Orders of the Day — Budget Resolutions and Economic Situation

– in the House of Commons at 4:41 pm on 7th July 1997.

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Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

On a point of order, Mr. Deputy Speaker. I wish to draw attention to what I think is a breach of a long-standing principle of the way in which the House handles tax changes and their announcement. As far as I can tell, in the press release on venture capital trusts and enterprise investment schemes, the normal procedures have not been followed. The tests of whether those changes can be made do not seem to have been specified, so people will have to wait nine months, until the next Budget, to find out whether they can even make an investment.

That amounts to a tax change by press release. It is well-established practice that tax changes that are effective from the day of the Budget are referred to in the Chancellor's speech so that the House and taxpayers are immediately made aware of them. That has not been done in this case. Is that not a breach of a long-standing principle of the House?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Everything contained in the resolutions has appeared in the normal order. I think that everything has been done correctly.

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

Before I was so kindly interrupted by a former adviser to former Treasury Ministers—people such as the unlamented prospective Member for Harrogate and Knaresborough—I was about to say that at the last general election we promised to give a high priority to the national health service. Last week, we backed up that promise with money—a lot of money. We announced a £2.5 billion programme to make a start on modernising the national health service and getting it into shape to meet the needs of patients in the new century. We announced £1.2 billion extra cash for patient services £1 billion for England alone—together with a £1.3 billion hospital building programme. The NHS certainly needed that injection of funds.

Under the previous Government, 59 of the 100 health authorities entered this financial year in debt, as did 128 of the 429 NHS trusts. Capital investment has fallen for four successive years and is at its lowest for a decade.

The previous Government's private finance initiative plans to get private finance into the NHS had failed to finance a single hospital, but had cost more than £30 million in fees paid out to financial and legal advisers and consultants. Vast sums of money were being squandered. Instead of being used on patient care, millions of pounds were being used to meet the costs of the paperwork of the internal market introduced by the previous Government.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The right hon. Gentleman referred to the allocation from next year's reserves. Will he confirm that that means not a penny of extra money for the NHS in the present financial year? Owing to the higher inflation projections announced in the Budget and the fact that the cash allocations will be exactly the same as those that the right hon. Gentleman has inherited, there will be an expenditure squeeze on the NHS for this financial year. Will the right hon. Gentleman confirm that that is the case?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

I think that the right hon. Gentleman is trying to get me to confirm that the figures produced when he was a Treasury Minister were not sufficient to meet the needs of the national health service. That is apparently his view.

Above all, vast sums of money were being squandered under the previous Government. The money was being used to fund the paperwork of the internal market introduced by the previous Government. Until the Tory Government introduced the internal market, the administrative costs and the paperwork of the NHS had been kept to a minimum.

The Tory internal market was intrinsically inefficient and wasteful. It depended on a payment system that has fuelled the production, transmission and payment of millions of individual invoices. That system has gobbled up money that should have been used to treat patients. Everyone knows that; no one, apart from the Tory party, now defends the internal market.

Since I became Secretary of State, I have not met anyone connected with the NHS who will say a good word for the internal market—and I have met some of its former exponents. Everyone tells me that the internal market has to go. Some people have publicly recanted their earlier beliefs; others have told me that they were never believers in the first place; others have tried to convince me that they were secret members of the resistance all along.

As I am not a vengeful man, I have declared an intellectual amnesty. I do not mind what people said or did before 1 May this year; all I ask is that they practise what they now preach. Therefore, I confidently expect everyone in the NHS to join our campaign to ensure that, in future, every penny that goes into the NHS counts towards the treatment and care of patients.

Photo of Mr John Townend Mr John Townend Conservative, East Yorkshire

Can the right hon. Gentleman give an estimate of how many redundancies are likely to be caused by this great movement from administration and bureaucracy to patient care—when managers are converted into nurses?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

No.

We promised to shift money from bureaucracy to patient care. As soon as we came into office, I set in train new measures to tackle the waste caused by the internal market. We raised to £100 million the savings on paperwork to be made this year. New guidance was issued to health authorities, trusts and fundholders, telling them to work together to reduce the cost of invoicing. I deferred the eighth wave of fundholding, which released £20 million that would otherwise have gone on paperwork. Some £10 million of that money has already gone into improving breast cancer services and £5 million has gone into extra funds to improve children's intensive care.

Everyone recognises that there are too many NHS trusts. We therefore intend to encourage a major programme of trust mergers. Each merger will be judged on its merits—with improvements in service to patients, as well as reduced costs, the key to its success. As a result, we have no national target figure for mergers, but mergers involving about 50 of the existing 429 trusts are already being considered.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I assure the right hon. Gentleman that he will have our full support in all his efforts to increase efficiency, remove bureaucracy and deliver better patient care. Will he, however, acknowledge that the adjustment in the inflation figure for this year means that he will have to find an extra £350 million merely to stand still? According to a note that I have received from the House of Commons Library, of the £1.2 billion forecast for next year, the net increase is £410 million at 1995–96 prices. Is that not the reality? If it is, how does the right hon. Gentleman intend to fund the difference?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

I am not going to take any lessons in the financing of the national health service from the Liberal party, whose Members are apparently gibing at our commitment to provide £1.2 billion extra for next year when, in their election manifesto, they promised only £540 million extra for next year.

The Minister of State, Department of Health, my hon. Friend the Member for Darlington (Mr. Milburn), is heading a task force that is identifying further savings, which will switch more money out of paperwork and into patient care. Those include reducing the cost of routine staff recruitment and reducing transaction costs that, under the existing system, leave some individual patient transactions costing as much as the cost of 80 other such transactions. Those sort of changes can be made by modifying the existing system, and they are being made.

Much greater savings should follow the replacement of the internal market by a system of local commissioning. To make sure that the savings that should follow do follow and that we have the best and most cost-effective new arrangements, we will put in place a number of pilot schemes for local commissioning and draw on existing best practice. I have already arranged for the Audit Commission to be involved in that process, so that a proper audit trail and cost effectiveness are built in from the start.

It was not only in the generalities of the workings of the internal market that the previous Government let so much money go to waste. Huge sums of health service money have been paid out unnecessarily, and spectacular sums of money due to the health service have not been collected. The previous Government paid little or no attention to those matters and, as a result, the NHS has been denied the use of the money, services to patients have suffered and the job of the staff has been made more difficult. The failure of the previous Government to address those issues has also meant that there are no really reliable estimates of the sums involved or of the savings that can be made.

Let me start with prescription fraud. The overwhelming majority of patients, doctors and pharmacists are honest, but a small minority are not and they have been ripping off the NHS and the taxpayer. The previous Government did little to stop that. We are determined to tackle that huge drain on the NHS by introducing anti-fraud measures into the system and rewarding pharmacists who detect fraud. We also intend to ensure that the criminal justice system takes prescription fraud more seriously. As I have explained, I cannot give a firm estimate of the scale of prescription fraud or of likely savings, but estimates vary from £85 million a year, through £100 million a year, to more than £130 million a year.

The next item is the cost of insurance. The balkanisation of the NHS into 429 separate trusts has led to their spending more than £50 million a year in insurance premiums to cover themselves mainly against employer's and third party liability claims and damage to property. That was previously covered by Crown indemnity. We are examining what savings could be made, either by the trusts pooling risk, or even by the return of Crown indemnity. Estimates of the potential savings from those alternative approaches range from about £20 million a year to £30 million a year.

Next, there is the matter of NHS supplies, which we have identified as an area in which substantial savings can be made. An Audit Commission study estimated that £150 million in savings could be achieved over three years. We will also be looking at the NHS Supplies Authority, which accounts for roughly half of all supplies purchasing, with contracts of more than £1.75 billion a year.

Next, I come to the failure of the previous Government to make sure that the NHS actually collects the money due from insurance companies towards the cost of treating people injured in road accidents. That has been the law since the 1930s and was last renewed by Parliament by way of the Road Traffic Act 1988, which provides for a flat-rate emergency treatment fee for immediate medical attention and charges for subsequent in-patient or out-patient treatment. The process of collecting those sums and, in particular, collecting the charges for in-patient and out-patient treatment from insurance companies is extremely complex and erratic. As a result, the NHS receives only a fraction of the money due to it.

The current receipts under the 1988 Act for in-patient and out-patient treatment are believed to total around £20 million. Details of the income from the emergency treatment fee have never been collected centrally.

Photo of Mr Rhodri Morgan Mr Rhodri Morgan Labour, Cardiff West

Has my right hon. Friend investigated alleged incidents in which insurance companies offer a discount to those insured if they lie when asked questions by the hospital on their entry into hospital for treatment? They are given a discount if when asked, "Are you covered by insurance?" they answer no, even when the answer should be yes.

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

I had not heard that, but it would seem to me that they are coming close to breaking the law themselves and to inducing other people to break the law.

Estimates of the sum that should be paid to the NHS range from £50 million a year, through £130 million a year, to an estimate by the Automobile Association of £440 million a year. We propose to legislate, though not to change the principle, which was established in the 1930s and affirmed as recently as 1988, that the NHS should be entitled to collect the money. We intend to legislate to put that principle into practice and do what Parliament voted to do, but previous Governments failed to do.

All those measures, taken together, should provide substantial funds for the NHS in future years and I am glad to say that my right hon. Friend the Chancellor of the Exchequer has agreed that any savings made by the NHS will not be offset by reductions in funding. Indeed, it would be more accurate to say that he and I believe that the increased funding for next year and subsequent years can be justified only if both the extra money and existing resources are spent on patient care and not squandered on bureaucracy, fraud and waste.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury)

Hon. Members on both sides will welcome the Secretary of State's statement that the Government will find savings and plough the money back into the health service. However, can he tell the House how much the health authorities will have to spend on topping up their pension funds as a result of the removal of the advance corporation tax credit?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

For a start, I cannot tell the hon. Gentleman that. If they have to spend any more, no doubt we will be able to supply that information in due course. [Laughter.] Conservative Members laugh, but we face a flow of information to the headquarters of the Department of Health that is so pathetic that we cannot supply answers to such questions. Conservative Members have asked what would be the impact on the NHS of a national minimum wage, but they left us with an NHS that cannot tell us how many people are paid less than £2.50, £3, £3.50 or £4 an hour, because they decided not to collect that information three years ago and it has not been collected since.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

May I presume from my right hon. Friend's very informative response that the information that he referred to will be made available in future and that we will change the systems and ensure a far more accountable national health service? May I press him on one further point? He referred to the cash injection of £1.2 billion, but can he feel sure that that money will really get out to the NHS trusts and be equitably distributed, so that no areas will feel aggrieved?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

I am not sure that I can deliver on my hon. Friend's last words. It is in the nature of things that some of the health trusts will feel aggrieved—it is almost part of their job to feel aggrieved. However, we will make sure that every penny of that money gets out and is used for patient care, not squandered on bureaucracy as so much has been in the past.

We are also keeping our election promise to conduct a comprehensive review to assess how to use resources better and root out waste and inefficiency. The previous Government planned to—

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

How many bureaucrats will lose their job?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

The hon. Member for South Dorset (Mr. Bruce), who was so warmly endorsed by his electorate that he only managed to beat Labour by 77 votes, is apparently the only person in the Chamber who does not think that there is too much bureaucracy in the national health service. We can see why he won by only 77 votes.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

It may well be that those 77 people are about to be sacked by the national health service. The right hon. Gentleman refuses to tell us how many people will have to be sacked. In Dorset, the health service will have to find £1 million to pay for the reductions in bureaucracy. How can he respond to the question asked by his hon. Friend the Member for Workington (Mr. Campbell-Savours) by introducing more bureaucracy to gather more figures when he also says that he is going to cut bureaucracy?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

If the hon. Gentleman is saying that it will cost £1 million to save on bureaucracy, that is a further reason for his electorate to have reduced his majority in South Dorset to just 77.

The previous Government planned to increase spending on the NHS in England next year by £775 million. That would have meant a reduction in real terms. Labour promised at the general election that NHS spending would grow in real terms year on year. We are keeping that promise. Next year's total increase of £1,775 million amounts to real-terms growth of 2.35 per cent.—more than the real-terms growth in the last two Tory years put together.

Nevertheless, next year's settlement is very tough. It will, however, be augmented by the savings that we intend to make by reducing bureaucracy, waste and fraud. I look forward to working with NHS staff to do that and to improve patient care at the same time. That is what NHS staff and patients want. It is what the taxpayer wants and it is the Government's job to help to achieve it.

Part of the Government's contribution is to ensure that NHS staff have decent, well-equipped hospitals in which to work. The previous Government decided that new hospitals should be built using private sector money under their private finance initiative which was first announced in 1992. Under the Tories, all hospital building schemes had to be PFI tested. Little or no advice was issued to trusts, which were allowed to go their own way. Advisers and consultants were recruited as and when the trusts felt like it. No effort was made to establish whether the legal status of the trusts met the needs of private sector partners.

Tory Ministers trumpeted the success of the PFI. Hospital building schemes were announced, re-announced and announced yet again. The Tories talked a lot and they spent a lot—30 million quid on consultants. But even now—five years after the PFI was launched—not a single PFI-financed hospital has been started. Not a brick has been laid.

When we took over in May, we were pledged to sort out the mess. That is another election promise which we have kept. The Tories talked about building hospitals; we will actually get them built.

I asked the Minister of State, Department of Health, my hon. Friend the Member for Darlington, to sort out the mess and he has done so. After a great deal of hard work by my hon. Friend personally and by officials in the Department of Health, the NHS Executive, the regions and the trusts, some order has been established. Priorities have been thrashed out and decisions have been taken. As a result, we were able to announce last Thursday a £1.3 billion hospital building programme—the biggest ever programme of new hospital building.

The programme includes the following 14 hospital projects: Norfolk and Norwich, Dartford and Gravesham, North Durham, South Buckinghamshire, Calderdale, Carlisle, Hereford, Wellhouse, Worcester, Bishop Auckland, South Manchester, South Tees, Swindon and Bromley. We expect building on all 14 new hospitals to begin within the next 18 months. Some will commence as soon as the National Health Service (Private Finance) Bill is enacted.

Progress will be strictly monitored to ensure that the schemes are delivered to price and on time. I realise that those involved in schemes that lost out in this round will be disappointed, but, as things stood, everyone was losing out. The whole system was in shambles. There were no national priorities and no national criteria. No decisions were taken.

We have selected the schemes that contribute most to the health needs of their locality and can be expected most rapidly to provide affordable, value-for-money new hospitals. Schemes that have not been given priority in the review will now be considered as part of a national capital investment programme involving public and PFI-funded projects. Some may be given the go ahead by next spring. The PFI will augment the Treasury's capital allocation for the NHS of £1.35 billion in 1998–99 and £1.39 billion for 1999–2000.

Photo of Michael Jack Michael Jack Conservative, Fylde

I have two simple questions for the Secretary of State. First, can he give the House an assurance that he will publish the details of the health needs criteria that he used in selecting the 14 projects that are to go ahead? Secondly, for the sake of clarity of language, will he confirm that it is not a hospital building programme guaranteed to deliver the 14 projects, but a remit to continue negotiations? Is it possible that the negotiations might fail?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

So far as I know, the details that the right hon. Gentleman requested are already in the Library and people in areas affected have been sent those details. If, by some freak of fate, they are not in the Library, they will be placed there. There is nothing secret about them. Secrecy is the last thing we want on this issue.

The right hon. Gentleman said that we cannot guarantee that all the hospitals will be built. He is right, but I am willing to bet that some of them will be built—

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

Yes, some of them will be built. We will not have a period of five years in which none of them will be built. The former Secretary of State is yawping, "Some of them," from the Opposition Front Bench, but he and his predecessor did not get a single hospital built, so it would be more appropriate for him to keep quiet.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

The Secretary of State talks about some projects going ahead, but does he realise that his decisions have been deeply disappointing to those in my constituency who are associated with Papworth hospital? He talks about health service need in the context of local need. Papworth provides not only for local need, but for regional and national need. It is internationally renowned for heart and lung treatment, and the decisions made by the Secretary of State and his hon. Friends have brought to nothing a great deal of work that was put into the preparation of that PFI project.

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

Unless my memory is playing tricks on me, one of the main reasons why Papworth was not included in the first round was that the scheme had not made sufficient progress. I cannot recall how many points it was awarded for meeting health service needs, but it scored fairly high. The scheme was held back by the lack of progress that had been made.

The £2.5 billion programme to start modernising the NHS is not the Budget's only contribution to improving the health of the nation. Nor is that task confined to the NHS. It is a task for the Government and for everyone else. Some factors, such as air pollution and crime, damage everyone's health. Others, such as poor housing, unemployment and low wages, damage the health of people who are worst off. The new Labour Government are determined to tackle the sources of ill health.

My right hon. Friend the Deputy Prime Minister has in hand proposals to reduce air pollution resulting from motor vehicles. That will benefit the health of all of us, as will the commitment of my right hon. Friend the Home Secretary to reduce crime and disorder.

My right hon. Friend the Deputy Prime Minister is also in charge of our programme to build more homes for people who have nowhere decent to live. It will be financed by the release of funds from the sale of council houses. That will improve people's health. A recent survey in east London showed that improved homes reduced by one third the number of general practitioner visits and hospital referrals for the people concerned. In other words, better homes improved health and saved the NHS money. So investing in housing is money well spent.

My right hon. Friend the Chancellor of the Exchequer spelt out our scheme for finding work for young people and the long-term unemployed. It will be financed by the windfall tax on the utilities. That will improve the health of people who get jobs, because being out of work makes people physically and mentally ill.

Being out of work increases the likelihood of death and injury from accidents, suicide and cancer. The chances of a middle-aged man dying in the next five years are doubled if he loses his job. Low pay makes people ill. It usually goes with long and unsocial hours. It often leads to a poor diet, stress, and mental, physical and family breakdown. So our manifesto commitment to a national minimum wage will improve the health of the people who will get higher wages. It will improve the health of their families. Therefore, it will be a health measure.

All those measures will help improve the health of the nation. They will reduce the dreadful inequalities in health that mar our society and blight the lives of millions of families. When we took over, we discovered that the words "inequalities in health" were not used in the Department of Health and the NHS. They had been branded politically incorrect by the last but one Tory Secretary of State—the right hon. Member for South—West Surrey (Mrs. Bottomley). The politically correct phrase under the Tory Government was "variations in health".

Inequalities in health are back on the agenda and the first-ever Minister for Public Health, my hon. Friend the Member for Dulwich and West Norwood (Ms Jowell), has been given the job of reducing those inequalities. It is not just her job, however. I have made it clear to all concerned that identifying—and then reducing—inequalities in health is one of the core functions of the Department of Health and the national health service. It is not an optional extra; it is at the heart of what this Government are about.

The reason why tackling inequalities in health is at the heart of what we are doing is that inequalities in health are the most profound and far-reaching inequalities of all. Poor people are ill more often and die sooner, and you cannot get more unequal than that. We must tackle those inequalities. I have been warned that that is an ambitious policy, but people have all sorts of political ambitions, and this is mine: I want to be able to say "Vote Labour and live longer". I want to be able to make that promise and make it a truthful promise.

Some of the most vulnerable people in our society depend not just on the national health service, but on the services provided by local council social services departments. We want the quality of the care that those people receive to be improved. The Under-Secretary of State for Health, my hon. Friend the Member for Brent, South (Mr. Boateng), is examining the care provided for the elderly and other groups, and is making a series of visits around the country to promote more and better co-operation between health authorities, trusts and local authorities.

We are determined to bring down the "Berlin wall" that separates NHS and local authority services so that, in every part of the country, the system is moulded to the needs of the patients—the needs of the people—and not the other way around.

Photo of Mr George Stevenson Mr George Stevenson Labour, Stoke-on-Trent South

I am delighted to hear what my right hon. Friend has said, but, while he is dealing with this particularly important point, may I raise two issues with him?

The first issue is social services departments' ability to deliver their part of the multi-agency package to which my right hon. Friend rightly referred. That has been affected by a lack of resources. The second issue is the growing problem of disagreement between health authorities and social services departments about who should pay for care, support and treatment. Increasingly, people who need such treatment are falling through the net.

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

My hon. Friend is right to make those points. Those are two reasons why we are so concerned, and so determined to do something. We are considering concepts such as pooled budgets, but it would be silly of me to pretend that there are easy, simple, quick solutions to the problem. If there were, it would have been solved a long time ago. We are determined to sort it out, however, because it is at the interface between the two providers that many of the most vulnerable people are to be found, and we owe it to them to do better than we have done up to now.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

I agree with the right hon. Gentleman that the interface between health and social services is one of the most sensitive issues and one of the most critical to the successful management of the national health service. What decisions have the Government made in regard to increasing the standard spending assessment for social services departments as a consequence of the spending decisions that the Chancellor announced last week? Am I right in believing that the education SSA for next year has been increased, but the social services SSA has not been increased over and above the figure that the Government inherited?

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

There was a touch of "All Our Yesterdays" in the former Secretary of State's intervention. I can certainly confirm that, last year, the Government gave the impression that they had found more money for local education authorities, but, while they may have increased the SSA, they did not increase the funds. Consequently, money was moved out of social services into education, following pressure from local people who were under the impression that the Government had given their local council extra money.

We emphasise that—as my hon. Friend the Member for Stoke-on-Trent, South (Mr. Stevenson) pointed out—all our aims depend on more co-operation. We want to promote co-operation at all levels and in every part of the national health service. The internal market introduced by the previous Government set different parts of the health service at one another's throats. A health service manager in my area described it to me a few years ago as "dog eat dog". That must stop: stupid, petty and ridiculous competition must end. Co-operation must be the order of the day from now on, with different units helping each other out, because patients suffer when they do not.

That is happening already, in that many common-sense people in the health service have been trying to work together, but they have been obstructed by the system and the messages from Tory Ministers. Here is a good example. Last year in Birmingham, the various parts of the NHS got together with the council to make contingency plans to cope with the winter pressures. As a result, they coped well last winter. That approach must be applied right across the NHS.

At the general election, we promised that we would make sure that the boards of health authorities and trusts would be more representative of the local communities that they serve. Some 900 appointments to trusts are due in November and December this year. The appointments process was set in train before the general election, but I am nevertheless trying to live up to our manifesto commitments, even in the limited time available. The sort of people whom I want to appoint are the sort of people whom I would like to stick up for me and my family and for local services on my local health authority and my local trusts.

I have opened up the appointments exercise. I have invited local councils to put names forward and invited every Member of Parliament in England with a local trust board vacancy—regardless of party—to do the same. I emphasise, however, that no one will receive special treatment: all the appointments will be made on merit and will be subject to Nolan procedures. I have also made it clear that I expect trust boards to meet in public in future and I propose to change the law to require them to do so.

Those measures are not window dressing; they are a serious contribution to improving the services that the health service provides. They will increase public involvement, public knowledge and public commitment—and commitment counts for a lot when it comes to providing local services and improving cost-effectiveness.

Most of the debate on the Budget has been about money. That is only natural, but money is not the only thing that counts in the NHS. The health service certainly needs money. Its staff need decent pay and conditions, and access to modern medicines and up-to-date equipment. They need good data systems and top-quality management. All that is, at least in part, to do with money, but something else that the staff want is not connected with money. Above all else, the staff need to feel that they are treated with the respect that they deserve—respect for their commitment, respect for their professional skills and experience, respect for their dedication. With this Government, they will get the respect that they deserve.

The changes that we make will be carefully thought out and carefully discussed in advance with the people involved, and they will be tested. Unlike the previous Government, who thought that they knew it all and forced repeated changes on the NHS against the advice of the people who have to do the work, this Government will involve the staff, listen to their ideas and respond to their concerns. We will not always agree with any particular group, but we will listen, because we recognise that the future of the NHS depends on the people who work in it.

We want to see a genuine national health service, providing top-quality services close to home—top-quality services ranging from the health visitor, local pharmacist, local GP or district nurse to community hospitals, district hospitals and centres providing specialist care, but all part of the same national health service and accessible to all. We want them to work together, helping each other to help the patients. That is what we promised in our election manifesto. We also promised, "If you are ill or injured, there will be an NHS there to help. Access to it will be based on need and need alone, not on your ability to pay, who your GP happens to be or where you live." We will keep that promise to safeguard the basic principles of the health service.

Unlike the Conservative party, we take our election promises seriously. We do not make promises that we cannot keep; we do keep the promises that we make. We promised to raise NHS funding in real terms year on year, and we have. We promised to cut bureaucracy and shift more funds to patient care, and we have. We promised to overcome the problems that plagued the private finance initiative, and we have. We promised to replace the wasteful competition of the internal market, and we have. We promised to give priority to the NHS, and we have.

That is because we treasure the NHS, which was founded by the Labour party. It has served the people well for 49 years, and it is the most popular institution in our country. That is partly because it works well in practice and partly because it is based on the principle that the best health services should be available to all—the best for all: quality and equality.

