance is withdrawn. That was the subject of many representations last year, not least from hon. Members who served on the Finance Bill Committee. I hope that the change will be generally welcomed. At the same time, we have extended the higher level of age allowance, which my right hon. Friend introduced in 1987 for all those aged 80 or over, to those aged 75 or over. As a result, those aged between 75 and 79 will be significantly better off, with a gain of £1.73 a week for a single person and £2.55 for an elderly couple. Moreover, three quarters of those in that age group will now pay no income tax at all. That is a welcome measure which matches the social security increase in income support of £2.50 for individuals and £3.50 for couples over 75, which comes into effect in October.
The Government's economic and fiscal objectives are clear, and the Budget reaffirms them. We wish to ensure growth without inflation and to minimise tax rates to enable the greatest possible degree of taxpayer choice. We do not believe that the Government know better than the taxpayer how to spend the taxpayers' money. We continue to move towards our objective of a basic rate of income tax of no more than 20p in the pound as soon as it is prudent to do so.
By way of contrast, the Opposition are committed to increasing tax in every way they can. They are committed to increasing tax for basic rate taxpayers, abolishing the ceiling on national insurance contributions, increasing contributions by 9 per cent. on earnings over £17,000, imposing a wealth tax and much else. All that is well documented.
In this Budget we have further reformed the tax system. We have helped pensioners by abolishing the earnings' rule. We have removed high marginal rates for those on low incomes by reforming national insurance contributions and further measures have been put in place to widen share ownership, including substantial improvements to PEPs. The taxation of pensions and life assurance has been modernised. All that has been done within a prudent and cautious fiscal framework in which we plan to make a further massive repayment of debt next year, thus providing a fiscal stance which will buttress monetary policy in its task of bringing downward pressure on inflation.
Mr. Kinnock The right hon. Gentleman has referred several times to the great virtue of using the Budget surplus to repay the national debt. Can he confirm that that will continue to be an objective of the Government, should they have surpluses, and that it will continue until the next general election and not be impeded by any desire that the Government may have to make a tax cut before the next general election?
Mr. Major Clearly, the right hon. Gentleman is aware of the danger to his party as the high-