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I see that I have the nodding acquiesence of the hon. Member for Newcastle upon Tyne, East (Mr. Brown). I think that he would agree that it is none the less a realistic target if the political will is there.
It is important to understand how the deficit arose, and to do so calmly. The early parts of these debates are great spectator events, but now it is a rather tedious show. However, there was very little contribution in the early exchanges to the debate about the real nature of our problems. Of course the recession has been a major factor in the deficit. Nobody can say with much precision the extent to which it has been a factor, but I accept that it could be well over 50 per cent.
However, there is an underlying thrust in public spending in respect of welfare. It is really a demographic consideration. The population at work are a declining percentage, and the population who are on benefits are a growing percentage. That carries the most profound implications for public spending and for the extent to which current public expenditure will crowd out capital public spending, which is the first charge on our economy.
Let us think about the exchanges between those on the Government and Opposition Front Benches earlier this afternoon. In the current circumstances, it is almost impossible to have a constructive and intelligent debate about how we shall try to fashion our future welfare commitment.
I have some mild hope that, when Gordon Borrie produces a report, sooner or later politicians can sit round and consider the funding and commitments in respect of publicly financed welfare, as was the case in the 1950s and onwards, when there was consensus between those on the two Front Benches and between the major elements of the two significant parties about the financing and objectives of defence policies.
In terms of public spending, until we can agree to some parameters for welfare spending, that vital sector will remain undetermined and, to some extent, always subject to those who will play a short-term card in the hope of gaining a modest advantage in bidding for the vote of welfare recipients.
I do not have much optimism about the outcome of the current considerations of welfare expenditure and the massive review that is being conducted by my right hon. Friend the Chief Secretary to the Treasury. I was impressed by the orchestration of the great campaign. I have read all the heartache stories in the newspapers—but the policies were all put to me when I was Chief Secretary and the process was conducted in a miserable, subterranean fashion. I was not seeking to become a high profile politician.
The conclusion that I have drawn is chat, whatever economies are secured by the Government—I wish my right hon. Friends in the Treasury every success—they will be modest in the context of the magnitude of the present borrowing requirement.
Therefore, I inevitably turn to a consideration of the revenue. My right hon. Friend the previous Chancellor showed great fortitude in seeking a substantial increase in revenue through the extension of value added tax. Ultimately, there is no way that my right hon. and hon. Friends or, indeed, Opposition Members, can avert their eyes from the challenge of what to do about income tax.
The revenue required to meet such a deficit means that we cannot conceivably exclude the role of income tax in closing the gap. That is true not merely in the practical terms of the money needed but, more importantly, because I do not believe that we can exclude income tax in terms of the perceived equity. We cannot go to the public of this country with a policy of increasing taxation in order to undertake the essential task of reducing the borrowing requirement and say that we have excluded income tax.
Over the past decade or so, we have paid some penalties in concentrating our fiscal policy so overwhelmingly on reducing income tax. We have done so to the detriment of the other factors in the totality of taxation. We must clarify the concept—we shall require an increase in the standard rate and in the top rate of taxation.
I understand why the right hon. Member for Yeovil (Mr. Ashdown) became coy about book-keeping. I have the same innate diffidence—I do not know how I have survived so far and not become a liberal. I simply do not believe that the sums needed can be achieved in the lifetime of this Parliament without thinking in terms of at least an extra 2p on the standard and top rate of income tax.