The health service appeals to the British people because it demonstrates the benefits that flow from working together for a common purpose. The NHS is practical and it is also a symbol. It does not merely bind the nation's wounds; it helps to bind our nation together. That is why it is precious, that is why we are keeping our promises and that is why we shall never let the NHS down.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education 5:20 pm, 7th July 1997

It is always a pleasure to be able to take up the remarks of the Secretary of State. I have had the pleasure of speaking opposite him, or shadowing him, for a month or two. He has made a familiar speech this afternoon—it is a good campaigning speech—and I shall respond as I have always responded by saying that commitment to the principle of the national health service and health care on the basis of need rather than the ability to pay is not, as the right hon. Gentleman likes to present it, one that divides the House. In reality, it is a principle that unites every party in the House. The right hon. Gentleman's attempts to portray it as a principle that divides one party from the other sound rather stale in the immediate post-election period.

It is an especial pleasure this afternoon to hear the Secretary of State announcing the list of front-runner private finance initiative projects. I think that I could have recited the list of 14 such projects almost from memory. It is an extremely familiar list. I am pleased that the Government are following the policy through. The Secretary of State is right to say that it represents the best way of delivering modernised capital stock for the health service.

The Secretary of State did not explain, however, why he feels that it is necessary in the context of the PFI to reintroduce the capital rationing process that the PFI was designed to abolish.

The right hon. Gentleman did not succeed in his effort to explain to the House how the Government's commitment to deliver their election pledges can be squared with the fact that the Prime Minister and the Chancellor of the Exchequer went round the country in advance of the general election saying clearly: We have no plans to increase tax at all. Those are the words of the Prime Minister, yet we are debating a Budget the effect of which is to increase taxes on pensioners and business and to introduce major disincentives to the process of investment and wealth creation.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

It is no good the hon. Gentleman saying that his right hon. Friend did not say that. It was said in Birmingham and reported by The Financial Times on 21 September. Let the Prime Minister deny it. On 21 September, he said: We have no plans to increase tax at all. If the hon. Gentleman does not like that, he should consult the video recording of the GMTV programme of 8 April, during which the Chancellor of the Exchequer said:

We have got no public spending commitments that require extra taxes. The Labour party made it part of its clear purpose ahead of the general election to allay the fears that a Labour Government mean more taxes. However, less than three months after election day, the Chancellor presented precisely the Budget to raise taxes that we said to the country that he would introduce.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

I am sick of hearing Opposition spokesmen—former Secretaries of State—making up stories from the Opposition Dispatch Box about Labour positions before the recent general election. Before the right hon. Gentleman starts quoting, he should ascertain what was really said. If he does so, he will find the truth.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

I am quoting what the Chancellor said on live television. I shall repeat his words: We have got no public spending commitments that require extra taxes. If that is what the right hon. Gentleman said, why is he busy raising taxes? What is the purpose of the taxes if it is not to finance public expenditure? I thought that the purpose of increasing taxes was to pay for public services.

All right hon. and hon. Members are familiar with Iain Macleod's dictum. He said that if a Budget is well received on Budget day, within three months it will turn to dust. Under new Labour, we have an improvement on that principle; we no longer have to wait for three months. The Budget, which was undoubtedly well received on Budget day, has turned to dust less than a week after it was delivered.

The Chancellor of the Exchequer came to the Government Dispatch Box on Wednesday—

Photo of David Hanson David Hanson Labour, Delyn

Where is the evidence to support the right hon. Gentleman's assertions?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The hon. Gentleman must contain himself. Let me assure him that there is plenty of evidence.

When the Chancellor stood at the Government Dispatch Box last week he carried with him a weight of great expectations. It is true that for 24 or 48 hours after the event he seemed to have pulled it off. The Prime Minister sat beside him and patted him on the back when he sat down. I could not lip-read and I could not hear what the Prime Minister said. He might have said, however, that the Chancellor's position was unassailable. Chancellors of the Exchequer need to be careful of slaps on the back from their neighbours.

The illusion that it will last for a long time was the one that the Chancellor of the Exchequer sought to create last Wednesday. On Thursday, that illusion was still with us. The Secretary of State for Employment and Education was positively gushing. He said: Yesterday, my right hon. Friend the Chancellor announced a programme that has received almost overwhelming applause and the unified commitment of the British people. He presented the most popular Budget in decades, and he did so in a manner that showed considerable aplomb."—[Official Report, 3 July 1997; Vol. 297, c. 436.] Before long, my right hon. and hon. Friends will be hearing the Foreign Secretary saying from the Government Dispatch Box how his old friend, Gordon, has delivered a major success. Unlikely alliances will be forming on the basis of the Budget.

It was all heady stuff, but it was far too good to last. By the weekend, reality broke through on sober reflection. It is now clear by how wide a margin the Chancellor failed to meet the objective that he set himself. The Chancellor set out his four objectives clearly at the beginning of his speech. He said that he wanted to create stability, to promote investment, to promote employment and to provide for improved public services. Those objectives are, of course, unobjectionable. The charge against the Chancellor is that he failed to deliver on all of those objectives.

Let us take, first, the right hon. Gentleman's commitment to stability. When he was discussing stability, he was, in truth, hopelessly confused. He said at various stages that he was concerned about the strength of consumer demand. He expressed concern about the buoyancy of house prices. He was concerned about the effect of a strong pound on exports. Similarly, he was concerned about the effect of high interest rates on the economy as a whole. He implied in his introductory rubric that he would take corrective action to deal with all the concerns that he expressed. It is now widely recognised that he did not address any of the issues at all.

Photo of Russell Brown Russell Brown Labour, Dumfries

Will the right hon. Gentleman way?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

I shall give way in a moment.

In reality, he dodged all the four issues. He imposed £6 billion of extra tax on the economy, but over three quarters of that extra tax burden will be paid not by consumers or by those who might be responsible for bidding up house prices, but by precisely the companies that the Chancellor says that he wants to encourage. The right hon. Gentleman must be the first man in history to believe that we promote investment, employment and wealth creation by imposing extra taxes on business.

Furthermore, it is recognised that the Chancellor of the Exchequer made the case in his Budget for an increase in interest rates, and that he understood that, unless other action is taken, that will lead inevitably to a further increase in the strength of the pound. He described the problems as he saw them; he did nothing about them. He levied tax where he thought that he could get away with it, without addressing any of the issues that he set out in his Budget.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

I have already given way to the hon. Gentleman. The hon. Member for Dumfries (Mr. Brown) wanted to intervene.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

Very well—I accept that the hon. Gentleman is his hon. Friend's agent.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

Yes, we are friends. I want to ask the right hon. Gentleman a simple question. Does he think that the economy has been overheating?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The hon. Gentleman will have to learn that, when Ministers come to the Dispatch Box and tell us that they are concerned about an overheating economy, it is for them to tell the House what they think ought to be done about it.

The Chancellor of the Exchequer set out a series of challenges at the beginning of his speech. Everyone who has analysed his speech has reached the same conclusion: the Chancellor failed to answer the questions that he asked at the beginning of his speech. That was not the only difficult issue that the Chancellor avoided—

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

No, I am not giving way. The hon. Gentleman will be able to intervene later in my speech, if he chooses to do so.

Speaking about stability, the Chancellor of the Exchequer went on to lay considerable stress on the need to ensure that we have strong public finances. He is right to say that strong public finances are essential to the creation of stable economic conditions. That is beyond dispute. However, the Budget was surprisingly coy about the implications of the Chancellor's objectives in terms of public finance. He set out detailed proposals on taxation, raising roughly an extra £6 billion a year.

The Red Book set out clearly the Government's expectation that inflation will run faster than was thought likely at the time that the Red Book was published last November. The Red Book account of revenues took account of that inflation, but it has become crystal clear over the weekend that no change was made in the expectations and the money provided for expenditure in the Red Book. The Liberal party draws the conclusion that there is a £5 billion hole. I assume that the Liberals will argue that the implication is that we need more taxation to support more expenditure.

I make it clear that I think the Government are right to resist upward movement in the cash planning totals in the Red Book, but they are not right to pretend that one can deliver cash totals against rising inflation without making choices about reducing service.

The Government expect to impose 1.5 per cent. real terms cuts in public expenditure in order to make their sums add up. The Chancellor uttered not a word about 1.5 per cent. real terms cuts, which is implicit in all the Red Book arithmetic.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

Given that the spending round was described by the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), as eye-wateringly tight, if it is now £5 billion tighter and the right hon. Gentleman is not in favour of finding extra money, will he tell us what cuts he would make and in which Departments? That is what the Government will have to tell us.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

With great respect to the hon. Gentleman, the Government—not the Opposition—blew the reserve by making commitments on health and education, without working through the implications of those decisions for other spending programmes in the public spending total. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) was clear about the matter last week—I heard his speech. He said that, if he had been Chancellor, he would have sent the Chief Secretary round the Departments looking for savings in order to be able to live within the spending totals.

What happened under this Government was that the Chancellor of the Exchequer announced all the easy bits—all the extra money for health and education. I do not know what the Chief Secretary is doing, but apparently there is not to be a public expenditure review this year, so the difficult questions are not being asked. We are being left in the dark about where the 1.5 per cent. spending cuts—which will be necessary to allow the Government to live within their spending totals—will be imposed.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

My right hon. Friend is being unkind to the Chancellor. The Chancellor has done an extraordinarily good job of persuading the Secretary of State for Health, for example, that on the reduced Budget about which we have just heard he will pay for the minimum wage that has been promised, the increased pensions contributions that will have to be paid, the medical insurance that many elderly people will no longer be able to afford because the tax relief is being taken away, and the extra inflation. Surely the Chancellor has fooled somebody, but I suppose that that was not too difficult.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The short answer as to whom the Chancellor has fooled is all the hon. Members who were waving their Order Papers at the end of the Budget speech. I do not believe that he has fooled the Secretary of State for Health, who will have received expert advice about the effect of the Budget settlement for him. There has been a little extra money for the national health service, which is welcome.

The right hon. Gentleman made it clear to me in answer to an intervention earlier this afternoon that there is no extra money—not a penny—for the social service departments in local authorities. I shall return to that theme, which is of direct relevance to the Secretary of State for Health, who is the sponsoring Minister of social service departments. The delivery of his health objectives and the education objectives of the Secretary of State for Education and Employment depend on properly financed social service departments and the ability of those departments to deliver their objectives.

Photo of Mr John Townend Mr John Townend Conservative, East Yorkshire

Is it not true that, if we were in government, there would be more resources because we would be raising a lot more money from privatisation receipts?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

That is certainly true. My hon. Friend is right to draw attention to the fact that one of the disappearing acts in the Red Book is that whereas we had made it clear that we intended to continue with the privatisation programme, the Government have written that sum out of the Red Book, which means that they will have to find an extra spending sum.

To assess the Budget properly, we must understand what the Chief Secretary to the Treasury is up to. We must understand what the public spending policy means in terms of the services that the Chief Secretary will cut. Until we know the answer to that question, all the Order Paper waving from the Government Benches is a trifle previous.

Let us look at what the Chancellor has done about his second objective—

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The hon. Gentleman cannot have heard what the second objective is. I have not uttered the word yet. I shall gladly give way when I have deployed my argument on the Chancellor's second objective.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

I know what the hon. Gentleman wants to ask me. I have already dealt with that. Other hon. Members on both sides want to speak in the debate, and they do not want me to spend the whole of my speech discussing that subject.

The second objective that the Chancellor set himself was to promote investment in the British economy. At that point, the Chancellor of the Exchequer simply became a joke. How do we take seriously a Chancellor who says that he wants to promote investment and, in the next breath, goes on to introduce a windfall tax on some of the biggest investing companies in the British economy? The Government will claim that that is in the manifesto. The mere fact that it is in the manifesto does not mean that it makes sense or that the policy is consistent with the Chancellor's stated objective.

Elsewhere in his Budget, the Chancellor says that other companies distribute too much of their resource through dividends—too much money leaves those companies. However, when we are dealing with the utilities—the companies that invest in water, gas and electricity—somehow we are able to spirit £5 billion out of them and make no difference to investment in the British economy.

In the course of the Budget speech, the Chancellor of the Exchequer let slip a sentence that must be a candidate for the most implausible statement ever to be included in a Budget speech. That is a high burden of proof, I confess. I shall read out the sentence and invite the House to express an opinion on whether I am justified. The Chancellor said: After consulting the regulators, it is my judgment that the tax can be paid without any impact on prices, investment, or the quality of service to customers; or, in my view, on employment. So £5 billion is just lying around: it can be spirited away from those companies and it will make no difference. Whom does the Chancellor think that he is kidding? The truth is that the windfall tax is one of several steps in the Budget that will undermine investment in the British economy, our future competitiveness and job creation.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

Has the Secretary of State received his briefing? He need not be in any hurry.

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

Does the right hon. Gentleman accept that, as the water industry has made profits of £10.5 billion since privatisation, paid £3.5 billion in dividends and has not paid a penny piece in mainstream corporation tax, it might have a bob or two to contribute to the windfall tax? If the windfall tax is so damaging to the utilities, why have their share prices not crashed since Wednesday's Budget?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The answer to the Secretary of State's second question is that investors are capable of reading newspapers. In answer to his first question, I repeat this quite extraordinary proposition: the Chancellor thinks that £5 billion can be spirited out of those companies and it will make no difference to prices, investment, service to customers or employment. Where does the Chancellor think that the money will come from? It is wholly implausible, and the Chancellor discredits his office by allowing such sentences to be written into his Budget speech.

That is not the only attack on investment in the Budget. The Chancellor found his other major source of revenue by attacking pension funds. It is easy to remember the Budget's revenue raising: £5 billion from the utilities and another £5 billion from the pension funds. When the Chancellor referred to the pension funds and to the effect of his changes on dividend policy, he was once again hopelessly muddled. He said: Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform."—[Official Report, 2 July 1997; Vol. 297, c. 306–14.] Reform, my foot: the Chancellor simply saw a ready target. He saw an easy way of raising £5 billion from what he thought were pension funds in surplus. I shall return to that point. The truth is that this is not a tax strategy. We heard lots of rhetoric about the effect of dividends on investment flow, but that has nothing to do with it. Ferdinand Mount, writing in The Sunday Times, got it right when he said: This is the opportunism of the mediaeval monarch who tours his domain looking for the fattest peasants to pillage. The peasants that the Chancellor found to pillage were Britain's pensioners. The Government should be ashamed of that decision.

The Chancellor not only pillaged pensioners, but argued that the employer-provided pension funds are in surplus. In so doing, he betrays his lack of understanding of the pensions sector. What will the Chancellor say to the 6 million pension fund investors who are in not defined benefit schemes but defined contribution schemes? Those people paid the contributions—not their employers—and the Chancellor's measure will directly reduce their pensions in retirement. What does the Chancellor have to say to those people? Where is the surplus for them? They did not merit a mention in the Budget speech.

The Chancellor takes an extraordinarily partial view of the way in which the pensions market operates. He seems to be completely oblivious to the effect of his £5 billion raid on the pensions sector. Just as he believes that he can spirit £5 billion from the utilities, he believes that he can spirit £5 billion from the pension funds and it will not matter because they are all in surplus. What kind of analysis is that?

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Did the right hon. Gentleman oppose the measure proposed by his then right hon. Friend, Norman Lamont, in 1993 to reduce advance corporation tax from 20 to 15 per cent?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

My former colleague did not do that—the Chief Secretary should get his details right. He reduced ACT from 25 to 20 per cent. because we had a stated policy of reducing the basic rate of tax to 20 per cent.—and we were well on the way to delivering that. The Chief Secretary should read his brief. I am sure that he will make more telling interventions when they are rehearsed.

The Government's pensions policy can have only one of two effects: either it will reduce the value of pensions paid to pensioners, and therefore the Chancellor is directly raiding the living standards of Britain's pensioners, present and future; or it will more likely increase the cost of employer-provided pensions. The latter is the slightly better outcome from the pensioners' point of view. However, the Secretary of State for Education and Employment is responsible for promoting employment. We are supposed to believe that the Chancellor has introduced a Budget for employment. How does he believe that he will promote employment by raising pension contributions and, therefore, raising the cost of employing people?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The hon. Gentleman's timing is not good as I am about to move on to my third point. He has missed his opportunity: I have finished my second point and he will have to wait until I begin my third point.

The Chancellor's third objective is to boost employment. How does he plan to achieve that aim in this Budget? Let us look at the Government's record on boosting employment. What has Labour done to create jobs in Britain since its election? The first thing the Government did was sign the social chapter. What will that do? It will raise costs and reduce the number of jobs.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

Paternity leave is not a cost-free activity. That is how it will raise costs. Secondly, the Government made a commitment to introducing a minimum wage. Presumably, even the hon. Member for Delyn (Mr. Hanson) can understand that a minimum wage will either have no effect at all, or raise the cost of employing people and therefore reduce the number of jobs in the economy. The third element of the Government's three-legged strategy for boosting employment was the Chancellor's announcement last week that he will raise £5 billion from pension funds, which can only increase the cost of employing people.

Against that background, we are asked to judge the benefits of the welfare-to-work proposals in the Chancellor's Budget speech. The truth is that his welfare-to-work proposals are a pale attempt to temper the damage that will be done by the Government's other policies. This country's recent record on youth unemployment stands comparison with that of any other European country. In the past four years, the number of unemployed aged between 18 and 25 has halved. It has fallen from just over 800,000 to just tinder 400,000—a reduction in youth unemployment of 100,000 every year for four years. The number of 18 to 25-year-olds unemployed for more than six months has fallen from 417,000 to 178,000.

I welcome the fact that the Government have focused their attention on the need to ensure that youth unemployment in Britain continues on the downward trend that the previous Government established. I also welcome the fact that the Government regard that as a serious and important policy objective. In the Budget, the Government committed £3.5 billion of public expenditure to enhancing that downward trend of youth unemployment. I look forward to seeing whether their public spending programme achieves a greater reduction than 100,000 a year in the next four years: they cannot do so after that, because they will have run out of unemployed people in five years. We shall see whether that £3.5 billion enhances the rate of job creation for young people, or whether it is money being burnt. That money may be burnt in an attempt to deliver a desirable objective, but it will be wholly ineffective.

The Chancellor of the Exchequer is clearly unconvinced by the logic of his own argument. In the Budget forecasts, he used the estimates of my right hon. and learned Friend the Member for Rushcliffe, the previous Chancellor, for the analysis of the black hole that he asked us to believe in. The Chancellor made it clear that he does not believe that unemployment will continue to fall, because he reinstated the traditional basis of forecasting, which is flat unemployment. He clearly does not believe that unemployment will fall faster as a result of the welfare-to-work proposals.

We then come to the Chancellor's fourth objective.

Photo of Mr Giles Radice Mr Giles Radice Labour, North Durham

Will the right hon. Gentleman give way?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The hon. Gentleman's timing is perfect. I shall give way to him before I conclude my remarks if he finds a better point at which to intervene.

The final aspect of the Chancellor's objectives was his intention to deliver improved public services. In particular, we were asked to consider the extra money provided in the Budget for education and health. The Prime Minister has repeatedly said that the welfare-to-work package will release money and thus allow extra spending on education. That proposal does not stand up, given the evidence of any welfare-to-work package anywhere in the world. The Chancellor has clearly seen that evidence, because he recognises the need to provide extra money for the welfare-to-work programme and for education. For him, there is no question of a trade-off: he has provided more for schools and more for hospitals.

That proposal was the only element of last week's Budget that every Labour Member clearly understood: there was a lot of waving of Order Papers and a throaty roar. It was clear and simple: more money for public services. Labour Members—indeed, many of my hon. Friends—welcomed the fact that more money was being made available to provide better schools and better hospitals. It is not quite as simple as that. The Chief Secretary will be able to pay for that within the spending total only if he imposes a 1.5 per cent. spending cut on everything else.

In the debate last week, the Secretary of State for Education and Employment, my hon. Friend the Member for Maidenhead (Mrs. May) and I discussed the extent to which the money for education could be guaranteed for schools. That exchange showed how flimsy the Chancellor's construct is, even on the subject of extra spending on education. My hon. Friend asked the Secretary of State whether she had correctly understood that the money will not be ring-fenced to ensure that it goes to the education budget: instead, it will be allocated to the authority's general budget and it will be up to councillors to determine whether it goes to schools. The Secretary of State replied: I am delighted that I have been so clear that the hon. Lady has got it".—[Official Report, 3 July 1997; Vol. 297, c.439.] So there we are. There is no extra money for schools in the Budget. There is an extra allocation for standard spending on education and extra money for authorities, but the authorities are completely free to choose how they spend it.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

That is how the previous Government used to do it.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

I am relying on my experience. The purpose of my intervention last week was to discover whether the Government intend to ensure that this money actually gets to schools, or whether they are relying on a system that I know fairly well, as the hon. Gentleman implied. The truth is that the Government are putting the money into local authorities and hoping that some of it will get through to schools. I am sure that some of it will, but I am certain that £835 million of it will not.

The Secretary of State for Health must be hoping that the education committees will not get all of the money that is going to county councils; otherwise it would be bad news for the national health service. It would mean that social service departments would not be able to deal with the increasing demands placed on them. It would also mean that no account has been taken of the extra demands of the police and fire services and the other elements of local authority services.

The headline increases in health and education are welcome. The 2.25 per cent. increase for health is welcome, and if we keep going long enough, we may get the figure up to the 3 per cent. that we scored over 18 years. The yardstick is a 3 per cent. real-terms average. Furthermore, that is the expectation in the national health service, as the Secretary of State well knows. A real-terms growth of 3 per cent. was achieved between 1979 and 1997. We look forward to the words of support for the national health service that Ministers like to use being backed up by action that reflects our record during 18 years in office.

Photo of Frank Dobson Frank Dobson The Secretary of State for Health

I do not know whether the right hon. Gentleman is claiming credit for everything in the past 18 years, but for the three years during which he was Secretary of State for Health, the real-terms increases were 0.5 per cent. this year, 1.3 per cent. the previous year and 1.8 per cent. the year before that, so he should not gib at an increase of 2.35 per cent.

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

As the right hon. Gentleman knows, the real-terms increase that I allocated to current spending in the national health service in the public expenditure survey last November was 3 per cent.

I have dealt with only two of the spending programmes. The Chief Secretary now has no reserve that he can allocate ahead of the beginning of the next financial year, which is still nine months away. He has nine months before the Department of Social Security's estimate of changes comes in—if the officials have not told him that yet, they very soon will. There is nothing for higher and further education in the spending programmes. The university and further education sectors will be disappointed by the Budget. Moreover, the 1.5 per cent. cut that the axeman from the Treasury is about to impose on the rest of the public spending total is still to come.

The Budget was a con trick.

Photo of Mr Giles Radice Mr Giles Radice Labour, North Durham

Will the right hon. Gentleman give way?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

The hon. Gentleman almost missed his chance.

Photo of Mr Giles Radice Mr Giles Radice Labour, North Durham

The right hon. Gentleman was in power nine weeks ago. Will he answer a simple question: does he think that the economy is now overheating?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

As my right hon. and learned Friend the Member for Rushcliffe pointed out in his speech last week, in November when he introduced a Budget that cut taxes, the present Chancellor of the Exchequer went through the Lobby making it clear that that was right. The Chancellor must explain why nine months ago he reached the conclusion that tax reductions were possible, and in his Budget last Wednesday he reached the conclusion that tax increases were essential. I have not heard the Chancellor deploy that argument.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

On a point of order, Mr. Deputy Speaker. We have had three interventions on the same question. It requires a direct answer, but the right hon. Gentleman refuses to reply. Can you help us? He refuses to answer a simple question.

Photo of John Swinney John Swinney Scottish National Party, North Tayside

The right hon. Gentleman commented on Labour Members trooping through the Lobby for tax cuts in November. Does he think that, if the Conservatives had come to power, a Conservative Chancellor might just have raised taxes in this post-election Budget?

Photo of Stephen Dorrell Stephen Dorrell Shadow Secretary of State for Education

This is a Labour Budget. My right hon. and learned Friend the Member for Rushcliffe, the previous Chancellor, who is in a much better position to answer that question than I am, made it clear in his speech last week that he has already introduced a Budget for this financial year and did not intend to introduce another one. The Government must explain why we need a second Budget. As those of my right hon. and hon. Friends who have rather longer memories will remember, having extra Budgets is probably one of the things that we shall have to get used to. Under the previous Labour Government, I think that there used to be three Budgets a year. So far, we are on two a year. We shall see how many we have before this Parliament has run its course.

The Budget was a con trick. It talked of stability and ushered in an era of higher interest rates, higher public spending and higher taxes. It talked of investment, and launched an attack on the utilities, an attack on pension funds and an attack on international companies, about which I have not had time to talk. It talked of promoting employment, and increased the costs of employing people. It launched a formula for welfare to work which, although desirable in its objectives, has not been shown to work elsewhere in the world. It talked of improving public services, but in the end relied on mirrors to deliver that.

