Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 5:39 pm on 14th January 1997.

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Photo of Quentin Davies Quentin Davies , Stamford and Spalding 5:39 pm, 14th January 1997

I can tell from the hon. Gentleman's reaction that he does not disagree with the logic of my response. I understand also why the hon. Gentleman wanted to deflect me from the original course of my speech. I was making some irrefutable remarks about the qualities of the Budget before us. If we reduce Government borrowing, we reduce the pressure on interest rates and inflationary expectations in the economy. If we reduce the ratio of public debt to GDP, we reduce the pre-emption of resources in the economy by the Government sector and allow a greater proportion of national wealth to be allocated by the productive sector of the economy. Moreover, reducing direct taxes increases the incentives for people to return to work, to train, to take overtime opportunities, to invest, to take risks and to build up businesses. Doing all that year after year creates a sound basis for a modern economy, and that is exactly what has happened.

At no time during the lifetime of any hon. Member in the Chamber—or during the entire century—have we enjoyed, as we have now enjoyed, nearly five years of continuous growth. Growth started again after the recession in the spring of 1992, so within a month or two there will have been five years of continuous growth, falling unemployment and increasing numbers of hours worked in the economy. At the same time, we have falling inflation and no balance of payments crisis. When Labour has been in power, we have scarcely enjoyed a couple of years of continued growth. Labour Governments did not achieve that very often, but they then ran straight into the bumpers of inflationary pressures and a major balance of payments crisis.

Why have we not had a balance of payments crisis during the past few years? Is that not the rather revealing dog that has not barked in the night? Why has increasing demand been satisfied from domestic sources, or—to the extent that we have increased imports in a world that is rightly becoming increasingly commercially interdependent—why have we been able to increase our exports by an equivalent or even greater rate? It can only be explained by a simple phenomenon—one which the Labour party does not want to recognise. There has been a genuine supply-side revolution in this country.

We have improved productivity and become more innovative. Management has become more professional and the work force has become more realistic, and has got away from the terrible influence of trade unionism, which was systematically opposed—and remains opposed, so far as it retains any influence—to productivity increases and to innovation. The supply-side revolution has been a direct result of the Government's policies of sound money. We have not subsidised firms—either directly through subsidies of the kind advocated by the right hon. Member for Ashton-under-Lyne or indirectly through devaluation—and we have carried through our complementary policies of privatisation and tax reforms.

Does this extremely encouraging picture mean that I will simply sit down without saying that there are any problems or challenges on the horizon? No, it does not. Anybody who looks carefully at the Red Book can see that there are one or two challenges. I believe that they can and will be met by the Government in the next Parliament. One of the challenges—or disappointments, if you like—that is perhaps most striking to any reader of the Red Book is the fact that after five years of continuous growth, social security spending continues to rise. That is clearly worrying. The rate of acceleration of social security expenditure has been modulated, but one might have supposed that after the creation of so much prosperity, the dependency ratio would fall and social security expenditure would reflect that. That has not happened.

I fear that it will be necessary sooner or later—I hope that it will be sooner—to take a radical look at the whole social security system. I very much believe that my hon. Friend the Member for North Norfolk (Sir R. Howell) is right and that there are a number of moves that need to be made and decisions that cannot be postponed indefinitely. The social security system is, sadly, full of anomalies and unfairness of all kinds, but above all it is filled with perversities. The greatest perversity is that it contributes to the problems with which it is designed to deal—unemployment, poverty and dependency. That is not good enough, and we cannot and should not continue to accept it; not only because a lot of public money is involved—although that is, of course, an important factor—but because of the profound social implications of increasing and allowing to increase the dependency ratio in our society.

We must look at how the social security system might he altered so as to reduce the disincentive to work and the incentive to become a dependant that is inherent in any social security system. One proposal that has been often promoted is to merge the benefits and taxation systems. That is superficially appealing, because it would mean that we would be withdrawing benefits as people went back to work at the marginal rate of taxation—20 per cent. or 23 per cent. at present—rather than at rates which are penally high. These effective rates of taxation approach 100 per cent. in many cases and—in some particularly anomalous cases—more than 100 per cent. However, that solution would be expensive and extremely complicated, not least because the benefits system is based on weekly assessments and the taxation system is based on annual assessments of income.

A much better way is that indicated by my hon. Friend the Member for North Norfolk: to introduce a greater element of what is popularly known as workfare. One of the great problems at present is that if one receives income support one is expected to do nothing other than possibly take work or training that occupy a very small proportion of the hours in the week. In other words, one finds oneself condemned to compulsory leisure, and that makes no sense at all. It would be far more desirable if someone who becomes unemployed—it is always a disaster in a person's life, although one hopes it is only temporary—used that leisure to take a full-time training or education course. Or he could try to find his way back into employment, perhaps by offering himself to an employer for free for a while to see whether or not he can work his way into a job. However, those options are excluded by the availability to work rule.

It is an obvious anomaly that when there is socially useful work to do people are being paid to do nothing, and if a person has the prospect of returning to work full time for an amount of money which, on a net basis, is not much greater than his benefit, the rewards of returning to work can be derisively small. An unskilled person may have the prospect of receiving a relatively low income if he goes back to work. Those living on benefit—including housing benefit—of between £100 and £150 a week might have the prospect of receiving £200 a week from full-time work. With deductions, we may be asking them to give up their leisure for £20 or £30 a week. Quite reasonably and rationally, many people will say that their leisure is worth more than £20 or £30 a week. Which of us in the Chamber would not say that our leisure was worth more than that? Therefore, quite rationally, people will decide to remain on benefit if they can. Such anomalies must be removed. Workfare experiments—which have shown some interesting results in a number of states in the United States and elsewhere—should be looked at urgently with a view to introducing them in this country.

The other great challenge to which I want to draw attention—and which again stares out of the Red Book—relates to health and education, and particularly health. Health and education, as I think we all know, are positive goods and demand for them tends to increase with income. If people's incomes rise, they tend to wish, naturally, to spend a greater proportion of those incomes on education and health—as well as on other positive services such as tourism and financial services, and they spend a lesser proportion of their rising incomes on goods such as bread.

There is an additional problem with health because of the rapid innovations in technology, which are extremely expensive, so the cost of providing health care at the current level of technology rises much faster than the rate of general inflation—far faster, I would submit, than the gross domestic product deflator that is used in the Red Book to convert nominal spending projections into real ones.

There is a fundamental contradiction, over time, between the Government's correct and laudable desire to bring down public spending as a proportion of gross domestic product—of national income—and the fact that we are committed to providing, within public expenditure, services the cost of which as a proportion of national income is almost certain to rise. That anomaly will need to be addressed in the next Parliament, and I have no doubt that a Conservative Government will do that.

It is absolutely clear that such challenges can be satisfactorily faced only by an economy with a sound basis, which is competitive in the modern world and offers the prospect of rising national income—an economy in the hands of a political party with sane economic policies and some understanding of what it takes to provide the framework for economic progress. Nothing could be more disastrous than a return to the policies so eloquently set out by the right hon. Member for Ashton-under-Lyne.