The Budget was indisputably well received on Budget day, but already it has fallen victim to Macleod's law. It is a Budget for unemployment, for higher interest rates and for higher taxes. It is a Budget for failure.

6 pm

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The change in the Conservative party since it has gone from being in government to being in opposition is extraordinary. There was an inherent tension in what the right hon. Member for Charnwood (Mr. Dorrell) said. He acknowledged that there was a shortfall in funding in the Budget—the outgoing Chancellor's Budget was absolutely fine, although eye-wateringly tight—and that the Conservatives would be looking for spending cuts but would not need a Budget to make them. He could not tell us what such cuts would be—not surprisingly since, in the present circumstances, I imagine that the Conservatives want that problem to be placed elsewhere. He then complained that social services were seriously underfunded. The Conservative party will have to do some thinking and decide which side of the argument it wants to be on. Is it in favour of spending cuts or more spending or improving services and recognising that the money will have to come from somewhere?

I agree with the right hon. Member for Charnwood that the Government have some explaining to do. They have, in reality, severely cut forecast public spending without any explanation of its implications across Departments. The Liberal Democrats expect them to explain themselves more fully.

It is true that a Budget has rarely won so much praise on the day as that delivered by the Chancellor on Wednesday. There was not just the waving of Order Papers, but sycophantic and almost eulogistic leader columns in the press the following day, saying how wonderful it all was. But never has it taken such a short time for that initial acclaim to turn to criticism and discredit.

The Budget was said to deliver more for public services—that got the loudest cheer—but, as was revealed over the weekend, it cut previous spending plans by more than £5 billion in real terms. In one year, that is a major reduction. There will be more money for areas such as education only if there is less money for other services such as the police and social services—a point made more than once by the right hon. Member for Charnwood. Liberal Democrat Members expect the Chancellor to come back to the House this week to explain that cut and where it will fall, Department by Department, and we shall not let up until we get that explanation.

It was claimed that the Budget would rebalance the economy and avoid the need for higher interest rates and a higher pound. Although, in time, the extra taxes will filter through to ordinary taxpayers, they fall largely on business income and on savers. Within hours of the Budget, therefore, sterling was soaring towards an exchange rate of DM3. The Bank of England is also expected to put up interest rates; in my view, that is very likely to happen this week.

The Budget was supposed to be environmentally friendly and to lower carbon dioxide emissions, but experts say that it will do the opposite. It was supposed to boost business investment, but the Institute of Fiscal Studies has said that it will do no such thing. It was delivered by a party which claims to be for lower taxes—at least that was its claim at the previous Budget—yet it contained an unprecedented and unforecast tax hike. Perhaps the Budget's hidden objective was to be fair—to do most for those who have the least—but, again, that is not so, because in terms of percentage of income it leaves the poorest 10 per cent. of the population the worst off.

Regrettably, therefore, the Budget is not one which I can welcome; it is one which I fear has some inherent criticisms. It promised a great deal but delivered very little. I welcome the good intentions in the Budget, which I hope will bear fruit as this Parliament progresses—the promise of more measures on the environment and the commitment to more pre-Budget consultation. If such consultation materialises, it will be welcome and we shall certainly play our part in it. The intention to look at tax and benefit reform is overdue and needed, and it requires all-party involvement. All of that is welcome, but action now to deal with the crises facing us today would have been more welcome.

I will consider the main parts of the Budget in turn. Today's newspapers confirm that the Budget contained a huge hidden cut of about £5.3 billion in public spending for next year. As yet, no Labour or Government source has been able to dent that contention, although one source claimed that the Liberal Democrats who identified the cut were "economically illiterate". Such a statement has not been explained or substantiated, and the maker of it will have to eat his words. The Chief Secretary to the Treasury, who is replying to the debate, will need to explain not only what the Liberal Democrats have put on the table—how the spending totals, which have been squeezed by a further £5.3 billion, will be delivered and where the cuts will fall—but how the House of Commons Library, the Institute of Fiscal Studies and Goldman Sachs are all "economically illiterate", since they have all confirmed exactly what we have stated.

The House of Commons Library, in response to my question, confirmed to me in a briefing on the Budget that because of the higher actual and forecast rates of inflation…real expenditure in 1998–99 will be some £5¼ billion lower. The Chancellor's first Budget therefore hid its most important effect: a massive £5.3 billion cut in real public spending for next year, compared with a forecast made only seven months ago in the Budget of the right hon. and learned Member for Rushcliffe (Mr. Clarke). That is the reality. Never before has such a large real cut in public spending attracted so little attention when first announced.

The Chancellor hid the cut in public spending on Budget day and hoped that it would not be noticed. He made—and has made—no announcement about how Departments were to achieve such savings, which services were to be axed and which Labour manifesto promises were to be broken as a consequence. If there is no relaxation, the effects in practice will be devastating. That must now be dawning on Departments, if it did not do so last week.

The only mention of such a development is tucked away on page 102 of the Red Book, which notes in passing: In real terms, Control Total expenditure is lower than projected at the time of the last Budget, due to the higher forecast for the GDP deflator. That is the bombshell in the middle of the Budget.

On the very first page of the Red Book, the bit to which the Government expect everyone to turn, the boast is made that the Budget will be providing high quality public services—within unchanged Control Total for 1998–99". Those two statements—between the covers of the same book—are irreconcilable.

The real spending cut was caused by the significant upward revision of the forecast for inflation. I should say in passing that I have already expressed concern that the Chancellor has departed from his manifesto pledge in redefining his inflation target in more relaxed terms than those in which it was expressed in the manifesto. The GDP deflator—the measure of inflation used to adjust Government spending—was revised upwards this year and next from 2 to 2.75 per cent. The Chancellor has not simply ignored the effect of that. He took into account the higher rate of inflation by adjusting upwards his forecast for the amount of money that he will get from tax revenues, so he recognised that adjusting the inflation forecast would boost the revenues coming into the Exchequer's coffers. Amazingly, however, he made no compensating adjustment to his spending totals to protect them from higher inflation: he is just banking the extra money to help to reduce his borrowing figures.

The two years of higher inflation will mean that all the previous spending allocations for 1998–99 are worth 1½ per cent. less in real terms, so it could be said that the Budget contains two windfall taxes—one on the utilities and one an inflation windfall from public spending—and they are almost exactly equal in value.

Photo of Mr Rhodri Morgan Mr Rhodri Morgan Labour, Cardiff West

Is the hon. Gentleman saying that he disagrees with the readjustment upwards of the expected rate of inflation, or GDP deflator, from 2 to 2.75 per cent.? Or does he accept it as an accurate reflection of what has happened to pressures in the economy, which have pushed inflation up through the demutualisation disaster and the boom in financial services within the M25 area?

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

Whether I accept it is beside the point: it is what the Chancellor has determined is at the heart of his Budget. The former Treasury Select Committee, of which I was a member, expressed some scepticism about the previous Government's forecasts, but the commentators said that a judgment could be made. The current Chancellor has made a revised judgment and has determined that inflationary pressures are greater, but he has not made any compensating provision to help the public services and the spending Departments to cover that. We are entitled to an explanation, especially as the Government are pursuing progress on the Finance Bill with indecent haste.

The extra moneys announced in the Budget for the NHS and education, about which the Secretary of State for Health boasted, are largely fictional as they merely offset the effects of higher inflation.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Does the hon. Gentleman accept that the health budget will increase in real terms by 2.24 per cent. next year and the schools budget will increase by 2.7 per cent? That is after applying the GDP deflator.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

I accept that there is a real increase, but it is nothing like what the Government have claimed. The Chief Secretary's point ignores the fact that no compensating increase has been given this year, which means that the Departments will have to absorb that deflator in full. If the two are added together, we are talking about a standstill Budget and no significant investment in either Department. The Government have not addressed that factor.

When the Secretary of State for Health was trying to dismiss my intervention earlier, he missed the point that the Liberal Democrat manifesto commitment and our alternative Budget would provide substantial extra investment in health and education in the current financial year. We explained how that would be delivered, but the Government have failed to provide a single penny of that. The situation will deteriorate even before we reach next year.

The Chancellor has also reduced the level of the contingency reserve to only £2.8 billion for next year. Given the inherited contingency reserve, he will have less ability to accommodate the Budget pressures. In the Goldman Sachs Budget review of 2 July, David Walton, a colleague of Gavyn Davies who edits the review, noted:

The Budget plans imply a sharp fall in the real level of public spending … this is considerably tougher than Ken Clarke intended … The Chancellor did not mention what services he intended to cut in the fanatical pursuit of these spending totals. The chances of achieving these plans are close to zero. On Budget day, the Chancellor boasted: I have decided to allocate … to the NHS for 1998–99 a sum of £1.2 billion. This does more than meet our commitment to the people of this country".—[Official Report, 2 July 1997; Vol. 297, c. 315.] However, as I have already said, no additional funding has been provided for the current year, despite an existing £350 million NHS deficit. If that is taken into account, the higher inflation this year will cut real spending in the NHS by between £300 million and £350 million. Labour Members who cheered the Budget a week ago will not cheer when they see the consequences for their local health authorities this winter.

For the following year, the extra £1.2 billion is substantially wiped out by the higher inflation. The Library has said that taking into account the extra £1.2 billion and higher inflation, the net increase is some £0.41 billion"— at current prices. I accept that that is extra money, but it is about a third of what the Chancellor claimed and it will follow a cut this year. That will mean a serious, continuing squeeze on the health service and represents no bonanza.

A further concern must be that £200 million of the extra health money has to go through the Scottish Office, the Welsh Office and the Northern Ireland Office. Those Departments will be able to pass the money on only if they can squeeze other areas to cover for the loss through inflation. That is the same problem that local authorities will have with the education vote.

The Chancellor boasted in the Budget of £1 billion extra in 1998–99 for education and extra money for capital spending in schools—£83 million in 1997–98 and £250 million in 1998–99. After inflation, that amounts to a cut of £200 million in real education spending for 1997–98. In 1998–99, there will be no more money for further and higher education. After inflation, the extra £1¼ billion will be worth around £600 million in real terms. That is a real increase, but it is much less than the Government have claimed.

If local authorities are in difficulties, they will be unable to pass all the money to education. They will lose £1.2 billion from their real spending plans because the higher inflation will affect local authorities just as much as it will affect Government Departments. Local authorities will also have to pay more to top up their pension funds following the Government's change to the taxation of dividends. It is estimated that the change could cost local authorities up to £300 million per year. The Chancellor was not convincing when he tried to dismiss that criticism as a Conservative plot simply because the local authority being interviewed at the time was Conservative controlled. Every local authority in the country—under Labour, Liberal Democrat, Conservative, Scottish National party or no overall control—will have to find the extra money. That is the reality.

Local authorities will receive around £1.2 billion extra for education next year and simultaneously lose exactly that amount in higher inflation. If they want to deliver more money for education, they will have to cut other budgets. That is against the background of an already planned 1 per cent. real cut in local authority funding next year, which the Government do not intend to change, and of additional pressures in areas such as school rolls and social services. That is the dilemma that all the public services will face.

The Chancellor claimed in his Budget speech: My goal … is to ease inflationary pressures without damage to industrial and exporting prospects … In this way we can moderate the upward pressure on interest rates and on the exchange rate as well as further our objective of sustainable public finances."—[Official Report, 2 July 1997; Vol. 297, c. 305.] But the Budget failed in its primary task of rebalancing the economy away from excess consumer demand to prevent higher interest rates and a higher pound. Of the £6 billion of new taxes, only £1 billion to £1.5 billion fell on the consumer, which will have only a marginal impact on consumer spending in a year in which consumers will receive £37 billion in windfalls of various sorts.

Photo of Mr Giles Radice Mr Giles Radice Labour, North Durham

Is the hon. Gentleman suggesting that there should have been a £6 billion tax increase directly on the consumer?

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

If the Chancellor was arguing that the taxation increase in the Budget was justified as a means of putting a squeeze on consumer spending, that is where he should have put the taxes. He tried to justify the increase as a tax on the corporate sector, which is inconsistent. My point is that he did not convince the markets, which is why interest rates are likely to rise this week.

Photo of John Swinney John Swinney Scottish National Party, North Tayside

Has the hon. Gentleman read the comments of the chief economist of the Royal Bank of Scotland, which suggest that if monetary policy was directed towards Scottish requirements, interest rates would not be increasing as they are likely to do in the next few weeks?

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

That is a matter of opinion. The Liberal Democrat proposals for the reform of the Bank of England—so that it becomes a United Kingdom reserve bank—include the proposal that it should have a policy body that is geographically representative of the entire United Kingdom and is not determined by factors centred on the south of England factors. That would at least ensure that the broad economy was taken into account.

In other areas where the Chancellor made claims, too, his Budget does not deliver. For instance, it will not provide the environmental improvements boasted of by the Government. It will make no contribution towards reducing carbon dioxide emissions by 20 per cent. Indeed, it is likely to lead to an increase in emissions as a result of the cut in fuel prices. Despite the rhetoric, the Budget sends the wrong signals by reducing the price of using energy instead of reducing the price of saving energy.

The energy efficiency measures in the Budget are weak and vague. The Budget states: Options for helping people on low incomes to insulate their homes and save energy are to be examined. I am to meet a representative of the National Energy Efficiency Authority tomorrow and I hope to be able to tell him that he will get more money.

The increase in road fuel duty—a revenue-raising measure—is disguised as an environmental tax, but it does not involve a tax switch from good to bad. The golden rule of the Liberal Democrats in this matter is that any increase in revenue from environmental taxes should be given back in tax cuts elsewhere to show that it is a tax-switching measure and not just another wheeze for taking more money out of the consumer's pocket.

We needed a commitment to long-term environmental improvements, but the Budget moves in the opposite direction. It is not the response to the challenge of global warming for which we might have hoped. I hope that the Government will think again about this. They have a full Parliament in which to address the issue and they will certainly get a constructive contribution from the Liberal Democrats.

I say this with regret, but the Budget betrays the spirit, if not the letter, of Labour's promises on taxation. One year after Norman Lamont's tax-raising Budget of March 1993—a year after the general election, not a mere six weeks—the present Chancellor said: If he cannot point out the section of the election manifesto which warned of increased tax rises for the ordinary voter … he should be ashamed of himself."—[Official Report, 17 March, 1993; Vol. 221, C. 291.] Labour's 1997 manifesto merely says: New Labour is not about high taxes on ordinary families. At the time of the previous Budget, in November, the present Chancellor said: That is the Tories as they are all the time. Before the election, they raise expectations. After the election, they raise taxes."—[Official Report, 27 November 1996; Vol. 286, c. 370.] I have to say that I do not see the difference.

The Budget is not "fair". The Institute of Fiscal Studies acknowledged that Labour has often criticised the Tories for the unfairness of the impact of their Budgets. But, the IFS stated: As a proportion of their income it is the poor who have fared worst—they have lost around 1 per cent. of their disposable incomes and added that in cash terms the very poorest group loses somewhat more than the next couple of deciles. I hope that the Government will address those matters over time, but they have not done so in this Budget.

The Chancellor tried to argue that he was encouraging investment and that the windfall tax was designed to squeeze the fat cats. He knows perfectly well that the fat cats have gone, and they have taken the money with them. The tax is arbitrary, retrospective and unfair. It will hit not the fat cats, but the 19 million people with money in pension funds, who will lose around £80 each as a result. Those who did not take the money and run but retained their shares will also suffer to some extent.

Changes in dividend and profit taxation will increase the taxation on business income by £3 billion per year. The IFS has said that the precise effects of this package are uncertain. The Chancellor tried to boast that he knows exactly what it will achieve, but the academics are uncertain. The IFS states that the package is likely to squeeze company cash flows. Very optimistic assumptions are required to believe this will increase business investment … Despite the rhetoric, changes are unlikely to benefit business investment. For all the reasons I have set out, we shall vote against the Budget, and we shall continue to demand a statement to the House on the public spending cuts. We do not accept that the House can be treated in this way. To be asked to vote on the Budget on a Monday and then to vote on the Second Reading of a Finance Bill—which has not yet been published—on Thursday of the same week is moving ahead with indecent haste. Contrary to what the Leader of the House said on Thursday, this is not just a Budget to implement the Government's manifesto pledges: it contains major taxation changes which were not in the manifesto, and these must be considered properly.

There is a tension at the heart of the Budget which is untenable. For too long, the Chancellor has been obsessed with political presentation and not policy. Unfortunately for all of us who depend on public services, that is stamped all over his Budget. The policies that he made in opposition have hemmed him in on taxation. He needed to buy credibility—I understand that—but no one could have believed that he would be prepared to be so dogmatic on spending and so tie his hands that he would be forced to duck the real solutions.

The Conservatives are not in a position to gloat because practically all the problems that the Government have inherited are of the Conservatives' making—not least the wholly unrealistic spending round of last year's Budget. But the Labour party in opposition knew that it was unrealistic, so why on earth sign up to it? We shall vote against the Budget and hope that when the Chancellor returns next spring with his second Budget it will be a Budget of sound policy and radical reform, replacing spin with substance and placing the long-term interests of the country ahead of short-term populist politics. If that is what it does, we shall be able to support it—but we cannot support this Budget.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Standards and Privileges Committee 6:26 pm, 7th July 1997

The right hon. Member for Charnwood (Mr. Dorrell) praised the record of the Conservative party on privatisation. I shall be arguing that the windfall tax is a direct consequence of errors made by the Conservatives in the sale of the assets. In my role as Chairman of the Public Accounts Committee, I have looked at all privatisations. The Committee took evidence on every single one and all our reports were unanimous, with no fudging. The reports on privatisation were no exception. We did not look at the politics of the sales, but at whether the best price was achieved and whether the expenses of the sales were justified.

The conclusions of the all-party Committee—which did not divide in nearly 14 years—were that, in nearly all cases, the assets were sold too cheaply. As Harold Macmillan might have said, "If you are going to sell the family silver, do try to get the best price." The real question we have to ask is not why we sold the family silver—and the Canalettos—but why they were sold so cheaply. The previous Government naively believed that shareholders in every home would have a beneficial influence on the actions of boardrooms. Stockbrokers were introduced in high streets, but such developments rapidly disappeared.

What was more lasting was the benefit to the Exchequer. In addition to the income from North sea oil, this income could have been used for a resurgence in investment in industry, or we could have used the money to spend on the infrastructure. Instead, we accepted the dilapidation of much of our transport, housing and schools, and the resources were used once and for all to create an economic boom, the effects of which are still being felt in the economy that the Government have inherited. The previous Government used much of the capital from the sales of assets to provide a higher standard of living than was justified. Capital was turned into income—precisely the charge made by Harold Macmillan.

The question that we must now ask is not merely why we used the money badly, but why those assets were sold too cheaply. The main reason for the hurry was the Government's desire to get their hands on the money. The philosophy came second. Obviously, the Treasury rightly wanted to know how much it would obtain each year from the proceeds of the sell-off. The difficulty was that the sale had a fixed timetable, which did not take into account market sentiment. Instead of selling when the sale would be most favourable, in some circumstances there was almost the flavour of a forced sale.

The Public Accounts Committee dealt with the matter in its 32nd report in 1992–93, "The Sale of National Power and PowerGen", in which it stated: our examinations of this and of previous sales have shown that privatisation timetables can sometimes impose considerable pressures on departments. Clearly the timing of sales can have significant impacts on the total potential proceeds, but it is important that the pressure on departments to do things quickly is not used as an excuse for uneconomic arrangements. We therefore expect departments to organise themselves and to plan sufficiently far ahead so that they can exploit the scope for savings. That view was unanimously accepted.

The Government also made it even harder to get the best price by insisting in nearly all cases that the sale had to be made at one go—it has been characterised as selling overripe fruit on a Saturday evening. How different from the way that the Government manage their gilt sales. In that case, the Government broker has traditionally understood the market and sold his stock at times favourable to the sale. In the event of a change in the market, the sale could have been deferred. The Government broker understood the market. Those who sold our assets did not and were not encouraged to learn.

Again and again, the PAC urged by a senior Conservative on the Committee, pressed the Government to privatise in tranches. The lack of experience in undertaking sales of such magnitude ought to have resulted in a much more careful and informed approach to the share offers. If the Committee's advice had been accepted, sales could have been conducted with advantage to the taxpayer.

Photo of Mr Richard Page Mr Richard Page Conservative, South West Hertfordshire

As the right hon. Gentleman knows, he was the Chairman and I was on that Committee at the time. I suggest that the 1992 PAC report was made with the benefit of hindsight. The PAC reports on the privatisations were not half as critical as he is trying to lead the House to believe.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Standards and Privileges Committee

I did not have any doubt at any time. The hon. Gentleman will remember that Sir Peter Hordern argued again and again that the assets should be sold off in tranches to get the best possible price. The Committee supported him again and again. The hon. Gentleman supported that view as well—all the reports were unanimous. The Government failed to get the best price. There is no question about that.

The argument used again and again was that if one sold the assets in tranches and the price on the initial sale were too low, the price and the receipts from subsequent sales could be improved. The failure to get a better and a proper price for the nation's assets is a serious indictment of the previous Government. It cost the country billions of pounds.

That failure to get a fair deal for the taxpayer provides the complete justification for the Chancellor's introduction of the windfall tax. I understand why the Conservative Opposition do not like the idea of that tax. It shows up their failure to guard the public finances, but it is right that some corrections should be made in the way in which those bargain sales were conducted.

On the expenditure of the windfall money, I am sure that the priority that the Chancellor attaches to unemployment is right. Like many hon. Members I meet from time to time the chief of police in my area. It comes as no surprise that at those meetings he singles out young men from 18 to 25 as his major problem. He points that out again and again. After numerous attempts to get employment, they give up. Their relationship with their parents deteriorates and after numerous rows they leave home and join up with other young men. In a consumer society, it is hard not to feel angry when one is not consuming. Eventually, many young men will form into groups, stealing and sometimes drug taking, and become the dangers to our society that we recognise too well.

We should welcome the source of those funds and the use to which they are being put. This Chancellor of the Exchequer is the first for 18 years to be serious about unemployment. The previous Government talked about unemployment for years, but their actions created it. They said that it was a price worth paying. The true price has been the damage done to our society. We now have to give unemployment the high priority that the previous Government claimed they gave it, but did not provide.

I was particularly pleased at the measures on investment and I welcome the doubling of capital allowances. The 25 per cent. allowance was clearly inadequate—it was a disincentive. There are few capital items that do not depreciate in value by more than 25 per cent. in their first year. Twelve months ago, for example, I bought a computer for £2,000. The Inland Revenue says that it is now worth £1,500—a nonsense. I would willingly sell it for that. That item can be written off in three years, but with the pace of industrial innovation many items can be valueless after only a short use.

I understand the limitation on the concession to one year and have no objections. It will encourage companies to bring forward their investment and it is sensible to find out how the pattern of investment changes and then, perhaps, introduce more permanent arrangements.

I also welcome the reduction in mortgage relief. For many years, one of the basic arguments in my Budget speeches has been the need to deal with that matter. One of the many nonsenses of Margaret Thatcher's Government was the way in which people were encouraged to look to their homes as investments. Advantage upon advantage was given to the purchase of houses. Schedule A, which was a way of taxing the notional rent of the house, has been abolished. Capital transfer tax, capital gains tax, inheritance tax and mortgage relief all gave advantages that were not available to those who made what I would call a true investment.[Interruption.]

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. Many hon. Members are in conversation. A debate is taking place.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Standards and Privileges Committee

All those advantages encouraged people to invest in their homes. True investment means a return on one's capital based on the more efficient use of that money. That does not apply to housing. Up to a certain level, housing needs some fiscal encouragement, but the trading up for profit was absurd. Such trading up is consumption and, as such, should be taxed like other forms of consumption, not encouraged. I welcome the Chancellor's attitude in that respect.

Finally, the welfare-to-work programme is a recognition of the difficulties of getting people to become part of the employable population. One major problem needs to be tackled—the cost incurred in earning a living. In modern conditions, being in employment results in a considerable outlay. Transport, clothing and meals are large expenses, which have to be offset against the income from employment. When a person moves from benefit to employment, he or she incurs those expenses of earning a living and the tax system does not allow for that.

Inland Revenue rules stem from the time when low earners paid no income tax. Such people lived near their place of work—the mill, factory or elsewhere—their clothes were not an expense and their meals were prepared at home. All that has changed, but the tax system has not adjusted. I well understand the Inland Revenue's reluctance to make some of those expenses tax deductible, but we shall not easily encourage people to move from benefit to work without some recognition of those facts. Any welfare-to-work programme has to take those matters into account.

This Budget has been produced in a very short time. It is a remarkable tribute to the hard work of my right hon. Friend the Chancellor and his Treasury colleagues. I look forward to further developments in next year's Budget.

Photo of Mr John MacGregor Mr John MacGregor Conservative, South Norfolk 6:39 pm, 7th July 1997

I begin by declaring my interests as in the Register of Members' Interests and in particular, a non-executive directorship of London and Manchester, a company which specialises in the provision of pensions and long-term savings especially for those at the lower end of the income scale. That is a point to which I wish to return later.

I want first to make three comments about the global figures and especially about the public expenditure side. My first comment concerns the education and health service figures which have already featured in the debate. In my spare time, I dabble in conjuring so I know that one aspect of sleight of hand is misdirection. In his Budget statement, the Chancellor showed himself, for a few hours, to be an expert in sleight of hand, but his misdirection was not strong enough and the replay has given the game away.

An increase in spending for education in schools of £835 million in England for 1998–99 was taken from the reserves. That mirrors almost precisely the figure that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the previous Chancellor, introduced in his Budget last November for this year, 1997–98. The increase for patient care services, about which the Secretary of State for Health talked when opening the debate, is £1.2 billion for 1998–99. My right hon. and learned Friend, in November last year, announced for this year an increase of £1.6 billion for patient services. It is no good for the Secretary of State for Health to concentrate on what he describes as fraud measures and other savings of that sort because my right hon. and learned Friend had a figure of £525 million for increases in patient care resulting from efficiency savings this year in his Budget announcement last November.

I find it astonishing that so many Labour Back Benchers, at the end of the Budget statement, cheered vociferously the increases in expenditure on education and health when they railed against the increases that my right hon. and learned Friend the Member for Rushcliffe announced last November. I remember some of them, who were then in local government, saying how deplorable the increases were and how much they would affect services in their council areas. Why, when they heavily criticised the figures then, did they cheer the same figures for next year when the Chancellor made his statement? I think that one of the reasons was their newness and naivety. They will very soon discover that the Budget was sleight of hand and they will rumble it. They will discover that the figures that they thought were so tremendous were exactly the same as the figures we had. That may be the way in which the Labour Government show that health and education are their priorities. We had exactly the same priorities and exactly the same figures.

My second point—I am sorry that the Chief Secretary to the Treasury has left because I wanted to direct it particularly to him—is that those two sums are taken out of the reserves. That leaves the reserves for 1998–99 very close to the reserves that my right hon. and learned Friend the Member for Rushcliffe had for this current year—£2.8 billion for next year and £2.5 billion for this year. There is, however, a crucial difference, which is that my right hon. and learned Friend was making his provision in November last year, quite close to the new financial year. This time, the figures are being taken out of the reserves many months before the financial year begins.

As a former Chief Secretary. I say to the present Chief Secretary that he is treading on very thin ice because he has given himself little scope for dealing with all the issues—including inflation, but there will be many others—that will come to him between now and November. He is taking great risks with the reserves. One heave from the social security budget and he will go under the ice because he is now very much at the mercy of the social security budget. He will discover, if he does not know already, that that budget can move up very quickly in unpredictable ways. He must be extremely grateful for the measures that we took as a Government and in particular for the measures taken by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) to control the social security budget.

Another sleight of hand by the Labour party is that the Chancellor and the Chief Secretary are continuing a number of those measures in the coming year and they will have to take legislation through the House to carry them through. I suspect that many Labour Back Benchers have not yet realised that. The danger comes from the fact that the decisions have been taken so long before the financial year begins.

My third and final comment on the global figures, because of the time shortage, is on the great new innovation of the five-year deficit reduction plan. That may be a good title. I was listening to the Budget on the radio and commenting on it as the Chancellor was announcing it. I had in front of me the five-year deficit reduction plan of my right hon. and learned Friend the Member for Rushcliffe, which was on page 17 of last November's Red Book. There is nothing new. The only difference is that the deficit reduction appears to be coming down rather more sharply, and I welcome that.

The major cause for that reduction, however, is the strength of the economy and the buoyancy of tax revenues. That is detailed in the Red Book—or the White Book, or whatever we call it—where the figures clearly show that the increase in revenue is by far the biggest element in the public sector borrowing requirement coming down. Again, that is a helpful inheritance from the previous Government. Given the Chancellor's strategy of taxing now and spending later, the deficit reduction plan is the one plan that I expect to go out of the window. I believe that we shall find that to be true in future years.

Another illusion in the Budget is that it is a Budget for manufacturing industry. I know that the Chancellor emphasised that and for a brief moment, some people in industry were fooled when they first heard the announcement of the reduction in corporation tax. It is clear now, however, that the reduction in corporation tax is dwarfed by what industry will have to contribute to the windfall tax and by the advance corporation tax bills. It will also be dwarfed by the higher interest rates that we shall see shortly and by the effect of the level of sterling. This Budget is certainly not one that is good for industry and investment in industry because most of the pain is being taken by industry.

Like several of my right hon. Friends, I have argued for some time that this is an unnecessary Budget in that we did not need a Budget at this time. One effect of the timing, which I am surprised has not been commented on much so far, is that as this Budget is the second in a single year, we are getting two tax takes in one year. That is especially true of fuel duty.

In the November Budget, my right hon. and learned Friend the Member for Rushcliffe announced a 5 per cent. increase in real terms in fuel duty over a year. This Budget has added another 6 per cent. in real terms so that we now have, instead of an increase of 3p per litre on petrol in one year as my right hon. and learned Friend originally intended—an increase of 5 per cent. in real terms—a 7p per litre increase in one single year. That means a big increase—£730 million in tax revenue compared with £230 million which was the original anticipation. The increase will have a substantial effect on rural areas which will increasingly come through. It was unnecessary to make that second tax hike in a single year.

As I have argued that this is an unnecessary Budget, I cannot object to the fact that the Chancellor introduced many reviews. I know that he has been criticised for the fact that many aspects of the Budget proposals are simply reviews, but I fully understand why he could not introduce changes in some of the areas that he is reviewing. He simply did not have time, which is another reason why it was a great mistake to have a Budget so soon. I accept, however, that it is right to indicate reviews and to take one's time in trying to reach conclusions on them. It would have been very much better, however, if the Chancellor had done that in relation to advance corporation tax, for example, to which I shall refer in a moment.

I now turn to two of the reviews, both of which deal with savings, and this is the main substance of what want to say tonight. I make it clear that on the savings front, there are two aspects of Labour policy that, in principle, I welcome. The first is the suggestion of a two-rate capital gains tax—short-term and long-term—and the second is the individual savings account. I welcome those aspects in principle.

On the capital gains tax review, I have long felt that the sensible solution to capital gains tax—I entirely agree with the principle of taxing short-term more heavily than long-term and of taxing long-term capital gains very lightly—combined with the need to simplify capital gains tax, which is still very complicated, is tapering. I was never able to persuade the Treasury or the then Chancellor of that when I was there, and I never accepted all the arguments against it. I still think that to tackle capital gains tax on lines similar to the tapering out of inheritance tax—removing the tax altogether after a given number of years—would be a much simpler way to deal with CGT and its inflationary element than the present complex system. I hope that that will be considered seriously in the CGT review.

I want to concentrate on retirement. Most hon. Members know about the problem of funding pensions for future generations. We all know about the demographic time bomb. While we are better placed than the rest of the European Union put together, in that we have £650 billion of funded occupational pension schemes, that will not be enough to provide the sort of pensions that people increasingly look to on retirement, given higher standards of living throughout their working lives. We all know that those are the big issues.

I am astonished that one of the Government's first acts was to go entirely in the reverse direction and hit pension funds and pensioners, both current and prospective. That flies in the face of the general consensus that was emerging on pension reform. The right hon. Member for Birkenhead (Mr. Field) has referred to the matter on several occasions. He must be feeling pretty sore at the way in which he has been so undermined so early by that act when the need lay in the opposite direction. We all know that we need to encourage many more people to make much bigger savings at a much younger age for their retirement, and that the state pension scheme will not suffice.

The Chancellor's argument that dealing with advance corporation tax as he did will help investment was bogus. It will have the opposite effect. It was a cloak for his desire for extra revenue, but what an extraordinary way to raise it. The fact that £5.4 billion per annum will be taken out of pension funds, institutions and elsewhere can only damage pensioners. I note from the Red Book that almost four fifths of the revenue from the abolition of tax credits will come from pension funds and the life assurance industry. That means long-term savings. I shall briefly spell out the serious implications of that.

First, there are company pension funds—occupational pensions that are final-salary schemes. The Chancellor tried to justify the move by saying that such schemes were in surplus, that some had had contribution holidays and that they could therefore easily afford the tax. It is true that many occupational pension schemes are in surplus, but those surpluses will not last. A large income reduction will be taken annually from those funds. In the not-too-distant future, even funds in surplus will face problems.

Many occupational funds are not, or are hardly, in surplus. I have seen estimates that suggest that up to half of them will go below the minimum funding reserve soon. They will soon face serious challenges. A decision to top up from employers would take from the resources available to companies for other purposes. One implication of that is lower investment—precisely the opposite of what the Chancellor said that he was doing. The alternative is that the pension funds will seek higher dividends from companies to keep the income flow coming through and maintain the level of pension funds. If that happens, it will again be at the expense of the what the Chancellor seemed to want—more investment by companies rather than higher dividends. Again, he will not achieve his objective.

Whatever company pension schemes with final-salary, defined-benefit schemes do, the effect will be to accelerate the move away from such schemes. I think that that is inevitable, but to accelerate it is damaging because there can be no doubt that final-salary, defined-benefit schemes are best and give the best results for employees. I would not be at all surprised if most final-salary company pension schemes moved, for new employees, towards being money-purchase or defined-contribution schemes. That is one direct result of what the Chancellor has done.

The hon. Member for Gordon (Mr. Bruce) mentioned the position of local authority pension funds. I agree that many local authority funds, which are often not clearly in surplus, will face the choice of reducing their employees' pensions—I will be interested to see how Labour Members react to that—or of increasing council tax to fund their pension schemes. That is another implication of that ACT move that did not come out at first because no one understood what the Chancellor was doing.

The most serious implication is for people with personal pensions and group money-purchase schemes. They have no way out. Their ultimate pensions depend entirely on the size of their individual investment funds. Overall calculations are difficult because individual funds differ, but it is clear that something like 10 to 15 per cent. a year more in contributions will be required from individuals if they are to maintain their pensions. It will vary depending on age and circumstances, but it will certainly be substantial. To maintain their pensions, they face what is in effect a significant tax on them because they will have to raise the higher sum themselves from their income. If they do not, their pensions will be reduced when they retire.

What will the Government do about the state earnings-related pension scheme? If the impact on personal pensions is what I have described, many people will not find it so attractive to stay in such schemes. The Government have not yet addressed that implication. Above all, at a time when we all acknowledge that we need to encourage millions more people to put much more money into retirement schemes at a much earlier age—something that I thought that the Government supported—I find it astonishing that their first steps are in the opposite direction.

I welcome the review of individual savings accounts. I am on record in pamphlets and speeches as recommending something along those lines. As we need to encourage individuals, including people at the lower end of the income scale, to save more for their retirement, it makes more sense to give tax relief to schemes that encourage them to keep their money in savings for a much longer period. One of the disadvantages of tax-exempt special savings accounts and personal equity plans is that they do not do that. With TESSAs, savings come out after five years and there are other problems. With PEPs, savings can be withdrawn at will.

I favour the principle of a review but have two warnings. First, it is important to allow the holders of existing PEPs and TESSAs to continue to have the tax reliefs available to them through those until the completion of the TESSA or PEP involved. To do otherwise would be to have encouraged people to go into the schemes and then to have changed them halfway through.

Secondly, if reliefs are passed into individual savings accounts, as seems to be suggested by the press releases so far, there is an important implication for the permitted ceiling. I am worried about the emphasis on encouraging people in the lower earnings range to be more involved in individual savings accounts. I agree with the principle, but I am worried about it being done at the expense of everyone else. I hope that this is not right, but there was a hint that it would be done by putting a sharp ceiling on the funds that one could hold so that people with significant PEPs could find that the successor individual savings accounts were nothing like as attractive as what they have now. If that were to be the case, it would be a backward step.

I am also worried that the annual ceiling that people are able to contribute to individual savings accounts may be lower than the current PEPs one of £9,000. If that happened, it would be a retrograde step because we need to be concerned not just about those on lower incomes who are saving for retirement, but those on middle incomes.

I for one would not object to an individual savings account, subject to those serious reservations. I certainly would not object if the holders of such accounts had to keep them for a good deal longer than five years—they should hold them until retirement. Above all, one of the most serious objections to the Budget is that if there are to be changes to individual savings accounts and provisions for retirement by 1999, the steps taken on ACT are the most disastrous run-in to those changes.

7 pm

Photo of Mr Tom Pendry Mr Tom Pendry Labour, Stalybridge and Hyde

I, too, would like to join in the general chorus of praise for my right hon. Friend the Chancellor's excellent Budget. In content and delivery it was inspirational and it was the best Budget that I have heard in 27 years as a Member. From the responses that I have heard, other than those from Conservative Members, most other sensible people share my point of view.

In the short time available, I should like to refer the Chancellor and his team to the importance of the tourism and hospitality sectors and their potential for securing new, worthwhile jobs in the years ahead. That is very much in line with one of the main themes of the Budget. In fact, in a recent address at Malmö, the Prime Minister recognised that travel, tourism and hospitality are among the most important growth areas of the global economy of the 21st century.

I am sure that the Chancellor would also endorse that view, because he will be familiar with the contents of Labour's policy statement, "Breaking New Ground", which we successfully launched just before the general election. In that document, we promised to create an economic climate in which the tourism and hospitality sectors would thrive. To be fair to the Chancellor, he has made a good start with the Budget.

In that context, I should like to refer my right hon. Friend to a recent publication by the World Travel and Tourism Council, following the summit of the Eight, entitled "Travel and Tourism Creating Jobs". That document mirrors a great deal of what we spelt out in our policy document. In particular, it highlighted the importance of investment, training and education with a view to improving the skills, service and quality of the product and encouraging public and private sector partnerships.

It is regrettable that the tourism and hospitality industries are so fragmented and that national and local accounting, and general economic indicators do not specifically identify their importance. Often, their impact on the economy is not realised and underestimated.

In 1993, the United Nations body responsible for national accounting recommended that Governments should create a satellite account for travel and tourism in an attempt to rectify the situation. I hope that the new Government will give a lead in that respect, by highlighting the importance of those industries and their contribution to the national and global economies.

All hon. Members will be aware that tourism is a successful industry, which employs 3 million people. It is forecast to provide 300,000 new United Kingdom jobs in the next decade. In truth, however, it could do much more and this Government, and every Government, could do a great deal to assist its future growth. I hope that the Chancellor will ensure that the goals that we set ourselves in "Breaking New Ground" will be adhered to. In that document, we stated that the tourism and hospitality industries had much to contribute to a prosperous and equitable society. That is part of Labour's vision and such a society would make those industries develop new opportunities to ensure the well-being and wealth of our country.

As I have already stated, the Budget makes a good start in that direction. I must say, however, that my right hon. Friend the Chancellor could have gone further by addressing a particular worry of the tourism industry. In the November Budget, the previous Government announced that airport passenger duty would double to £10 for flights in the United Kingdom or to another European country, and £20 for worldwide departures. I am concerned about the effect on the valuable in-bound leisure tourism market. Currently, it is worth £12.7 billion in foreign exchange earnings. It is already suffering from the impact of a strong pound.

An extra £20 on APD for a Concorde flight or a business class fare is unlikely to matter to the business traveller. It will, however, make those spending their own money on a short break, a budget off-season holiday or a family trip to Britain think twice. Given that APD is charged per head, it can amount to as much as 25 per cent. of a child's fare. I ask the Chancellor to consider in the next Budget an ad valorem tax or the possibility of exempting children from that increase.

On the subject of APD, I am sure that the Minister for Competition and Consumer Affairs would also deplore the way in which many of the scheduled airlines advertise headline fares that are exclusive of APD and airport taxes. That is misleading and places tour operators at a severe competitive disadvantage, because I understand that they are required by the Association of British Travel Agents code to include such compulsory extras in their brochure prices.

Many thousands of tour operators and travel agents across the country sell domestic and overseas holidays. They have been affected not only by APD but by the impact of changes made by the previous Government to insurance premium tax. May I ask the Chancellor to expedite the promised review of the introduction of the discriminatory level of insurance premium tax, whereby travel agents are taxed at 17.5 per cent. IPT when selling the same or similar travel insurance as BUPA or building societies, which are taxed at 4 per cent? The travel industry argues convincingly that the VAT avoidance practices that that measure was designed to plug never existed. Travel agents are losing a valuable share of the travel insurance business, and the market has been distorted as a result of the previous Government's action.

I hope that the Chief Secretary to the Treasury will address those issues when he replies to the debate. For the first time, perhaps, the tourism, travel and hospitality industries are looking to the Labour party to champion their cause. I hope that we shall not let them down when they request reasonable measures from the Government.

Job creation was central to our policy as set out in "Breaking New Ground". I remind my right hon. Friend the Chancellor that many travel-related jobs are in small and medium-sized enterprises—the backbone of the market economy. A high proportion of those jobs go to women, minorities and young people. There are good opportunities for those who require job flexibility because of study commitments or family reasons.

Another advantage of utilising the job-creating potential of the travel and tourism sectors is that jobs created by them can be targeted at particular regions of the country through promotion or infrastructure developments.

A report released last year by the World Travel and Tourism Council, on the economic impact of travel and tourism in the United Kingdom, showed clearly that that sector currently generates 11.6 per cent. of the country's gross domestic product, which is higher than the world average of 10.7 per cent.

The Chancellor is well aware that unemployment is possibly the principal social economic challenge facing most countries. With most new jobs being created in the service sector, which is the dominant part of the economics of industrial nations such as our own, travel and tourism is one of the key services. It is already responsible, directly and indirectly, for more than 10 per cent. of global employment, GDP and investment. It offers unparalleled and largely unrecognised potential for job creation in the 21st century.

In the past 25 years, international travel and tourism has grown by more than 500 per cent. Domestic tourism, which represents by far the largest proportion of the market, has also expanded dramatically in that same period.

In short, the Government are introducing major new initiatives to combat unemployment. Let us make sure that the job-creating potential of travel and tourism is high on that agenda. That was a pre-election promise in "Breaking New Ground". Let us deliver it, just as we are delivering on other pre-election promises.

The Budget has been well received by the tourism industries. The commitment to reduce the strength of sterling is helpful, as the overall number of visits to Britain was down by 1 per cent. at the end of April, and by 7 per cent. in April itself. Cuts in corporation tax will have a favourable impact on the tourism business. Tax measures to encourage the British film industry are also helpful, as films can play an important role: they attract visitors to this country, as the success of the British Tourist Authority's movie map has shown.

All in all, the Budget has been a good start, but there is more to be done if we are to optimise the benefits to our society that tourism can bring.

Photo of Michael Jack Michael Jack Conservative, Fylde 7:10 pm, 7th July 1997

I am grateful to you, Mr. Deputy Speaker, for being called to speak in the debate, as much of what the hon. Member for Stalybridge and Hyde (Mr. Pendry) said about tourism will have resonance on the Fylde coast, an area which I represent. Unfortunately, however, he did not touch on some of the hidden items of the new Government's ideas that will affect tourism—the minimum wage and the social chapter, both of which will have deleterious effects on employment prospects in Blackpool and Fylde.

Budgets are as interesting for what they say as for what they do not say. I listened carefully to what was, in presentation terms—it is never an easy task—a well-delivered Budget. The Chancellor gave us a little clue about forthcoming attractions, not all of them particularly attractive. He seemed to be outlining a policy that would allow him, in 2001 or 2002—having taken a very tough fiscal stance, as he has done in this Budget—to make some form of monetary easement, perhaps for short-term political advantage.

To that end, I fear that we are seeing just the beginning of further tax rises. Some commentators have indicated that, in terms of addressing our so-called structural deficit, the Chancellor has not gone far enough. Indeed, they put forward the view that if the Budget's objective was to control consumer spending, he may not have gone far enough. I might not entirely agree with that strategy, but I am sure that that is what he is doing. I fear that there will be further fiscal tightening to come.

My right hon. Friend the Member for South Norfolk (Mr. MacGregor), a former Chief Secretary to the Treasury, rightly reminded us that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the former Chancellor, left this country's public finances in an excellent state. It was with some surprise that, one year after we last published estimates, I saw in the Red Book that the total Inland Revenue tax take had increased by some £10 billion.

I remember the guffaws from Labour Members at our Red Book figures in the previous Budget, when we improved public finances. We were attacked for our timetabling for the closing of the fiscal balance. We have now seen that we were right. We beat the public sector borrowing requirement estimates in the Red Book by some £3 billion. The legacy that my right hon. and learned Friend laid down has come to fruition in the figures that the Labour Government have at their disposal. That is, perhaps, another reason why my right hon. and learned Friend would not necessarily have gone down the same route that the present Government have taken.

What does the strategy that the Chancellor is following mean? It seems that he has taken the Pontius Pilate approach to setting monetary targets, which he sub-contracted to the Bank of England. In trying to deal with consumer spending, he lays us open to the first serious risk of the Budget. He has given the Monetary Policy Committee of the Bank of England the task of hitting his inflation target. I shall have a word or two to say about that in a moment. That committee will not want to miss his target.

There is a very real danger, as Roger Bootle reminded us in The Times today, that there will be an over-tightening of monetary policy, with sterling continuing to rise, which will affect our manufacturing industry to the extent that there may be a form of monetary overkill. When we look at the inflationary factors in the economy at present, we see tight control over the important price indexes. We do not see a runaway in terms of earnings, at around 4.5 per cent. The marketplace is extremely competitive and will remain so because of the advantage to those who bring in goods from overseas.

The Chancellor seems to have ignored that in his strategy. In fact, on monetary policy, he has almost become a Chancellor without ambition. It is noteworthy that he relaxed my right hon. and learned Friend's tight inflation target of 2½ per cent. or less. I can remember the current Chancellor attacking the Conservative Government for having an inflation target that was above some of the European comparators that he chose, but now that he is in office and he can see the dangers of an over-tight monetary regime, he has given himself room for manoeuvre, so much so that he has upped his inflation target to 2¾per cent. for the next financial year. It is quite remarkable in some ways how the Red Book does not look ahead more than one year in terms of tax revenues and two years in terms of spending revenues.

The right hon. Gentleman is also a Chancellor without ambition in terms of the potential of the British economy. Any Chancellor who goes backwards in his growth forecast for the British economy to a forecast of 2¼ per cent. shows little faith in his own policies, which he says are supposed to improve the productive capacity of the economy, increase investment and do all the other supply-side things to which his Budget alluded.

It is quite interesting that, when the smoke clears, one sees how little ambition the Chancellor has on inflation and on growth in the economy. That is, perhaps, not surprising, because forecasting is difficult, particularly when it comes to monetary policy. The Economic Secretary to the Treasury, who is in her place, reminded me of that when I asked specific questions on interest rates. Her reply was a telling contribution: it is not possible to be sure about the precise level of interest rates required to hit an exact inflation rate ten months ahead."—[Official Report, 3 June 1997; Vol. 295, c. 147.] We know about the uncertainties of forecasting inflation rates and growth.

Other right hon. and hon. Members tellingly pointed to the fact that, now that the smoke has cleared, the fizz has gone out of last Wednesday's Budget champagne. By Thursday, a headline in the Financial Times pointed out that "Poorest Households Fare Worst". If a Conservative Budget had received such a headline, we would have been taken to the proverbial cleaners, but Labour Members cheered. These were socialists cheering. What a great beginning for socialists, who raised so many expectations in the election that those at the bottom of the pile might benefit. Those are the people whom the new Chancellor clobbers straight away.

By Sunday, the journalists were warming to the task in their critique of the Budget. David Smith in The Sunday Times entertained me over my cup of tea to the headline. "Brown gets into a budget mess". That is a pretty quick downward road to disaster for the Budget.

We also find that, despite all the meticulous planning of the Budget, within 24 hours the Paymaster General is rowing back from his proposals on foreign income dividends. That is a technical but important area of detail for Britain's overseas trade, involving the location of foreign companies with large-scale foreign interests in this country. When those companies blanched and said that they might have to move away, the Paymaster General quickly rowed back. That is not an issue to be tackled by amateurs, but the Government have taken an amateurish approach to a difficult subject.

One could argue that the same amateurism was shown over advance corporation tax. It is true that previous Conservative Governments took action in that area. One of the arguments that the Chancellor advanced was that the measure would achieve two ends. He said that it would encourage investment because it would take the pressure off companies to distribute profits. But that argument does not hold up. The former Chancellor, Norman Lamont, did not achieve that result when he reduced tax credits from 25 to 20 per cent.

The second argument advanced was that the measure would provide some sort of beginning for a change in corporate tax. The United States has a classical corporation tax system, and the percentage of profits distributed through the imputation system is greater there than it is in the United Kingdom. The case has not been made for a change in ACT bringing the investment results suggested by the Chancellor.

The more telling point involves the impact on individuals. My right hon. Friend the former Chief Secretary went as far as to say that considerable extra contributions could be required, particularly for those with personal, as opposed to final salary, pensions. It is a tawdry little Budget—the Government have not come clean and spelt out its financial implications.

We are supposed to live in the world of open government, but it takes the money page of the Financial Times to open the eyes of the individual. In his moment of discomfiture, I refer the Chief Secretary to what he may have read on Sunday. Using PensionStore as its source, The Sunday Times makes clear the effect of the abolition of ACT relief on personal pension holders who invest £100 a month. Assuming a 9 per cent. return per annum before abolition, a person aged 30 would have to pay another £20.12 a month to deal with the consequences of the Budget. Someone aged 40 would have to pay £13.69 and someone aged 50 would have to pay £7.52.

That measure has come from a Government who talk about building for the long term. Their monetary stance has made life exceedingly difficult for people who will now face considerable rises in their mortgage interest payments. Those payments will also rise considerably because of the reduction in tax relief on mortgage interest. A hidden tax has been introduced. It is incumbent on the Government to come clean and publish far more data, to ensure that people understand precisely what it is that the Government have in mind, so that they can make the appropriate personal finance arrangements to get their house in order.

I also ask the Government to give a commitment tonight to come clean as quickly as possible on the subject of personal savings accounts. People who are trying to decide whether to invest in PEPs or TESSAs will be in doubt about what they should do. We are talking not about fat-cat speculators, but about ordinary individuals with modest savings, who have been left in the dark about what the Government have in mind.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

I know that my right hon. Friend is an expert in corporation tax matters. When I, as an ordinary investor, receive my dividend from a company, I also receive a tax credit, which I am able to spend the next day; I am credited with the tax that has been paid by the company. Surely, pension schemes were being credited with that money, then when a pensioner received the benefit later, he would pay income tax on what he received from the pension company. The Government have introduced double taxation: the pensioner will be taxed and the company will be taxed.

Photo of Michael Jack Michael Jack Conservative, Fylde

My hon. Friend is right. To develop that line of thinking: the Government have taken £5.4 billion out of the investment potential of those pension funds. Where is that money supposed to be coming from? It is already clear that companies are suggesting that their pension holidays will soon be over and they will have to find more money from somewhere to meet their obligations. The comments that I have just made about personal pension funds show that the impact will come sooner rather than later. The Government will rue the day that they introduced that measure.

Some people—including one correspondent in a national newspaper—have suggested that the measure will improve the performance of pension funds. That is a fair line of argument, but a dawn raid of unparalled proportions on the long-term future of people's savings was not the method to use. The measure was introduced by a Government who are supposed to believe in the long term.

One of the saddest items in the Budget is the removal of tax relief on the contributions of those who have taken out private medical insurance. It is a nasty, spiteful tax in which the Government can have no pride. It is little wonder that those on the Treasury Bench are looking away from me while I make these remarks. [Laughter.] Labour Members may laugh, but many people—some of whom took out private health insurance because their unions or their employers made it available to them as a benefit—wanted to keep that benefit into their old age, and the tax relief helped them to do so. Labour Members can chuckle as much as they like now, but they should wait until the first elderly person comes through their advice bureau door and asks why he has had to give up the benefit.

The Treasury has offered no costed information on the impact of that measure on the national health service. The only information that I have received on the subject has come from the Association of British Insurers. I concede that it is biased, because it represents the insurance industry. Its press release states: If half the 550,000 over-60s with medical insurance give up their cover, they would only need to cost the NHS £440 each in a year for the anticipated £120 million saving in tax relief to be used up. The press release concludes with a telling remark that is chilling for the Chief Secretary: Yet the average paid out annually in claims for this age group is some £760". Where will the extra money come from, to deal with any one person—never mind about half the total number—who falls out of the health care insurance system?

The people affected by the measure are not evenly distributed around the country. They are concentrated in certain areas such as the Fylde coast and the south coast, where there are large percentages of elderly people. The Government should give a clear assurance from the Dispatch Box tonight that they will assess the costings and the impact of that measure on each and every health authority in the United Kingdom.

There was a remarkable throw-away line in the Budget involving personal taxation, which points the way to the future. The Chancellor said that he wanted to introduce a 10p starting rate when it was prudent to do so. I am looking forward to the Government's definition of prudence, but I am also looking forward to how they will deal with the 10p starting rate, because I think that therein lie some fundamental changes to the way in which income tax will operate.

The one commitment the Chancellor has not given is what will happen to the 20p band—that has been left unsaid and it would be useful to know what the long-term tax objective is. Do I see 20p going and 10p arriving? If I do see that occurring, will it be on the first £1,000 or £2,000 of income? If that is the way in which the Chancellor's mind is working, I see the 20p band going and he might be bold enough to make some further changes—changes to the allowances. Unless he does that, the 10p band will remain utterly illusory, in that it will be basic-rate and higher-rate taxpayers who will be the beneficiaries of 80 per cent. of the arrival of a 10p tax rate. It will do nothing for low-paid taxpayers.

I believe that that forecasts future changes in allowances and even changes in the basic rate structure. It will be incumbent on us to keep an eye on that scenario, because there are too many variables changing. It would be another golden opportunity for the Government to impose not only the 17 tax increases we have had so far, but the 18th, 19th, 20th and beyond.

Photo of Ivan Lewis Ivan Lewis Labour, Bury South 7:30 pm, 7th July 1997

Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech in this historic Budget debate—the first Budget by a Labour Chancellor for nearly 20 years.

It feels especially appropriate that I am making my maiden speech in this debate, because 12 years ago, at the age of 18, I began my working life on a work and training programme for Outreach—a voluntary organisation in my constituency—working with people with learning disabilities. Many of my colleagues, who, at that time, were young or long-term unemployed people, went on to take university degrees or gain responsible positions in the public and private sectors.

I went on to found and work for a local voluntary organisation, Contact Community Care, before becoming chief executive of the Manchester Jewish Federation in 1992 and remaining in that post until my election. I, therefore, know more than most about the benefits of the sort of opportunity that the Government seek to extend to all today's young and long-term unemployed people.

My right hon. Friend the Chancellor and the Treasury team are to be congratulated on an excellent Budget, which gives practical effect to our fundamental belief that social justice and economic prosperity are inextricably linked. The Budget lays the foundations for a radical reforming Government, who will rebuild Britain as one nation—a Government who recognise that improved public services cannot be delivered without sound and prudent economic management, but that sound economic management can never include spending millions on welfare and not work, or on the national health service internal market rather than patient care.

My right hon. Friend the Chancellor is to be congratulated, not only on the Budget, but on his first nine weeks of bold and much-needed reform. One measure on which I want to focus is his decision to end self-regulation of the banks and financial institutions. My local authority, Bury, lost £6.5 million in perhaps the greatest banking scandal of all time—the collapse of the Bank of Credit and Commerce International. It is reasonable to believe that, had the new system of regulation been in place, that scandal would have been uncovered at a far earlier stage and who knows how many investors would have been saved from ruin? My hon. Friend the Member for Leicester, East (Mr. Vaz) deserves much credit for his work to date on that issue.

Equally important to me, I congratulate my right hon. Friend the Chancellor on his appointment of Mr. Howard Davies to head the new regulatory body. Any man who, like me, has suffered a life-long, passionate and traumatic relationship with Manchester City football club deserves recognition for staying power and stress-management skills, if for nothing else. Following the election, Mr. Davies will be reassured that sometimes years in the wilderness do have a happy ending.

The Budget will make a real difference to the lives of my constituents, especially young people, pensioners and lone parents. Approximately 500 under 25-year-olds will be given the chance to earn and the chance to learn—young people rescued from the futility and alienation of unemployment and given the chance to become stakeholders in our society.

A country that claims to be decent and civilised and seeks economic competitiveness cannot afford any more lost generations. Of course, it is right that the welfare-to-work programme is paid for by the windfall tax on the excess profits of the privatised utilities—resources taken from the few and provided for the benefit of the many. Corporate freedom must also mean corporate responsibility.

The reduction of value added tax on fuel will also be welcomed by my constituents, especially the 15,000 pensioners who suffered more than most when that unjustifiable warmth tax was introduced by the previous Government. Lone parents are at last to be assisted, not scapegoated. The proposals to expand child care places are especially welcome. As a patron of my local Kids Club Network out-of-school child care clubs, I am particularly pleased with the emphasis on that form of child care and the recognition given to the excellent work of Kids Club Network throughout the country. The extra resources for health will help my local providers plan on a long-term basis and replace competition by collaboration and co-operation—patient care, not bureaucracy, will once again top the national health service's agenda.

Bury, South is the constituency where I was born and where I have lived all my life, which is why I am especially proud to be standing here today, delivering my maiden speech. The constituency is situated to the north of Manchester, in the valley of the River Irwell, in the shadows of the Pennines, at the edge of the east Lancashire plain. It comprises three distinct communities—Radcliffe, Whitefield and Prestwich, all of which, given their acute sense of identity, would like their own referendum on the devolution of power from Bury.

Radcliffe is an old Lancashire mill town, famous for its paper-making industry. Like many similar towns, it has suffered from the devastation of manufacturing industry in the 1980s, although some paper mills have survived and remain an important source of local employment.

A fine example of a thriving and successful British company in Radcliffe is Fragrance Oils Ltd., which sells its perfumes successfully on the world market. The Under-Secretary of State for Wales, my hon. Friend the Member for Neath (Mr. Hain), and I had some difficulty explaining to our wives the pleasant odour that stuck following our visit to the perfume plant during the general election. Radcliffe has been designated a regeneration area and its residents look with optimism and hope to the new Government to create economic conditions that encourage long-term investment and partnership.

Ainsworth is a small, picturesque and beautiful village on the edge of Radcliffe. Its community association is a fine example in modern times of community pride and shared responsibility in action. Whitefield and Prestwich are commuter-belt communities, each with a proud history. In recent years, Whitefield has sadly become synonymous with the M62 relief road—a proposed widening of the M62 motorway, which was subsequently abandoned by the previous Government. To date, that abandoned road scheme has cost £25 million to £30 million of taxpayers' money, blighted a once-pleasant residential area and exposed incompetence of the highest order in both the Department of Transport and the Highways Agency. Not only do my constituents deserve redress for their suffering, but they, more than most, will welcome the Government's determination to end the love affair with road building and seek a truly integrated public transport system.

The third community is Prestwich, which is known for its great municipal park, Heaton park, which also straddles the constituency of my hon. Friend the Member for Manchester, Blackley (Mr. Stringer). Prestwich was home to a significant nationally known psychiatric hospital until recently, when, like many similar institutions, most of its services were removed and the land sold for use as a superstore.

I have been a long-time strong and passionate supporter of community care and an opponent of the institutionalisation of people with mental health problems and learning disabilities, but there is much local evidence that community care sometimes fails society's most vulnerable members because of a lack of co-ordination between social and health care providers. That is an issue which the Government must address. Prestwich is also proud to have a new partnership between business, the voluntary sector and the local authority, which is working hard to regenerate the locality.

Another distinctive element in my constituency is harmony and mutual respect between the different faith communities. Bury, South has one of the most vibrant and thriving Jewish communities in Britain. I am proud to be a member of that community, with its impressive myriad learning establishments and charitable organisations.

Bury, South is part of a metropolitan borough that also incorporates the constituency of Bury, North. Bury is especially proud of its family of schools, and the partnership between the local education authority, parents, teachers and governors has been the springboard to high standards of education achievement. In 1996, Bury LEA was second nationally in the league tables covering GCSEs with five or more grades A to G and fifth in the key stage 2 tables.

The Labour local authority is also proud of its community safety and environmental partnerships, which are models of good practice. Bury has achieved national acclaim for its innovative work involving young people in decisions that affect their lives. Sadly, over a number of years, that imaginative and innovative work has been undermined by budget cuts far worse than those in similar local authorities. I cannot overstate the importance of creating a local government funding regime that is fair and rational, but I am delighted by my right hon. Friend the Chancellor's announcement of increased revenue and capital investment in our schools.

We are realistic about public spending constraints, but simply request that we receive our fair share of the existing cake. The quality of local children's education now depends on it.

In a maiden speech, it is customary to pay tribute to one's predecessor. In my case, that is not difficult, as our differences were always political and never personal. David Sumberg was regarded as a decent parliamentarian by Members on both sides of the House. Many will remember him as a Ronnie Corbett lookalike. Indeed, his visual place in history will be preserved for ever as he sat immediately behind Sir Geoffrey Howe—now the noble Lord Howe—during his historic statement which led to the fall of the then Prime Minister in 1990.

As well as being PPS to the then Attorney-General, David Sumberg will also be remembered as an effective and independent member of the Select Committee on Foreign Affairs. His questioning of Ministers during the Pergau dam and arms to Iraq affairs demonstrated his sharp brain and strong commitment to the integrity of the Select Committee process. He was also given the honour of seconding the Loyal Address in November 1989.

David Sumberg had a high regard for his predecessors and Members representing parts of the constituency when the boundaries were changed. I mention in particular Frank White, Jim Callaghan and the late Michael Fidler, who were excellent constituency Members who were respected in the House. I suspect that they would have found the new Parliament quite a culture shock with many more women and young people making us a truly representative people's Parliament.

The Budget that we have discussed in the past few days not only makes good the Government's election pledges, but reflects the people's priorities. It stands for work not welfare, patient care not bureaucracy, stability not boom and bust, long-term investment not short-term exploitation. The people of Bury, South have welcomed the Budget and the foundation it lays for the economic and social regeneration of our country.

Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds 7:41 pm, 7th July 1997

Thank you, Mr. Deputy Speaker, for allowing me to speak for the first time in this important debate on the Budget. I congratulate the hon. Member for Bury, South (Mr. Lewis) on his eloquent, knowledgeable and thoughtful maiden speech.

I am very conscious of the huge privilege that the electors of Bury St. Edmunds have bestowed on me. It is truly an honour to represent such a beautiful and historic part of Suffolk—a county which I have long felt was the true Garden of England.

Mine is a new constituency, resulting from boundary changes effected since 1992. One half of the constituency was formerly represented by my hon. Friend the Member for West Suffolk (Mr. Spring) and the other half by my hon. Friend the Member for Central Suffolk and Ipswich, North (Mr. Lord), who is in the Chair and whose elevation to the post of Deputy Speaker was widely and warmly celebrated in the county. My hon. Friends have advised me wisely and well over the months and I thank them for their many kindnesses. They did more than give me good advice, however; they also gave me some excellent parts of their former constituencies—for which I was enormously grateful on the evening of 1 May, as I had to sit through two nail-biting recounts.

I have learnt that Suffolk people are quiet but single-minded in their determination to ensure that their local interests are protected and advanced by hard-working, effective local Members of Parliament. My immediate predecessors have set very high standards in that regard and I shall do my best to emulate them.

With the indulgence of hon. Members, I should like briefly to describe the geography of my constituency. I seek not merely to follow a convention of the House, but to assist some of my constituents who are still not quite sure which constituency they live in, given the new, radically reshaped boundaries.

To the west is Bury St. Edmunds, a market town of true distinction. It is a veritable jewel in the crown in the county of Suffolk. It was once the county town and, morally, in many people's eyes, it still is. It retains its impressive 11th century layout together with remarkably unspoilt narrow streets and fine Georgian squares. Thomas Carlyle called it a prosperous, brisk town beautifully diversifying". That remains true today, as Bury boasts the largest sugar beet factory in the country and the largest malt extract manufacturer in the country. The highly successful independent brewery Greene King is also a major employer in the town. Its excellent product does not yet appear to be available in Bars in the Palace of Westminster, but I shall be working on that.

To the east of my constituency lies Needham Market, a growing settlement, and Stowmarket, a town once famous for its woollen industry and now known for the major businesses of ICI and Muntons.

To the north are the attractive villages of Redgrave, the Thornhams and Gislingham, which represent the most northern parts of Suffolk, bordering on Norfolk. To the south are the beautiful villages of the Bradfields, Felsham and Gedding, which form our border with south Suffolk.

My constituency is an attractive place for many reasons. That is why so many people choose not only to retire there, but to live and work there. The majority of us in Bury St. Edmunds share a common desire to preserve and conserve what is best in our environment and our way of life while, at the same time, being flexible enough to take advantage of economic developments that benefit the area. As the new millennium approaches, Bury St. Edmunds will meet the challenge of economic change.

The Budget purports to address the problems created by economic change. Perhaps almost all of us on both sides of the House agree that economic change is inescapable and that the notion, "Stop the world, I want to get off", is practically and intellectually unsustainable. It is simply not an option for a modern, mature, western industrialised democracy.

However, the Conservative response to dealing with economic change, such that increases in living standards and better public services are delivered, remains poles apart from that of the Government as outlined in the Budget. It is more in sorrow than in anger that I say that the Budget does not do enough to advance the values of free enterprise, thrift, personal responsibility and personal prosperity that are in sympathy with the real instincts of the British people.

The Budget was skilfully presented; there is no doubt about that. However, when a senior Member said to me that it was a cunning Budget and that the Chancellor was a cunning man, it put me in mind of the dictum of the first Viscount of St. Albans, Francis Bacon, who said,

Nothing doth more hurt in a state than that cunning men pass for wise. The Chancellor of the Exchequer is a cunning man, but I fear that he is not a wise man. He is not a wise man because he believes that he can take about £10 billion over three years from the corporate sector on advance corporation tax—and more with the windfall tax—without affecting investment levels or the standard of living of individuals. As my right hon. Friends the Members for South Norfolk (Mr. MacGregor) and for Fylde (Mr. Jack) said, the abolition of the dividend tax credit will affect companies and individuals, no matter how much it is argued to the contrary. Companies face a choice between contributing more to their pension schemes—reducing investment to pay for it—and cutting pension benefits for their employees. By the same token, individuals with personal pensions must either cut their living standards today to put more into their schemes than they would have to otherwise, or take the hit delivered by the Budget—lower living standards—when they draw their pensions in the future.

The ACT change will be a disincentive to investment in other ways. It will lead to a switch by investors in United Kingdom equities to foreign equities and, as my hon. Friend the Member for Havant (Mr. Willetts) has said, to a much less efficient market in capital. Let us not forget the windfall tax, which will reduce dividends and thus hit those in pension funds and other shareholders. It will exert upward pressure on utility prices and downward pressure on investment.

Those tax increases may not be all that visible, but they are certainly not painless, as I believe the public will recognise in due course. The other, more visible, tax increases in the Budget have already dismayed many of my constituents. The rise in petrol duty will hit rural dwellers who rely on their cars as their sole means of transport. Mortgage payers in my constituency will pay more as a result of the MIRAS change. People in Bury St. Edmunds do not understand why that is necessary to dampen down the housing boom, given that Suffolk is nowhere near experiencing such a boom.

The news on the spending side that there will be more funds for Suffolk schools and hospitals has raised expectations. Next year and the year after, I shall monitor the position to ensure that Suffolk receives its fair share of what money is available.

There was one disappointing omission from the Budget. Just before the Budget, I conducted a survey of several hundred small businesses. The majority of business men advised me in writing that a reduction in business rates was the best way of assisting them. For the sake of shops and other small and medium-sized businesses in Bury St. Edmunds, Stowmarket, Needham Market and other villages in my constituency, I ask the new Government to consider giving business rate relief on at least the first £1,000 of a business's rateable value, as we proposed in our general election manifesto. Given new Labour's track record of purloining the best bits of Tory economic policy, I confidently expect the Chancellor to include such a measure in his next Budget. Conservative Members will keep up the pressure on him to do so.

The more I study the Budget, the less economic justification I see for it. It would appear that the Chancellor has jacked up less visible taxes now in order to raise revenue that he will then use to cut more visible taxes with a fanfare of trumpets at some future date—say March 2001, if I may pick a date entirely at random.

Be that as it may, it is clear to Conservative Members that such economic success as the new Government can achieve will be due to the excellent economic circumstances that we bequeathed on leaving office.

My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) was the brilliant architect of a lasting economic recovery, based on historically low inflation and low interest rates, falling borrowing and falling unemployment, and an improved balance-of-payments performance.

It is true that this remarkable inheritance was not appreciated at the last election and Conservative Members have some hard lessons to learn from that, but I give notice, in a friendly and, I hope, helpful way, that we shall put across a fresh and reinvigorated Tory economic argument next time. In the meantime, we shall be unstinting in our determination to lay bare the deficiencies in the Government's economic approach of which the British public need to be made aware.

I thank the House for its generous welcome and I thank hon. Members for listening to my views on the critical issue of the country's economic future.

Photo of Russell Brown Russell Brown Labour, Dumfries 7:54 pm, 7th July 1997

I apologise for trying to intervene earlier, having not yet made my maiden speech.

I congratulate the hon. Member for Bury St. Edmunds (Mr. Ruffley) on his excellent maiden speech. Obviously, I hope to follow suit. I make my first speech with a certain amount of trepidation, but, as a great deal of courtesy has been shown to others in a similar position, I am sure that I shall be able to survive the ordeal.

Like many other Members who have been elected for the first time, I hoped for many months that I would achieve victory on polling day and become the first-ever Labour Member of Parliament for Dumfries. Although tremendous effort was put into our campaign, however, it is true to say that, even in our wildest dreams, we had never contemplated the size of the eventual majority.

I pay tribute to my predecessor, Sir Hector Monro. He was a local man, who served the constituency well for more than 30 years. He was admired by many people in all walks of life, and he cared passionately about the people whom he represented in the House. Throughout his career, he faced many difficult times—both in ministerial posts and as a Back Bencher—but none more difficult than the tragedy of the Lockerbie air disaster of 1988. At that extremely difficult time, he showed truly statesmanlike qualities; I am sure that lesser mortals would have broken under such pressures. Let me add, in view of the latest speculation about the Lockerbie disaster, that I—like my predecessor—have every confidence in the Scottish legal system, and I urge that the suspects be brought to Scotland for a fair trial.

Sir Hector showed his calibre in many ways. Another perfect example was on an occasion when, although his own wife was not in the best of health and although he and I were at opposite ends of the political spectrum, he showed great concern and sent good wishes when my wife and I were seriously injured in a road accident some years ago. That was the calibre of Sir Hector Monro, who will definitely be a hard act to follow.

What of my constituency, Dumfries? It is a large rural seat measuring nearly 2,500 sq miles, whose industry is centred on agriculture, tourism, textiles, forestry and food processing. There is some light engineering, but the only heavy industry is boiler making, which takes place on the outskirts of my home town of Annan. That boiler-making company is now a subsidiary of the Rolls-Royce group, and, in its early days, the site saw the manufacture of the world's first submarine. Tragically, it is intended to resurrect that same submarine off the coast of the Isle of Man in the near future.

The constituency is also home to a number of well-known companies such as ICI, British Nuclear Fuels Ltd., Gates rubber company and Glaxo Wellcome. Unfortunately, one of the directors of Glaxo Wellcome told me earlier today that the site in my constituency is to be sold. I shall, of course, seek reassurances in the coming days on behalf of the local community and members of staff working on site.

Tourists are attracted to the constituency in great numbers by the scenery, history and tradition of the many towns and villages, which include Gretna—the marriage centre of Scotland, if not Europe or even the world—Lochmaben, supposedly the birth place of Robert the Bruce, and Dumfries itself, the resting place of Scotland's national bard Robert Burns.

At this time of year, the different communities hold their common riding and march riding ceremonies, which in some instances date back a number of centuries. It is not uncommon to see the populations of our towns and villages double or even treble on one day when visitors flock to follow those ancient ceremonies and traditions.

Only on Saturday last, the main street of my home town was thronged with thousands of people to watch the closing ceremony of our day of celebrations, which involved 27 pipe bands from many different parts of Scotland, England and Northern Ireland. It is a ceremony to stir the heart of any Scot, and one which saw the return of many people to their home town from many parts of the country, and even front different corners of the world, to be back among loved ones and to share the excitement of our traditions.

Dumfries is a rural constituency but it is not a rural backwater. It has provided many firsts—for example, the world's first savings bank, which was founded by the Rev. Henry Duncan in the village of Ruthwell in 1810. The building is now a museum. The only Buddhist temple in Britain is to be found at Eskdalemuir, near Langholm. It was established in 1967 and officially opened in 1988.

The first operation in Europe to be performed under anaesthetic was carried out on 19 December 1846 by a Dr. Scott at the original royal infirmary at Dumfries, about two days earlier than many other claims. The first nursing lectures in Great Britain—possibly in the world—were delivered in 1854 at the Crichton royal hospital, Dumfries, six years before Florence Nightingale's. How sad it is that in 1997 the Scottish Office, under the previous Government, has decreed that the constituency's only nursing college, after such a long time, must move to Bell college in Hamilton next year.

I mentioned earlier that Robert Burns is buried in St. Michael's churchyard, Dumfries. He wrote a number of his great works while residing in the locality as an Excise man between 1788 and his untimely death in 1796.

Other famous literary names are associated with the constituency, including Hugh MacDiarmid, a 20th century poet who was born Christopher Murray Grieve in the town of Langholm in 1892. The author J. M. Barrie was educated at Dumfries academy. It is said that he dreamed up the magical story of "Peter Pan" having been inspired by a Dumfries garden.

The world's first pedal cycle was invented in southern Scotland between 1838 and 1840 by a gentleman called Kirkpatrick Macmillan. Without him, I wonder whether we would have ever heard that famous command from a former Member for Chingford, when he instructed the unemployed in the 1980s to get on their bikes and go to look for work. I am sure that we would have heard that same comment.

It would be somewhat remiss of me if I did not mention one of the greatest engineers ever, who was born in the village of Westerkirk, near Langholm. Thomas Telford started his career as an assistant bridge builder in the town and was responsible for the construction of the Caledonian canal, more than 900 miles of roads in Scotland and more than 100 bridges. He undertook significant improvements to harbours in Wick, Aberdeen, Banff and Leith. The expertise of Thomas Telford went way beyond the Scottish border when he superintended the construction of the Shrewsbury-Holyhead road, which involved the Conway bridge and the Menai suspension bridge.

As a rural constituency, Dumfries has been especially hard hit by the beef crisis, but I am heartened by the positive attitude that has developed over recent weeks. However, I am not so naive as to think that a solution is imminent. At the same time, I urge right hon. and hon. Members to be supportive of action that is being taken by my right hon. Friend the Minister of Agriculture, Fisheries and Food to move us towards the lifting of the ban and thereby relieving the pressure on rural economies throughout the country.

The future of our nation will be based on a strong economy, the foundations of which are built upon a strong industrial base. It must be an economy that looks to the future in the long term rather than what we have seen in recent years with the boom-and-bust economics of the previous Government.

Communities, families and individuals are all seeking security, hope or prospect—in other words, something around which to build their futures. My right hon. Friend the Chancellor of the Exchequer showed the first signs of such a future in his Budget statement last week. The Budget delivered exactly what was promised to the country during the Labour party's election campaign and spelt out in the party's manifesto.

Investment in industry, whether in the form of technology, research and development, infrastructure or the training of staff has been in decline for a number of years. The proposed reduction in the rate of corporation tax will encourage much-needed investment, and increased capital tax allowances for small and medium firms will be of particular benefit to rural constituencies where small and medium firms are in abundance.

As a nation, we cannot go forward if we are spending on benefits and keeping families on the breadline, and in many instances in poverty. It must be understood that rural poverty exists. The fact that we now spend as much on the benefit system as we do on our children's education is a clear sign of where we have gone wrong over the past 18 years. In 1979, we were spending twice as much on education as we were on benefits. We need to turn the situation round. The welfare-to-work programme will set about reversing an 18-year trend. Our young people and long-term unemployed are looking for hope and a future. They are looking also for proper jobs combined with training.

The Budget statement is also about our children's education and their future. Additional funding from the windfall levy will equip our schools in the race towards the 21st century. Additional funding in the next financial year will resource our schools in our push towards raising standards.

The move away from red tape and bureaucracy and the transfer of moneys into frontline patient care was the promised start for our national health service. To this, my right hon. Friend the Chancellor is giving a further commitment for the next financial year. Such action has been greeted with great relief in my constituency—a constituency trapped in red tape, with a health board and two trusts. I look forward to early action on that issue. Bureaucracy, fraud and red tape must be tackled. I was delighted to hear my right hon. Friend the Secretary of State for Health commenting on those matters.

I understand fully the position in which we find ourselves with the private finance initiative, but we must mould it into a system that meets the need for which it was designed and provides the hospitals that are needed. It should not be a pool of money to be drawn upon and wasted in paying consultants' fees.

If there is a downside to the Budget, it must be in the increase in road fuel duties. I endorse the need to reduce carbon dioxide emissions, but such an increase hits rural areas especially hard. In rural areas, 25 per cent. of households do not own a private car. During the working day, the number of isolated households can rise to 50 or even 60 per cent. because the family car is being used elsewhere or because no public transport is available. We must aim to improve the transport network, particularly in rural areas, if we are keen to reduce traffic levels on roads in rural areas.

In rural areas, there is perhaps concern not so much about fuel duty but about the disparity of pricing by oil companies. I know that, in my constituency, a journey of 30 miles can include a price variation in fuel of 8p or 9p a litre. That issue must be addressed.

I thank right hon. and hon. Members for the friendliness and appreciation that they have shown and I look forward to taking part in many more debates in the coming years. I am honoured to speak in support of the Budget statement.

Photo of Mr Peter Brooke Mr Peter Brooke Conservative, Cities of London and Westminster 8:08 pm, 7th July 1997

It is a pleasure to follow a notable trio of maiden speeches—those of the hon. Member for Bury, South (Mr. Lewis), my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) and the hon. Member for Dumfries (Mr. Brown). I congratulate all three on their speeches.

I thank the hon. Member for Bury, South for the pleasant words that he said about his predecessor, David Sumberg, and I share with him an admiration for Howard Davies, with whom I coincided at the Treasury. My hon. Friend the Member for Bury St. Edmunds is my constituent. I was as delighted by his victory as I was warmed by his maiden speech. All Conservative Members would want me to thank the hon. Member for Dumfries for his tribute to Sir Hector Monro, who sat in the House, and on the Conservative Front Bench, for a long time. A hundred of the most pleasant hours that I have spent in the House were spent as Whip on the Wildlife and Countryside Bill when Sir Hector led us in Committee.

I apologise through you, Mr. Deputy Speaker, to those on the Treasury Bench for the fact that, in speaking late in this four-day debate, due to mechanical problems outside my control, everything that could be said about the Budget has already been said, and I shall not be able to subject it to any new-minted critical analysis such as my right hon. and hon. Friends subjected it to last week and today.

I heard some of the contributions from my right hon. and hon. Friends and read all those that I did not hear, as I have those from hon. Members on the Government Benches. Many of the latter were maiden speeches. They were excellent in themselves, but, by tradition, they were spared from any obligation to be controversial. Effectively, therefore, we had a rerun of the general election from the Labour Benches in largely unsubstantiated mantras.

Such response as was made to the effective Opposition criticisms came from the Treasury Bench, although the Financial Secretary, while promising debate and discussion of the issues before the House during consideration of the Finance Bill, clearly demonstrated by her silence on Thursday night in answer to some reasonable, relevant and logical questions from my hon. Friend the Member for Daventry (Mr. Boswell) that she did not think that this four-day debate should be sullied by anything as robust as discussion.

The Chief Secretary intervened in the speech of my right hon. Friend the shadow Chancellor on Thursday afternoon, but only to demonstrate that old alliance between France and Scotland in a Caledonian interpretation of Marshal Foch's belief that attack is the best form of defence of a hopeless position. He did not defend the Government's position on ACT and pensions; he simply put up another pensions hare, but several fields away.

Sir Winston Churchill once took similar aim at a hare that was several fields away at Blenheim, at which the gamekeeper said that there was no possibility of him hitting it. Sir Winston—as he then was not—said that he just wanted that small animal to feel that it had some part to play in our proceedings. The Chief Secretary's intervention had the same quality of engaging irrelevance.

The other response, of course, to our criticism concerning pensioners was reversion to VAT on fuel which the Financial Secretary used not once, but twice on Thursday evening. It was a poor riposte in itself, as pensioners were protected from VAT on fuel, and a worse one still when the Government are putting it about that, although we cannot see them, they really wear green underclothes.

The Paymaster General did at least say that the Government would think again on foreign income dividends, to which my right hon. Friend the Member for Fylde (Mr. Jack) referred, though it was an embarrassingly early admission when the Budget was only two days old.

In 1782, after a Treasury review—nothing changes in our national life—into embezzlement in the Paymaster General's office, which pursued six Paymasters General beyond the grave and even found that Lord North owed a bob or two, the great Edmund Burke was appointed Paymaster General as Mr. Clean—again, nothing changes—and brought in a Bill which stated that the penalty for forging the Paymaster General's signature would be death without benefit of clergy. Twenty five years later, Parliament relented and substituted 14 years in Australia as a penalty.

When I was Paymaster General, I always thought that 14 years in Australia was a pretty heavy price to pay for my signature, but now that we have a proper, rich Paymaster General again, as in the 18th century, perhaps it will become worth while. Ironically, the present Paymaster General says that he will try to persuade people not to go to Australia.

Apart from having been Paymaster General, I ought also to have declared an interest as a former member of the staff of the Financial Times, to which hon. Members on the Treasury Bench paid a perhaps unintended compliment. Before the Budget, they accused the Opposition of making too much of the Financial Times matter, while the Opposition accused the Government of making too little of it. As the media would be the first to remind the Opposition of how little they matter in the current scheme of things, the charge against the Government is the more serious one.

It was always said of Dalton's resignation, not least in the Treasury, that it was an example of the divine providence that watches over the affairs of this nation. The Government's compliment to the Financial Times was that either it had a scoop or its forecasting was brilliant. I notice that no one tried to deny that a senior Minister had said something. Any senior Minister stupid enough to speak to the Financial Times in the run-up to the Budget would also, presumably, be stupid enough in due course to reveal his identity. If he pre-empts that by confessing to the Government Chief Whip, I am confident that, in this era of open government, his name will be posted on the notice board in the Noes Lobby or at least in the London Gazette.

On the Budget itself, I have three and a half things to say. The first relates, with proper alphabetical attention, to ACT. On Monday last week, the Speaker was kind enough to call me during Social Security questions. I asked the Minister answering the question whether the Government acknowledged the international recognition of the sound basis of British pensions, and for a reassurance that the Government would not threaten that sound basis in any particular.

The Minister answered the first part of the question, but not the second. He either knew what was in the Budget, or he serendipitously guessed it. In either case, by his silence, he avoided misleading the House. It took only two days, however, for the Chancellor to take a Gladstonian axe to that sound basis, which internationally is on a pinnacle with only one other country.

As I understand chaos theory, not least from Mr. Stoppard's recent play, a butterfly can stretch its wings in one continent and a decent-sized earthquake can occur in another. The Chancellor, perhaps through marrying chaos theory with endogenous growth theory, has achieved a subtly antithetical effect, in which one can drop an annual £5 million boulder into the placid pool of recognisably successful pensions policies, and a little old lady in a rural sub-post office has to pay more for her postage stamp.

The Government's germane responses to criticisms of the effects of their ACT move—if one ignores the hare several fields away—have been two. The first, which I take to have been included in Labour Back-Bench briefing because it has featured in several speeches from Back Benchers, is that some pension schemes are in surplus and some companies are enjoying pension holidays. As those holidays will now come to an end, I enjoyed the Financial Secretary's observation that companies will benefit as a result."—[Official Report, 3 July 1997; Vol. 297, c. 508.] There is the true voice of the Puritan speaking.

To be fair to the Financial Secretary, I think that she was referring to the Chancellor's conviction that his policy will transform long-term investment. There has been some evidence during the debate that the Government may have been caught by surprise by some of the adverse consequences of their actions. The mis-selling argument was several fields away but, even if it had been in the same field, it is odd for the Economic Secretary, after appearing as the friend of private pensions, to be so ruthlessly taking away with one hand what she seemed to be giving back to private pension holders with the other.

My greater anxiety, however, relates to the Chancellor's conviction that he knows how the myriad companies in this land make up their individual minds about dividend and investment policies. I am old enough to have been running a British subsidiary of a foreign company in the mid-1960s when the then Labour Government obliged me to pay dividends, unless I could prove that I needed the money in the business. Apart from the fact that this Government have intellectually reversed that policy by 180 degrees, I seriously doubted then whether the man in Whitehall knew best, and whether the hours and hours that I spent persuading Inland Revenue officials that I needed the money was a productive use of my time or theirs.

We shall need a great deal of what the Financial Secretary called discussion and debate on the Finance Bill to test the Government's assumptions and to excise the worst adverse consequences.

My second comment is on the hypothecation of the windfall tax. Anyone who has served as a Minister in the Department of Education and Science can approve more money going into education and training, assuming that it is properly targeted. I am no doubt guilty of being more Calvinist than the Chancellor, although my family lived in Ulster for two and a half centuries where the people are the best savers and the best givers in the country. I must confess that, if the particular purpose to which the windfall tax is being applied is of such over-arching significance—rather than being aimed at a diminishing target—my immortal soul would be improved if I suffered some hardship in achieving it rather than doing so via a soundbite about fat cats, who, in this instance, are long since Macavities anyway. The puritans are letting themselves down if redemption does not involve some suffering for the rest of us. The fact that we all feel relaxed about the Budget is a greater tribute to adroitness than to seriousness, because it makes us potentially less insistent that the harvest of the windfalls be well employed.

That brings me to my third point: the Secretary of State for Education and Employment was confident on Thursday afternoon that local authorities will use the bounty bestowed upon them for the purposes that the Government intend. When I was an Education Minister, half the relevant local authorities vired from education into housing and the other half from housing into education. I spent one of the most bizarre hours of my political life when Liverpool, having taken the £3 million that I had granted it the year before for the polytechnic's computer and transferred it into housing, then solemnly asked me to give it another £3 million the next year for the computer so that the money could go into housing again. I am, of course, reassured by the Secretary of State's confidence. However, it takes us back to the central faultline of the Government's attitude to decentralisation, to which I have alluded before: they are in favour of devolution, but expect the devolved powers to be used in line with policy from the centre.

Finally, I shall deal with the half thing. For two months, this Government have blamed everything on their predecessors—although with less style than the Conservative Leader of the House in 1951, Captain Harry Crookshank. In his winding-up speech during the Queen's Speech debate, he said that all Governments find skeletons in the closet when they come to Whitehall but that his Government had found the skeletons swinging from the chandelier. The present Leader of the House declined my invitation to say when this Government will start taking responsibility for their actions. However, in economic policy terms, they are incontrovertibly on their own after this Budget.

Photo of Dr George Turner Dr George Turner Labour, North West Norfolk 8:21 pm, 7th July 1997

I am grateful for the opportunity to make my maiden speech in the Budget debate. Budgets do much to determine the well-being of those who send us here and, rightly, strongly influence their judgment of us.

Before addressing any Budget issues directly, I wish to express to the House my personal delight at being here at all. I am greatly honoured that the people of North-West Norfolk have elected me. I should also like to follow the traditions of the House by mentioning my predecessors and by providing a brief sketch of my constituency—it is, after all, 33 years since a Labour Member has been able to do so.

Informed Members will know that, although somewhat camouflaged by a name change and minor boundary revisions, mine is one of the nation's truly great historic constituencies. The name North-West Norfolk accurately describes the geography of the constituency, but King's Lynn is indisputably the centre of it and gave the constituency its name for many years.

Sir Robert Walpole, the nation's first Prime Minister, represented King's Lynn in this place, and his family long dominated the politics of west Norfolk. Happily, not all the political customs of that time have survived to this day. However, the Walpole family motto, "Say what you think", has strongly influenced many of those sent to represent my part of Norfolk in Parliament. Saying what one thinks has not always won friends in political circles, but it clearly expresses an expectation of the people of Norfolk—and particularly of my constituents. When in doubt, I follow its guidance and, to date at least, I have come to no harm—nay, I have had not even a rebuke from Excalibur itself.

I have known three of my immediate predecessors personally. At the beginning of my election campaign, I was particularly pleased to meet Derek Page—now in another place—who served from 1964 to 1970. He was the last Labour Member to represent the constituency—a fascinating man who became disillusioned with old Labour, but has now fully endorsed new Labour—and many in Norfolk recall his time with affection. When I met him, I felt that the baton had been handed to me to bring to this place and, for the first time, I felt that I would win the seat.

Derek lost his seat in 1970 to an equally interesting politician, Christopher Brocklebank-Fowler, who won the seat as a Conservative. He not only said what he thought but, in a moment of high drama in this Chamber, crossed the Floor of the House to join the newly born Social Democratic party. He narrowly lost his seat at the next election and, despite his substantial personal following in Norfolk, never realised his ambition to return to the House. Notably, he, too, now supports new Labour.

I hold out no hope for such conversion of my immediate predecessor, Mr. Henry Bellingham, who will be well known to Conservative Members as he served for 14 years on their Benches. They will know that he was, by word and by action, a most loyal supporter of the previous Government. Some say that his loyalty was penance for his ancestor John Bellingham who, just yards from where I stand, assassinated Prime Minister Spencer Perceval in 1812. In his maiden speech, Mr. Henry Bellingham declared an ambition to remove the blemish he felt that that dastardly act had attached to his family name. I hope that history will judge that he did so.

I am certainly pleased to take this opportunity to pay public tribute to Mr. Bellingham. In Norfolk, he was widely recognised for the pains that he took in handling constituency work. He went to great lengths on behalf of constituents with problems—whether pursuing officials of government or quango at a national or most local level. His efforts earned him considerable respect and affection within the constituency, and were certainly a factor in limiting my majority at the election. Interestingly, some officials have sought to dampen my enthusiasm for following Mr. Bellingham's example and pursuing them on constituency issues. However, after only modest exposure to my new role, I am certain that nothing less will do in my part of Norfolk.

My constituency has many features worthy of note—not least the town of King's Lynn, with its 1,000-year-old port and mediaeval, Elizabethan and Georgian architecture. Its port and fishing industries remain sources of employment, but they are surpassed today by the many small and medium-sized businesses to be found in the industrial estates that were mainly stimulated when the town had an overspill agreement with London.

Many will know my constituency for the beauty of its countryside and coastal regions. To the north lie marshes and superb sand beaches which provide natural havens for wildlife and joy to the discriminating visitor. There are many pleasing coastal villages, and the town of Hunstanton remains popular with a variety of visitors and family holiday-makers. More recently, those northern towns and villages, like many others in Norfolk, have attracted people who come to Norfolk at the end of their working lives seeking quality of life for their retirement.

A number of huge agricultural and sporting estates lie inland, and they are typical of those that were the very cradle of the agricultural revolution. There is also the royal residence on the beautiful Sandringham estate. Agriculture remains of considerable importance to Norfolk. Hon. Members may be interested to know that more than 200 years ago in the village of Heacham in my constituency agricultural workers gathered with their farming employers to petition Parliament for a minimum wage, which they wished to see linked to the price of corn.

My constituency also contains a marshland area to the west, much of which was reclaimed from the sea by Dutch engineers in the 17th and 18th centuries. It has a unique landscape, provides fertile soil and is divided by waterways. It is home to some of the nation's finest and most fiercely independent horticulturists, fruit growers and small farmers.

My constituency has almost 100 towns, villages and hamlets. It has a rich variety of landscapes, activities and people. It is home to some of the richest and some of the poorest in our land. It is certainly one of the most rural constituencies in England to be represented by a Labour Member. The House will understand that it is a particular honour for me to be here tonight representing North-West Norfolk.

However, let me not leave the House with the impression that I represent a rural idyll. Many important needs of my constituents have been much neglected for many years. I am glad that the Budget addresses many of those issues. Unemployment, including that of young people, remains at intolerable levels. Even in Lynn, where rationalisation has led to job losses, there are far too many low-skill, low-wage jobs. Many of our villages lack well-paid employment for people who historically looked to the land for work. In the 30 years that I have lived in Norfolk, there has been a dramatic decline in the numbers required to work large estates.

As the previous chairman of the education committee, I know all too well that too many of Norfolk's school buildings require major investment. The county has suffered from an historically low spend on education. The road network in Norfolk, particularly the A47 strategic link, still cries out for improvement and tightly constrains economic development. I have also recently had to inform Ministers that the plight of our fishing fleet requires urgent attention. Rural poverty is every bit as debilitating as its urban equivalent. It will be my priority to see that the urgent needs of my constituents are given proper regard in the deliberations of the House and in the decisions of Ministers.

Hon. Members will gather that I am pleased to give a warm welcome to the Budget. Through the windfall tax, it addresses the need to help many people, especially the young in my constituency, to find work. It deals with the problems of our schools and of the health service. Importantly, it keeps the election promises that I made. After a weekend in Norfolk talking to my constituents, I politely warn Conservative Members that by asserting otherwise they will earn themselves a reputation for veracity in opposition no better than that which bedevilled their latter years in government.

I bring a warm welcome for the Budget from Norfolk with but one caveat. The right hon. Member for South Norfolk (Mr. MacGregor) referred to the problem encountered in rural communities who need to use cars. People who live in villages where they count the number of buses per week rather than per hour view differently the stick of extra taxes, however green the purpose and however well intentioned the Chancellor imposing them. During the lifetime of this Parliament, it will be essential to use broader measures—both carrot and stick, not just stick—to ensure that the interests of rural people are properly reflected in Budget decisions. I look forward to Ministers providing that range of policies.

I hope that I shall not be too controversial if I say a few words about advance corporation tax and pensions, a subject which seems to vex many Conservative Members. I have been a trustee of a pension fund and for many years I have repaid my mortgage through a personal equity plan. I have made it my business at least to try to understand some of the effects of advance corporation tax. If one is to judge the merits not of imposing a tax—which is how Conservative Members refer to it—but of removing a tax benefit, the question that one should ask is why one would introduce such a tax benefit if it did not exist. The answer is that one would not.

If the Chancellor is to take money from people to give tax advantages for certain forms of behaviour, the correct way to do so is to give the tax incentive to the individual who will save the money. We should not try to do so through pension funding by reason of contortions in logic. That is too remote from the pressures that can be put on individuals to recognise the benefits of thrift and saving for their pensions.

I carefully investigated the actions of the previous Government when they reduced the level of ACT from 25 to 20 per cent. At that time, I read in the newspapers—the same ones that I read this weekend—the dreadful predictions of how much more I would have to put into my PEP. Those predictions were wrong: my PEP has gone up by 35 per cent. whereas they referred to effects at 2 or 3 per cent. My PEP has gone up by 35 per cent. because what really matters to people is our country's economic well-being, not jiggering around with pensions because of tax considerations. What matters is good, sound management and sound judgment of areas in which to invest both in this country and internationally.

I believe that my right hon. Friend the Chancellor is right in trying to stoke the boiler of the train we are on so that we all move faster, while Conservative Members are in danger of having an academic argument about how we move up and down the corridors of the train: if one walks forward up the train, one may gain time, but really to gain time one must get the train to move faster. History will judge that my right hon. Friend the Chancellor has made a sound judgment in his Budget proposals.

Photo of John Swinney John Swinney Scottish National Party, North Tayside 8:36 pm, 7th July 1997

I congratulate the hon. Member for North-West Norfolk (Dr. Turner) on his maiden speech. I suspect that the Prime Minister will read the Official Report tomorrow morning with some trepidation, given the family history of some of the hon. Gentleman's constituents. However, I am sure that the Prime Minister has nothing to fear from the hon. Gentleman's supportive remarks.

There have been many changes in the House of Commons as a result of the general election. We shall see later the congestion in one Lobby and the lack of congestion in the other, if I may put it so delicately. I am sure that people expected enormous changes from the Budget. Instead, from what we heard last Wednesday and from what we have seen as the debate has unfolded over the weekend and today, we have a Budget steeped in a remarkably Conservative tradition. Tory spending targets have been not only maintained, but intensified by the decisions taken by the Chancellor of the Exchequer and his Treasury team. People around the country must be asking themselves what was the point of having a change of Government, given that the new Labour Government are maintaining the Conservative tradition. There have been many soundbites and initiatives since the election, but it is difficult to get hold of the substance of change.

Much has been made of the enthusiasm with which Order Papers were waved last Wednesday. In the resource-saving drive that the House of Commons should be undertaking, we should be a little more sparing with the number of Order Papers that are given out so as to minimise such behaviour when Budget euphoria dies down after a mere couple of days.

The Government received a substantial proportion of their mandate from Scotland. Hon. Members will not be surprised to hear that I want to deal with the Budget's relevance and significance for Scotland. Tomorrow, in the Scottish Grand Committee, courtesy of a debate initiated by the Liberal Democrats, we shall have an opportunity to debate specifically the impact of the Budget on Scotland. I welcome that opportunity to go over the points in more detail.

I want to concentrate on three points about the Budget and its relevance to Scotland which I believe are of enormous importance. Much has been made of the overheating of the economy. There have been sustained attempts to get answers from Opposition Front Benchers on whether they agree with the Government that the economy is overheating. Some of the indications of the overheating of the economy are quite clear. House prices in the south-east of England and in London have increased by 17.4 per cent. in the past year, compared with an increase of only 2 per cent. in Scotland, which does not even represent a real-terms increase. The economy of the south-east of England is driven by consumer spending while the economy in Scotland is much more dependent on exporting and investment.

One of the consequences of the Chancellor's Budget is, undeniably, higher interest rates. A nod was given quite clearly in that direction to the Bank of England's monetary policy committee on Wednesday. That is of course dismal news for the Scottish economy, where interest rate increases are the last thing on earth that our economy is looking for. Indeed, on Radio 5 on Thursday the chief economist of the Royal Bank of Scotland was quoted as saying that if monetary policy were set on Scottish conditions, substantially lower interest rates would be required.

The chief economist of the Scottish Council (Development and Industry), Mr. Ian Duff, made the point that overheating is a factor of the south-east of England and not of economies in other parts of the United Kingdom—not just Scotland. Intense economic activity in one part of the United Kingdom causing enormous economic hardship in other parts has bedevilled us for the past 25 years. The Government have done absolutely nothing in the Budget to stop that pattern being repeated.

It is interesting that prestigious economists in Scotland are now taking the view that UK economic policy is harming and penalising the Scottish economy. We desperately need an economic strategy focused on growth and certainly not one focused on engineering deflation.

My second point concerns the increase in petrol prices, to which the hon. Members for North-West Norfolk and for Dumfries (Mr. Brown) referred in their maiden speeches. I must express the strongest possible concern about the proposed increase in petrol duty announced by the Chancellor under the guise of environmental concerns—which we all share. The increase does not just mean an extra £60 a year—which is what we calculate will be the impact on rural users in Scotland as a result of the Budget. There is also the additional £300 increase that the right hon. and learned Member for Rushcliffe (Mr. Clarke), the previous Chancellor, had already put in place. When one considers that those increases have been implemented less than nine months apart, one realises that the burdens increasingly falling on rural communities are enormous.

In many parts of my large, rural constituency in Scotland, there is absolutely no alternative to using a car as an essential lifeline because we fall into the category defined by the hon. Member for North-West Norfolk where buses may appear once or twice a week. The increase in petrol duty is therefore a penalty for rural areas and shows no imagination whatever in trying to tackle the real problem of urban congestion and energy use in an appropriate and effective way without jeopardising the essential interests of rural communities.

My third point relates to the enthusiasm in the form of waving Order Papers in response to the bounty of new spending announced. During the election campaign, the economic arguments that my party advanced were somewhat ridiculed by many of those who sit on the Treasury Bench these days, including the Minister for Education and Industry, Scottish Office, the hon. Member for Cunninghame, North (Mr. Wilson), who conveniently announced that one of the central points of our arguments concerning the new Government's belief that abolishing the assisted places scheme would enable class sizes to be reduced to an appropriate level in Scotland was based on a fraudulent or deficient calculation on the back of an envelope. Although our arguments were rebutted by the hon. Gentleman, we have of course now found out that the savings cannot quite generate the achievements for which the Government were looking. That leads me on to examine some of the other alleged increases in spending in the Budget.

The real-terms increase of 1.6 per cent. in health spending in Scotland is welcome, but far from enough to meet the growing problems in the health service there. On education, there is an increase of £1 per pupil per week in Scottish schools. At least six or seven schools in my constituency could benefit from complete refurbishment in a programme which can hardly afford the refurbishment of one primary school in each constituency in Scotland.

I am glad that the hon. Member for Gordon (Mr. Bruce) is in the Chamber. It is clear from this morning's newspapers that he was very busy over the weekend with his calculations about the £5 billion hole in the Government's finances. We have been busy calculating on the strength of his calculations, and our calculation is that the Secretary of State for Scotland will have to find about £80 million merely to ensure a standstill budget—despite the very laudable commitments given by the Government on Wednesday. If he were to find that amount, although there would be increases in health and education spending, there would also be cuts in industry and enterprise, housing, law and order, social work—one can take one's pick of the services there to be cut.

Not only are the Government prepared to accept the previous Government's spending targets—they are determined to intensify the squeeze on certain services. As though the council funding crisis were not bad enough just now in Scotland, how much more severe must it become before public services are undermined to an irreconcilable level?

The Government have also announced changes to advance corporation tax, on which many Conservative Members have concentrated. We should not lose sight of the impact that that will have on the distinctive Scottish financial community, where many of the pension fund schemes mentioned in debates over the past few days carry out many of their investment decisions.

We now have a Chancellor, a Chief Secretary to the Treasury and an Economic Secretary who represent Scottish constituencies. Despite all that presence in the high offices of the Government, we do not seem to have a Budget that is particularly appropriate for Scotland. It leaves us wondering whether the Westminster system can ever deliver a Budget which meets the needs of the people of Scotland and presents an economic package that will work for our community rather than always serving the interests of the south-east of England.

I noticed in the rather handy pocketbook which was distributed last week the Government's commitment to moving towards a fairer tax system. I find that a rather bewildering remark when, on reading all the announcements made on Wednesday, people like Mr. Cedric Brown, the former chief executive of British Gas, will end up paying no more income tax than before the Budget.

Undoubtedly, the services in our communities will suffer as a result of the Budget. That is the price of following very restrictive spending targets which are totally inappropriate to the needs of a modern and developing society. I suspect that many people in Scotland will be left wondering what on earth was the point of voting Labour when all they get is the worst of the Tory spending targets.

Photo of John Grogan John Grogan Labour, Selby 8:48 pm, 7th July 1997

By way of a maiden speech, I have four very modest boasts to make and a couple of observations to pass on last week's people's Budget. My initial and proudest boast is that I am the first non-Tory ever to speak in this historic Chamber on behalf of the citizens of the ancient market towns of Selby and Tadcaster and the surrounding villages.

The country as a whole has had to put up with the Tories for the past 18 years, but in Selby we are talking centuries. Indeed, reputedly, Oliver Cromwell was the last non-Tory to get a look in locally. True enough, in October 1905, there was a brief electoral experiment in pluralism when a Liberal by the name of Joseph Andrews was elected in a by-election. Unfortunately for him, he lost his seat three months later in the general election of January 1906. Even more unfortunately for him, the House did not sit in the three months he was a Member, so he never got the chance even to say a few words. I am doubly grateful, therefore, to have got this far tonight.

Selby, in many ways, is classic middle England with lots of understated English virtues and a touch of Yorkshire sangfroid thrown in for good measure. Local people take the changes that life brings—wars, industrial change, revolutions or mere general elections—in their stride. My result was declared at 4.35 am on 2 May. My supporters and I spilt out on to the streets of Selby at about the same time as my right hon. Friend the Prime Minister was joining the festivities on the south bank, amid wild scenes of excitement and celebration. As dawn broke in Selby, the excitement reached us, too. Two early shift workers crossed the road and shook my hand—well, one of them crossed the road and the other thought about it and waved from the other side. By 10 am, I am glad to report to the House, Selby had put behind it all that early morning exuberance and I was able to walk through the streets unrecognised.

Three Tory Members of Parliament have followed Joseph Andrews in Selby since 1906. The first two were colonels. Michael Alison, my predecessor, was not a colonel, but he is a gentleman. He served the area with distinction. During his time in the House, he was instrumental in achieving the abolition of tolls on the bridge over the River Ouse in Selby. He promised to do that in his maiden speech in 1964, and that is a lesson for us all in keeping our promises. He leaves to me the task of securing the much-needed Selby bypass. One phrase in his maiden speech strikes me. Discussing the Atlantic alliance, he said: Our tie-up should be with the Europeans, not only in defence but in economic development."—[Official Report, 17 December 1964; Vol. 704, c. 638.] Those are wise words and it is a shame that so many who agree with his sentiments are now so isolated in the modern-day Tory party he leaves behind.

In his later years as a Member of Parliament, Michael was known simply and affectionately as the Minister for God, given his distinguished role as the representative of the Church Commissioners. That brings me to my second modest boast. I can exclusively reveal to the House tonight that I was sounded out for a job within three days of arriving here. I was in the Lobby, trying to look confident but inconspicuous, when a Government Whip approached. Panic overtook me. What had I done wrong? I had only been here three days. Instinctively, I felt for my jacket pocket. Perhaps I had inadvertently switched off my pager which, of course, links us all—rightly—with mission control. To my surprise, the Whip merely said that he had heard that I was very devout. I did not disagree, calculating that being seen as very devout was probably a plus in new Labour. The Whip then said that he understood that I went to church every week. This was pushing things a little, but it occurred to me that I was being considered for the short-list for the same post that my predecessor had held. I had to confess—that is probably the right word—to being a Roman Catholic and point out that although this did not debar me from being a Member of the House, unlike in previous centuries, it might cause some problems as the representative of the Church Commissioners. I am delighted to see that my hon. Friend the Member for Middlesbrough (Mr. Bell), who is much better qualified for the post, has now landed the job.

My third modest boast is that I was a direct contemporary at university of the right hon. Member for Richmond, Yorks (Mr. Hague). Although in recent years, it might be said that his political career has been more spectacular than mine, I at least have the compensation that I have retained just a little bit more of my hair. The right hon. Gentleman was the president of the world-famous Oxford debating union, when I was president of the less world-famous student union. In an early example of practising the politics of the many and not the few, under my leadership the student union tried to take over the debating union and throw open its doors to the student population as a whole. We went down to one of the less well-known but many heroic defeats that characterised Labour politics at the time. I learnt my political lesson about the futility of such heroic defeats, but I fear that if the right hon. Member for Richmond, Yorks maintains his current policy mix of anti-European and anti-devolution rhetoric, he too will have to get used to many heroic defeats in the years to come.

My final boast is that I am one of the 25 or so newly elected Labour Members who can claim a working background in business. For two years, I ran a small conference business. At times, it probably owed as much to the business techniques of Arthur Daley as to those of ICI, but I learnt the importance of cash flow, training, long-term planning and investing in people. My central contention is that last week's Budget established Labour as the party that best understands what makes the British economy tick, that is most aware of the needs of British business, and that demonstrably wants to enable more people to succeed economically.

We have heard many Opposition Members criticising the welfare-to-work programme. We have heard that employers will allegedly exploit the system and have a revolving door for subsidised labour on their books every six months. Aside from the obvious arguments about proper monitoring, Opposition Members do not realise what we are about or the seriousness of our intent. The Budget represents a new approach to economic management, which is totally different from that of Conservative Members. The way to run a successful market economy is not to adopt the philosophy of recent years, which was based on devil take the hindmost, every person for themselves, not paying bills on time, exploiting every loophole and doing down your colleagues. That economic philosophy has left us with disastrously low investment and training levels. It never was the philosophy favoured by the most successful of our companies or by the more intelligent minds in the Conservative party.

The Government want to encourage a new corporate culture based on far-sighted companies. Before the election, some eminent members of the business community produced a business agenda for Europe and hon. Members may recall that the former Deputy Prime Minister gatecrashed the press launch. The agenda referred to Companies which aim to be in business indefinitely and seek to maximise returns over a long period of time. A far sighted firm must be and remain highly competitive. That means not so much the ability to screw the last halfpenny out of any deal as the ability to engage the enthusiasm and commitment of employees and business associates, to induce them to make the investments of skills and capital that will be jointly beneficial.The importance of co-operation, against a background of competitive markets, should be clear. It is that co-operation between Government, business and employees that the Budget offers. Welfare to work will enable employers to take on some of our long-term unemployed, to help to motivate them, to train them, to harness their talent and to reap the rewards by keeping on those who succeed. A far-sighted company is one that recognises obligations beyond its shareholders and that its long-term health and prosperity depend on creating a society in which everyone has a stake.

My two remaining brief observations relate to the three dominant industries in my constituency—coal, power and beer. Selby boasts more working coal mines than any other constituency, Europe's largest coal-fired power station at Drax, and three major breweries in the market town of Tadcaster. New Labour believes in promoting vigorous, fair competition. All that these industries are crying out for is such vigorous and fair competition.

I welcome the Chancellor's review of excise duties on beer. UK beer duty is seven times that of France, resulting in the flood of duty-paid and illegal imports into the United Kingdom. I hope that the Chancellor will in future embark on a strategy of approximating duty to the French level. Some 75 brewing and pub companies have promised to pass on any reduction in duty to their customers. Paradoxically, the greater the cut in duty, the greater the benefit to the Treasury, as other tax revenues—especially from the pub trade—increase.

The coal industry wants to compete on equal terms with its principal competitors, gas and nuclear power. The sweetheart deals between the regional electricity companies and the new gas-fired power stations are anti-competitive and mean that, in many cases, the consumer has to pay a premium on his electricity bills. We still produce the cheapest deep-mined coal in Europe and, with the development of clean coal technology, coal can be clean. It would hardly be far sighted for any Government to meet the new tough carbon dioxide emissions simply by allowing what remains of the British coal industry to wither away.

I do not call for coal to be given a chance out of some romantic sentiment, but out of practical economics. A sensible energy policy is one that maintains diversity of supply and different energy sources. Economic logic surely dictates that whether through action in Brussels or Whitehall, the workings of our electricity pool—as complicated and unfair as our local government grant system—are examined and opened up to competitive pressures.

The Budget—with its emphasis on welfare to work and encouraging long-term investment, while supporting frontline services such as education and health—has established Labour's economic credentials. Like the majority of British people, I support it with some enthusiasm, but with a degree of delight that, contrary to the views of some, there is, and has always been, a radical and progressive alternative approach to the Budgets of the past 18 years.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester 8:59 pm, 7th July 1997

I would like to congratulate all hon. Members who have made maiden speeches; my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) and the hon. Members for Bury, South (Mr. Lewis), for Dumfries (Mr. Brown), for North-West Norfolk (Dr. Turner) and for Selby (Mr. Grogan), whose speech was particularly amusing. I share with him a loss of hair—in fact, I think I am ahead of him in that respect. I also share with him a concern for small businesses, although probably not of the Arthur Daley variety.

I was particularly impressed that the hon. Member for Dumfries ventured to criticise part of the Budget—the increase in fuel duty. We both represent rural seats and can make common cause on that issue. In a moment, I will be able to tell the maidens whether making a second speech is any less daunting than making a first.

I think there is no economic justification for the Budget. The economy is in good shape, as even the Red Book confirms. This is a political Budget, produced for political reasons about which I shall say more in a moment. It has been done in a rush. The likely blight to the venture capital industry caused by only the vaguest of announcements about possible changes which will not take place for nine months, but which will be backdated to Budget day, is one example. In common with the announcement of the Bank of England's independence, it is a sign of the Government's discourtesy to this House and their arrogance. Incidentally, they might also explain why the document, "Public Expenditure 1996–97: Provisional Outturn", was not available in the Vote Office after the Chancellor sat down.

The precedent for having a Budget immediately after an election exists—in 1979, we had the Geoffrey Howe Budget. That early Budget put in place a fundamental shift in the conduct of economic policy in this country—a shift that was clearly signalled before the election. By contrast, Labour's victory in May—far from being a vote for a new economic strategy—was a massive endorsement of the policies that they have inherited. To get elected, Labour had to endorse Conservative economic strategy, lock, stock and barrel. Labour even had to go to the extraordinary lengths of promising to implement Conservative spending plans, programme by programme.

Labour has spent the past 20 years—and the past decade in particular—learning a new language of free enterprise, sound money and the importance of markets. But I am afraid that some of the things in the Budget lead me to conclude that, for Labour, this is still a second language. That was clear enough from the text of the Chancellor's Budget speech, much of which, I am aware, was written by Treasury officials. I recognise some of the phraseology—some of which almost seemed to have come from Conservative party literature. But several paragraphs did not sound quite right. For example, the Chancellor said that his goal was to ease inflationary pressures without damage to industrial and exporting prospects and to do so in a way that is consistent with our long-term objective of high and stable growth and employment. In this way, we can moderate the upward pressure on interest rates and on the exchange rates as well as further our objective of sustainable public finances.I have therefore decided to tighten fiscal policy."—[Official Report, 2 July 1997; Vol. 297, c. 305.] That is the old language of fiscal fine-tuning. I could not help thinking that, unlike most of the speech, this passage was written by the Chancellor himself. In his speeches in the House 10 years ago, he was a far more committed supporter of fiscal fine-tuning than he is now.

The fact is that rather than merely say, "We want to raise taxes because, sooner or later, we will want to spend the money," which is the truth, the Chancellor tried to cloak some of the tax rises that he announced in something more respectable. That is what has been behind all the talk about output gaps, overheating and black holes. The plain fact is that output gaps are impossible to measure, as Treasury officials will have briefed the Chancellor. I think that there is a recondite footnote in the Red Book that more or less makes it clear that the Treasury does not believe in the idea of measuring such a gap.

As for overheating, if the economy is really doing so, a few billion pounds on taxes will not make a scrap of difference. That was the lesson of the 1980s. The way to tackle overheating would be through interest rate and exchange rate policy. With Bank of England independence, that is what we are going to get.

While on the subject of exchange rates, I would like to ask the Treasury Front-Bench team a few questions, including, for example, whether we have an exchange rate policy. Does the Chancellor really want to moderate upward pressure on the exchange rate and, if so, does that also mean that he wants some downward pressure? Does that mean that there is a ceiling above which the Government will not tolerate, or will seek to avoid, allowing the exchange rate to rise? If there is to be intervention in the foreign exchange markets to achieve this, by whose direction will that be done and whose reserves will be used—those of the Bank of England or those of the Treasury? We now have two authorities controlling two sets of reserves.

I want some answers to those questions tonight from the Minister and I hope that the answers will not fall into the category of what my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) earlier described as "engaging irrelevance".

In his efforts to find a black hole, the Chancellor sent the forecast to the National Audit Office for vetting. Unfortunately for him, it did not oblige. In fact, it did the opposite and underwrote the credibility of the forecast of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). Far from being a black hole in the accounts, there has turned out to be a medium-sized pot of gold for Labour. It is to be found on page 12 of the Red Book. That gives the game away. It shows that, despite a reduction in the growth forecast, tax receipts are forecast to rise by no less than £10 billion in the next two years. That is where the improvement to the public sector borrowing requirement comes from and nowhere else.

Unfortunately, the Red Book contains very little text to explain all that. I suppose that Labour scarcely wanted to flag up the fact that it had inherited even better public finances than the Opposition had been stating. I can only say to that, so much for the new transparency in the accounts.

The Chancellor announced that he will now submit his fiscal forecast for an annual review by the NAO. I support that as a principle, but the NAO is probably not best equipped to do that work. If he really wants transparency and credibility for his forecasts, he would do better to set up an independent fiscal policy committee—a counterpart to the independent Monetary Policy Committee—to do the job, as I suggested last year in a publication for the Social Market Foundation.

Other hon. Members have talked a great deal about the damage that the Budget will do by increasing business taxation, which will ultimately hit pensioners. I will not go over that again except to say that the 17 tax rises in the Budget must constitute one of the biggest broken promises of any incoming Government. After all, only in September the Prime Minister, then Leader of the Opposition, said: We have no plans to increase tax at all. We can be confident that the Government will not rest at 17, which is why I am sure we have to have another Budget next spring.

Rather than repeat points about tax, I shall briefly mention spending. Whether the Chancellor has really learnt his free-enterprise lines to get him through the election or whether he believes them does not ultimately matter very much. What matters is whether he can fend off the inevitable demands for higher spending. It is now extremely unlikely that Labour will stick to its commitment to deliver Conservative spending totals, for several reasons.

First, the Government have saddled themselves with extra costs in the public sector as a consequence of the introduction of the minimum wage, the knock-on effect for local government and other parts of the public sector on pension schemes that the advance corporation tax change will bring and also expensive new legislation, big and small, such as the compensation for the banning of handguns.

Secondly, on top of all those factors will come tough decisions on public sector pay, local council grants, social security uprating, school budgets and hospital budgets. All those areas will feel the strain. They are all areas from which Labour drew support disproportionately during the general election and to which nods and winks, if not actual promises, have probably been given recently.

A third reason why spending will be difficult to control, as I explained in The Observer just over a week ago, is that Labour's new monetary policy will probably cost the Government money. The Chancellor has tried to discourage the Bank of England from flexing its new interest rate muscles too vigorously by giving it a 2½ per cent. inflation target with a 1 per cent. band either side rather than asking it to deliver a ceiling of 2½ per cent. inflation. That will make the spending totals difficult to hit. Totals are based on cash figures and any increase in inflation will mean cuts in real terms in departmental spending programmes. The Budget now forecasts a rise in inflation to 2¾ per cent.

The inevitable result will be bids from spending Departments to protect themselves in the face of higher inflation. I do not really think that the Treasury forecasters believe that the Red Book numbers add up. They show higher tax receipts to help the public sector borrowing requirement, but no higher spending from the higher inflation they forecast.

Most important of all, spending will rise because Labour is a ripe target for the spending pressure groups in the public sector. It is not so much that many who voted for Labour will want their shilling. It is rather that a glance at the composition of the parliamentary Labour party tells us all we need to know. The Labour Benches have been swelled by a new intake of 179 who are predominantly from public sector backgrounds. I do not say that disparagingly; it is just a matter of fact. In the years ahead, those Labour Members will become a powerful voice for more resources and higher pay in their former professions.

By my reckoning, no fewer than 115 of the parliamentary Labour party are former teachers or university lecturers. Of the new intake, more than two thirds have a background in local government, administration or social work—all areas which feel they have been hard pressed over the years and which ache for release from the Tory corset. That is why in the long run, spending will rise and that is why we shall find that the spending review will decide Labour's future.

Even in his first weeks, the Chancellor has had to offer something to satisfy the hunger of the big spenders. There has been the drawing down of the reserve which is not just bad financial discipline, but a harbinger of the spending pressures that, sooner or later, will give the Chief Secretary to the Treasury sleepless nights. All that is happening during an economic upswing. If the Labour Government last until the inevitable downturn in the business cycle, we shall really start to see the spending pips squeak.

Photo of Phil Woolas Phil Woolas Labour, Oldham East and Saddleworth 9:11 pm, 7th July 1997

Thank you, Mr. Deputy Speaker, for calling me to make my maiden speech in this important and historic debate. It is not, of course, historic because of my contribution, but because of the importance of the people's Budget to the fortunes of our people. It is a great honour to be called to speak at the end of this debate. I have chosen the one day when rain in Manchester would have been welcome. My constituency straddles real Lancashire and real Yorkshire so hon. Members can guess that cricket is dear to our hearts.

It is a greater honour—more important than speaking today—to represent the people of Oldham, East and Saddleworth. My constituency, formed by boundary changes, is truly among the most beautiful. Indeed, the many hon. Members from both sides who visited the former constituency during the Littleborough and Saddleworth by-election would have to concede that in our Pennine hills and valleys, we have a precious jewel. If, in the words of Blake, the countenance divine shone forth upon our clouded hills and if Jerusalem was builded here, it happened in Saddleworth.

Here, we also have the patent on dark satanic mills. In truth, my constituency is the best of constituencies and the worst of constituencies. In the Oldham parishes of St. Mary and St. James, we know the daily price of poverty, of social deprivation and of all the symptoms that the people's Budget is setting out to cure.

The real number of unemployed people in Oldham is estimated at 18,634—some 17 per cent. of the work force or one in five. In the estates of Higginshaw, St. Mary's, Derker, Sholver, Glodwick and Clarksfield, the people's courage in the face of what was described as "the price worth paying" is testament to their spirit. It has withstood, with the same fortitude as the Pennine hills that those villages nestle against, all that the free enterprise elements of the past 18 years have thrown against them. In the villages of Shaw, Crompton, New Hey, and Milnrow, industry and integrity, in the words of my school motto, have guided the transformation from weaver's sheds and mills to the modern economy. In the Oldham suburbs of Waterhead and Lees, the same spirit can be seen.

Those who truly want to see the beauty of Britain should come with me to Austerlands cricket club, perched 900 ft above sea level on the Pennine watershed. To the west is Greater Manchester, heartland of the industrial revolution. In the distance, are the great docks of Liverpool and on the far horizon are Jodrell bank and the Welsh hills. To the east, one can see Saddleworth, home of the Pennine culture of brass bands and true northern grit.

The villages of Denshaw, Delph, Dobcross, Diggle, Uppermill, Greenfield and Grasscroft are truly God's own country. It was in my constituency more than 100 years ago that the Independent Labour party was formed. There, for the past 100 years, democratic socialism, liberalism and conservatism have battled for the soul of the people. There, Tom Mann preached the cause of trade unionism, and Victor Grayson swept all before him in the famous by-election of 1907. There, the former Member for Oldham, Winston Churchill, warned, in the sort of language that only he could command—and, it must be said, with a heavy dose of new Labour—that liberalism and free trade was the cause of the left-out millions. In 1906, he looked forward to the universal establishment of minimum standards of life and labour and their progressive elevation as the increasing energies of production permit. We will not have to wait much longer.

It was also in my constituency that the people of Lees under their banner of "Death or Representation", marched to Peterloo to demand universal suffrage. Some met their deaths. To be the new representative of Lees humbles me beyond words. As a new Labour candidate, I cannot claim that the Lees brigade were strictly on message. I hope that my former campaign manager will forgive me if I say that new Labour has been warmly welcomed by the successors of Aamon Wrigley. Not only did Aamon help to form the ILP, his family went on to create the Wrigley's spearmint chewing gum empire. Unkind souls might say that between the Labour party and chewing gum, we have done more for jaw-ache than for anything else.

No description of my constituency would be complete without reference to "them there hills". Brooding to the east, above Greater Manchester and east Lancashire, is Saddleworth moor. Nowhere in England does such beauty strike such fear. We all remember those forbidding moors. For the sake of all our children, people in Oldham work together. As their representative, I shall oppose any move to release Myra Hindley and Ian Brady. For it is in the attitude of the people, not the common geography, that the true spirit of Pennine folk, Yorkist and Lancastrian alike, is found.

The alternative service book has one way of putting it. In communion, we say: Though we are many, we are one body because we all share one bread. In Oldham, we have another way of putting it, "If you kick one, we all limp." Not only because of convention but because they shared that common outlook, I wish to pay tribute to my three predecessors.

From Geoffrey Dickens, I learned that the good representative is an advocate of all the people. Ever one for the soundbite, his populism masked a popular politician respected by all, whatever their persuasion. If I am a fraction as succesful a constituency Member as Geoffrey, I will be proud indeed.

The Liberal Democrat, Chris Davies, understood that also. In his short time as the Member for the constituency, he worked tirelessly and proved himself a doughty campaigner for the people. I suspect that despite our respective parts in the political turmoil between our two parties at the by-election, we share much more in outlook than we differ on.

For Labour, Bryan Davies, who represented the seat of Oldham, Central and Royton, was a magnificent Member of Parliament. It seems strange to me to be paying tribute to him given the huge amount of service he has yet to offer. In Oldham, we all hope and expect that he will be given that opportunity. As the previous Member for Enfield, as secretary of the Parliamentary Labour party, and as a friend and adviser in circumstances where egotists would not have bothered, he has gained the friendship and respect of those with whom he worked.

It is that common spirit which I will seek to articulate. I will articulate the social diversity of my constituency—from the grinding poverty and exclusion of Glodwick to the beauty and prosperity of Saddleworth. I will seek to build opportunity for all, recognising that it is by the strength of our common endeavours that we achieve more together than we achieve alone. This Government and Labour Members have set their course according to that and it is against that that we will be judged.

The Prime Minister was right when he said that we are the servants not the masters, but what divides those on the Labour Benches from those on the Conservative ones is our understanding that the Government are the master of the economy. We must never again allow free trade and the free market to determine people's fate. This Budget takes control for the people.

From my time with the GMB, I remember a story that stuck in my mind for 10 years. A magazine article described how in the early 1980s different groups from around the country had been brought together and asked to give their prognosis for the economy in the forthcoming 10 years. The economists, of course, got it wrong; the media, of course, could not see beyond tomorrow's headlines; and the politicians were way off target. But one group got it spot on—the dustbin men, or the refuse operators as we should properly call them. They predicted exactly what would happen to the economy. In paying tribute to the Budget, it is testament to say that the bin men of Oldham welcome it with open arms.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells 9:21 pm, 7th July 1997

I congratulate the right hon. Member for Edinburgh, Central (Mr. Darling) on his appointment as Chief Secretary to the Treasury. I wish him well in his post. He will shortly respond to the debate and will have a number of questions to answer. I should like to summarise if I can some of the questions that have been posed in the debate by my right hon. and hon. Friends. I should also like to pick up on one or two comments made by Labour Members.

The main feature of the debate is that we have finally got near the truth of what the Chancellor of the Exchequer announced last week. It was a massive, unnecessary, tax-raising Budget—new Labour in presentation certainly, but old Labour in all its effects.

The Chancellor said that it was a Budget for the long term. He was right in one sense, because it hit the long-term plans and aspirations of millions of savers and pensioners. The damage caused by the. Budget will indeed be long term.

The Budget was also completely unnecessary: the Government have a golden inheritance. They have taken over the strongest economy in Europe, which has been brought about because of structural reforms, privatisations, deregulation and reform of trade union law, all of which were opposed all the time by all of the Labour party. It was our reforms, however, that not only transformed the output of the economy, but, combined with the strict control on public expenditure that we managed, delivered the steady reduction in unemployment which was far more effective and far more secure in dealing with the problems of long-term and youth unemployment than the present Government's attempts through their welfare-to-work programme. Again, those supply-side reforms were opposed day in and day out, night after night, by all the Labour party, including hon. Members who are now on the Government Front Bench.

Old Labour attitudes broke out once or twice in today's debate, but, nevertheless. I sincerely congratulate the hon. Members for Bury, South (Mr. Lewis), for Dumfries (Mr. Brown), for North-West Norfolk (Dr. Turner) and for Oldham, East and Saddleworth (Mr. Woolas) all of whom made confident and fluent maiden speeches. We very much appreciated their tributes to their immediate predecessors, all too many of whom used to sit on the Benches behind the Treasury Bench.

The debate has not, however, answered why the Government are forcing through a tax-raising Budget of this scale. The PSBR last year was £3.3 billion better than expected. That rate of improvement in the public finances is set to continue all the way through the current financial year and into the future, due mainly to buoyant tax revenues. The reason for this huge, tax-raising Budget is no clearer if we examine exactly who has been hit and how.

The Chancellor increased the duty on road fuel. He also increased, from the day of the Budget statement itself, duty on heating oil. As was shrewdly spotted by my right hon. Friend the Member for South Norfolk (Mr. MacGregor), the Chancellor has raised this additional revenue by putting up these duties five months earlier than we planned in our Budget statement last November. In addition, he increased road fuel duties by more than we had planned—by a full 6 per cent. above inflation. My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) rightly pointed out the burden that this imposes on a rural constituency. That point was also made by the hon. Member for North Tayside (Mr. Swinney), who also represents a large rural area.

With the additional increase in hydrocarbon duty, and by bringing it forward a full five months, the Chancellor has on his hands a real and genuine windfall. It is far greater than the cost of the 3 per cent. cut in VAT on heating oil. It adds up to an additional £735 million this year. That was not altogether clear from his Budget statement.

The Budget represents an enormous additional burden not just on the driving public, but, because he has put up the duty on heating oil, on the people who rely on that form of heating in their homes, outweighing by far the benefit of the cost of reducing VAT on domestic heating.

My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) reminded the House that when we increased VAT on domestic heating to 8 per cent. we fully compensated pensioners. Indeed, it is now clear from a written parliamentary answer that a single retirement pensioner was no worse off by the increase in VAT on fuel because of the uprating in the pension and the other benefits that we increased at the same time. A retirement pensioner couple were made better off by the increase in VAT on fuel.

The consumer and the home owner were directly hit by the Budget, but the great burden of tax fell on the corporate sector. How comforting that sounded to Labour Members on Budget day; what a shock it was to them to find that the subterfuge lasted less than 24 hours. The immediate and total abolition of dividend tax credits for pension funds is, in truth, a savage blow, not to City directors, but to millions of ordinary savers and employees.

Photo of Mr Andrew Rowe Mr Andrew Rowe Conservative, Faversham and Mid Kent

Could my right hon. Friend suggest how I might respond to one of my constituents who has run a family business for many years and has been trying to keep his staff in work? He has told me that the increased burden on his pension contributions puts the whole of that policy at risk.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I recommend that my hon. Friend passes on to his constituent the thought that the Labour party cannot be trusted to do what they say they will do before an election. I shall quote to my hon. Friend what the Chancellor of the Exchequer said during the general election campaign: All Labour's proposals will protect and improve the quality of life of pensioners. By contrast, a Conservative fifth term offers insecurity and fear for pensioners. The then Leader of the Opposition, now the Prime Minister, said: My message is, be warned—your pension isn't safe with the Tories. What hollow words they were. Even while uttering those words, the Labour leadership must have been planning to reduce people's entitlement to pensions—a policy which we have now seen in the Budget.

Following the tax change and the abolition of the tax credit on dividends, a typical 35-year-old will have to increase his contribution by nearly one third if he is to maintain his future pension entitlement. A 45-year-old will have to increase his contributions by nearly a quarter.

The National Association of Pension Funds has said that the change in the Budget will cost pension funds about £4 billion a year. But remarkably, the Financial Secretary, who is in her place, when referring to the tax credit abolition on Thursday, said: The measure is good for pensions and pensioners, not bad for them … People should understand that our reforms will benefit pension funds. I should like to give the hon. Lady the opportunity to correct what must have been an error or, at the very least, give the Chief Secretary an opportunity during his wind-up speech to correct what his colleague has said, which is seriously misleading and has been directly contradicted by all the independent advice from actuaries, pension fund managers, trustees and business men. A pension change that takes £4 billion a year or more out of pension funds cannot be reconciled with the Financial Secretary's comment, when she said: People should understand that our reforms will benefit pension funds."—[Official Report, House of Commons, 3 July 1997; Vol. 297, c. 507.] I hope that the Government will use the opportunity of today's debate to correct that highly misleading statement.

What is particularly stupid about the proposals is that Britain has a comparative advantage in the field. We have £650 billion worth of private pension funds under management, which is more than the rest of the European Union put together. Those other countries face appalling strains on their public finances stretching into the next century. We, by and large, have avoided that because we have been successful in persuading people to provide for their own future.

Hon. Members on both sides of the House must realise that people cannot rely entirely on a state pension for a decent, comfortable and secure old age; they have to make provision for themselves by way of private pensions. What do the Government do in the face of our achievement, almost unique in Europe, in having built up a massive private pension sector? They tax it, they attack it and they try to take it over for the state. In summary, they have imposed a savings tax on at least half the population of Britain.

In some cases, it will be individuals who suffer lower pensions or have to make higher contributions to maintain the level; in other cases, it will be companies—companies, moreover, who will therefore invest less. The Post Office has apparently warned the Government that the Budget changes will cost it around £150 million—money that it will now have to put into its pension fund rather than use for investment. That £150 million—every year—is more than the Post Office raised last year by the 1p increase in the price of a stamp. So much for the Government's claim that this was a Budget for investment.

Another sector has been hit by the Budget in this way—local authorities, which also have funded pension schemes. The hon. Member for Putney (Mr. Colman)—a new Member, whom we welcome to the House—has written to the Chancellor of the Exchequer on behalf of local government pension funds. In his letter, he says: the abolition of A.C.T."— advance corporation tax— would add at least 3 per cent. or £300 million to our employers' pension costs … No such increase could be afforded by local authorities without making further cuts to services to their local residents. … we would be bound to seek compensating increases to the revenue support grant. The hon. Gentleman obviously has the authority of the local authorities to make that representation to the Government. I hope that the Chief Secretary, in winding up the debate, will use the opportunity to tell the House what he is going to do about that, how he will answer the questions asked by his hon. Friend and whether he will compensate local authorities. After all, he has accepted the principle of compensating outside bodies; charities are to be compensated in due course for the reduction in the funds they receive from dividend income. Will he apply the same principle to compensate local authorities or will he accept the service cuts that his hon. Friend outlines in his letter? I hope that the Chief Secretary will address himself explicitly to that question.

There is an even bigger expenditure time bomb at the centre of the Budget. In his Budget statement, the Chancellor raised the inflation level without raising the expenditure limits. He raised a cheer among his more impressionable Back-Benchers when he announced more spending on health and education, but all he did was announce that he was raiding next year's reserve—a reserve he inherited from the Conservatives—which he thereby leaves dangerously low to deal with real contingencies, as my right hon. Friend the Member for South Norfolk pointed out. That means no new money for the national health service or anything else in the current financial year; it means not a penny for the NHS or education before next April. So all the strains and stresses on current expenditure remain entirely unrelieved. That brings me back to another bigger problem. The Chancellor has raised his estimate of inflation for the next two years and more. Obviously, he has very little confidence in his new Bank of England mechanism. As my right hon. Friend the Member for Fylde (Mr. Jack) pointed out, his inflation target is less rigorous than the one that he inherited.

Let us consider the impact on the NHS of raising the inflation forecast. Higher inflation in the current year and in future obviously means higher costs, but no more money has been provided this year, and the cash limits remain the same. Therefore, the Chancellor has imposed an immediate and savage squeeze on the real resources. He might have tried to put a bit of sticking plaster over the hole in the NHS budget by allocating more money to health from the reserve, but that does nothing for expenditure in the current year; nor does it affect other sectors of public expenditure that experience the same fiscal squeeze.

The Budget adds up to a major and sustained reduction in real public expenditure over each of the three survey years ahead. It was all documented subsequently by the Institute for Fiscal Studies, but none of it was clear from the Red Book, despite its so-called openness and candid presentation.

Alert and technically minded hon. Members will see that, on page 108 of the Red Book, the Chancellor has taken full credit for the extra inflation that he is now anticipating by adding an extra £1.8 billion in higher inflationary revenues in the current financial year and £3 billion in the next financial year. The Chancellor has taken full credit in his Red Book forecasts for his failure to control inflation, while allowing no extra expenditure for health, education, transport, the environment, law and order or anything else.

When the Chief Secretary replies to the debate—[HON. MEMBERS: "Get on with it."] He asked for 15 minutes, so I am not taking his time, if that is what the Chancellor is gesticulating about. When the Chief Secretary replies, will he explain why he is imposing a real cut in actual public expenditure and whether his plans are realistic in the light of the expenditure that the Government have carried forward from our last Budget?

In summary, we have a tax-raising Budget which does great damage to the long-term prospects of savings and pensioners. It is a betrayal of all the assurances that were given about taxes before the Budget. It attacks long-term planning, destroys savings and undermines investment. Moreover, it promises more Government expenditure, but actually plans for less. So, two months into this Parliament, the new Government have already betrayed their taxation and expenditure promises. This evening, there is an opportunity to pass judgment on that and I urge the House to do so.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury 9:43 pm, 7th July 1997

In the short time remaining before the end of the debate, I shall return to some of the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory), but I start by reciprocating his good wishes and his welcome to me. I welcome him to his new role as shadow Chief Secretary. He was a Treasury Minister for much of the previous Parliament, but we cannot blame him for everything, as he resigned just over a year before the election because he could not support the right hon. and learned Member for Rushcliffe (Mr. Clarke). He is now reinstated on the Front Bench and is among friends, united in their scepticism. We shall never forget his treatise on the duty paid by ferry terminal tugs, which occupied us for several hours one evening when we considered the Finance Bill some two years ago.

The excellent maiden speeches that we have heard are a testament to the quality of the new intake. There have been a number of them, not just tonight but throughout the Budget debate. The speech of one Conservative Member, the hon. Member for Bury St. Edmunds (Mr. Ruffley)—I can certainly agree with him that that is a nice part of the world—was controversial, which is probably no bad thing nowadays. Another issue on which I agree with him is the need to promote thrift, although I warn him about the dangers of going on about the real instincts of the people. A man with a majority of just over 300 should be a bit more cautious.

My hon. Friend the Member for Bury, South (Mr. Lewis), whose constituency I visited on the first day of the election campaign—despite that, he won—spoke fluently about the problems faced by his constituents, especially the young people. My hon. Friend the Member for Dumfries (Mr. Brown) spoke extremely well. He knows a good deal about his constituency, and I think that the whole House will have appreciated the tribute that he paid to Sir Hector Monro, a very decent man whom all hon. Members will remember with much fondness.

My hon. Friend the Member for North-West Norfolk (Dr. Turner) spoke with considerable knowledge, and I am grateful for his support. He made some points about our rural transport policy, and I appreciate what he said. We presented proposals relating to fuel duty in the Budget, but other measures announced by the Government will benefit rural communities. We shall return to those at other times.

I did not hear the speech of my hon. Friend the Member for Selby (Mr. Grogan), but I understand that he, too, spoke well. I have driven through his constituency many times, and was always assured by the Labour party organisers that we had no chance there. It just shows how wrong they were. I note the point that my hon. Friend made about beer duty, especially with regard to his constituents in Tadcaster.

In a witty speech, my hon. Friend the Member for Oldham, East and Saddleworth (Mr. Woolas) spoke extremely well. It was interesting that he should claim Winston Churchill as a future member of new Labour; no doubt we shall debate that in the future. He also paid a warm tribute to our former colleague Bryan Davies, which I am sure all Labour Members greatly appreciated.

I shall return to some of the main points that have been raised during the Budget debate. First, however, it is worth reminding ourselves of the main strategy set out by my right hon. Friend the Chancellor at the beginning of that debate. As a new Labour Government, we have the objective of maintaining high and stable levels of growth and employment, so that we can achieve the higher living standards that we all want. It is simply not true that—as Opposition Members have claimed—poor people have lost out. In fact, in terms of proportion of income, poor people have gained far more from the Budget, not just because of the reduction in VAT on fuel and the new deal. It is a bit rich for Opposition Members, especially Conservative Members, to go on about poor people, given that if they had had their way, VAT on fuel would have risen to 17.5 per cent.

We want to promote economic stability. Some of the hardest decisions that we have had to make, on public spending and on other matters, have been driven by the recognition that we need that stability. We want to encourage long-term investment. We start from a difficult position. The nationalists ask themselves why people voted for the Labour party. People voted for us because we told the truth: we told them that hard decisions would have to be made and that there were no quick fixes. We have inherited low levels of investment, a history of boom and bust and a history of short-termism, and we have had to put public finances in proper order.

Let me now deal with one of the matters that have concerned many Opposition Members: our corporation tax proposals.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

In a minute, by all means. The shadow Chancellor has not been present all day, but I shall give way to him nevertheless.

The House must bear in mind our central proposal to reduce corporation tax from 33 to 31 per cent., and corporation tax for small companies from 23 to 21 per cent. We have not heard a word about that from Opposition Members, but the fact is that we have reduced corporation tax, which will improve company performance. We have also reduced a distortion in the tax system, so that the system is neutral in regard to decisions on investment and distribution of profits. Opposition Members must ask themselves whether the Tories would reinstate the tax credit system if they were ever returned to power.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

I shall certainly give way to the shadow Chancellor. Perhaps he can tell us whether the Conservative party would reinstate that system if it was ever returned to power.

Photo of Peter Lilley Peter Lilley Shadow Chancellor of the Exchequer

If the Minister can explain to me how it is that taking £5 billion out of long-term investment through pension funds can encourage and increase investment, we shall be open to persuasion on that very question. The Financial Secretary said that the removal of that money would make no difference to investment funds. If that is so, why is it necessary to protect charities from the impact of the Chancellor's decision?

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

I note that the right hon. Gentleman did not answer the question. We should remind ourselves that it was the Conservative party which would have taken away tax relief from pension contributions. We shall return to more about that on Wednesday.

The right hon. Gentleman might think about the example of the United States, where many companies have grown faster than British companies and done much better than companies here. They have concentrated far more on the growth of capital value rather than having to respond to the constant pressure of paying out dividends, which can be so harmful.

We believe—it is an important point that Conservative Members must understand—that the tax system should not distort investment decisions. That is surely the right principle. We believe that we have taken the right decision for the long term.

Conservative Members should understand also that the value of a pension fund depends on the value of the stock market. It depends also on quality of investment and growth. When Conservative Members examine the predictions made by pension funds for the next 15 or 20 years, they should remember that, at the end of the day, the determining factor is the ability of companies and of the Government to create an environment in which investment is encouraged and companies grow.

It is worth bearing in mind also that the stock market has grown by about 5 per cent. since the general election. That tends to suggest that many people have a confidence in this Government that they did not have in the Tory Government.

The key to our proposals is a climate that will lead to more wealth creation, so that we can increase people's standard of living. It should be remembered that it was the Tories who reduced tax credits in 1983. The stated reason was to get money into the Exchequer because of the dire straits then facing the economy. They did not reduce corporation tax. Instead, they reduced tax credits to take money into the Exchequer.

The Conservatives should be extremely wary, given some of the predictions that we read in the newspapers. The right hon. Member for Cities of London and Westminster (Mr. Brooke), who arrived in the Chamber despite his mechanical difficulties, as yet undisclosed, told us that pension mis-selling was a hare in another field. It may be that to the right hon. Gentleman, but for the many who were mis-sold personal pensions, it is far from being a problem removed. For them, it is a very real problem. Some of those who persuaded people to opt out of occupational pensions are those who are making dire predictions about the effect of our policies. I urge everybody to take their predictions with a pinch of salt.

Conservative Members have asked about the plight of local authorities, but for 18 years we had a Conservative Government who clobbered local authorities. Suddenly, Conservatives are worried about pensions and the amount of public spending that is available to local authorities. They should bear it in mind, when considering the effects of the changes that we have made, that it is likely that they will have less impact on many local authority funds than early retirement costs.

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

Not at the moment. Perhaps I shall allow the hon. Gentleman to intervene when I take up the points that he raised.

Improved company performance will be reflected in long-term share prices. We believe that the changes that we have made are justified.

I shall refer briefly to the windfall tax. I think that I should, because the shadow Chief Secretary did not mention it once. After all, it was the feature of the Budget that the Conservatives were to complain about for the next few months, yet there was not a word about it save for the contributions of a few Opposition Back-Bench Members. The Conservatives are the only people who will not accept that privatised utilities enjoyed excess profits that they were not investing in the infrastructure, as they promised. Most people believe that our proposal to implement the windfall tax, and to use that money to get people back into work, providing them with the training, skills and education that will mark out the United Kingdom as a place to invest in for the future, is entirely right. That is why we were supported at the recent general election, when we made our policy clear.

I have no doubt that the Liberal Democrats have had some fun over the weekend with their Sunday-for-Monday press release on the Government's spending proposals. I do not shrink from the fact that we have had to make some hard decisions on public spending. We said that we would take those decisions, and we are doing so. Despite that, we have enabled local authorities, their local education authorities and the health authorities to plan better next year, by announcing that we would allocate them £1 billion and £1.2 billion for their spending next year.

The hon. Member for Gordon (Mr. Bruce) at least had the courtesy to admit, when I asked him about the matter earlier, that in real terms, health spending would go up by 2¼ per cent. and spending on schools would go up by 2.7 per cent., which is not what he was telling the newspapers over the weekend.

Spending is increasing. The Liberal Democrats wanted only £500 million; we have allocated £1 billion.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

May I point out to the Chief Secretary that £500 million was for this year? He has given the health service not a penny this year. As he and the Chancellor have said that there will be no spending round this year, they have acknowledged that the inflationary effect will take effect this year and next year. That is why £5 billion is taken out of the spending.

When will the right hon. Gentleman explain to the House how deep the cuts in departmental spending are to be, where social security is to find more than £2 billion, where local authorities are to find more than £1.7 billion and where education and health are to find more than £80O million each? Where will the money come from? When will he tell the House?

Photo of Alistair Darling Alistair Darling The Chief Secretary to the Treasury

The hon. Gentleman need not worry about that. We shall keep the House informed, as we always keep the House informed.

Throughout the debate, the Liberal Democrats have told us how they would spend more money here and more money there. Whenever they are asked where the money is to come from, it is a tax that someone else will pay. I noticed in their manifesto that they said that they would increase fuel duties, yet they condemned us for doing the same thing.

On tax, it is curious that some Conservative Members say that taxes did not go up enough, whereas others say that taxes went up too much. We have had to take the decisions announced by my right hon. Friend the Chancellor to pay off the debts that the Tories left us. We are determined not to get into a situation where this country is saddled with debt, with the result that debt interest payments are so high that not only does that impede our economic performance, but money that could otherwise be spent on services is being spent on repaying debt.

The same applies to the housing market. The Conservatives left the country with a legacy of boom and bust. There are many people in various parts of the country who are still living with negative equity. Nearly every hon. Member on the Conservative Front Bench bears responsibility for the unsustainable Lawson boom of the late 1980s. The only one who can claim an exemption is the leader of the Tory party, who can genuinely claim that he was too young at the time and had nothing to do with it. The rest of them are all guilty.

We have inherited a situation that we would not have chosen. We are prepared to take the tough decisions necessary to put the country on a proper long-term footing. Unlike the Conservatives, we have maintained our manifesto promises and we are delivering them.

We promised that we would not increase the top and basic rate of tax, and we have kept that promise. We said that we would cut VAT on fuel to 5 per cent., and we have delivered on that promise. We said that we would not extend VAT to food, children's clothes, books, newspapers and public transport fares, and we have kept that promise as well. We said that we would examine the interaction of the tax and benefit system, and already that work is in hand. We said that we would introduce a new individual savings account, and we have delivered on that promise as well.

We said that we would introduce a Budget to begin the task of equipping the British economy and reforming the welfare state to get young people back into work, and to give them the education and training opportunities that they want. We have delivered on that promise. This is a party which delivers on the promises that it made to the British people.

It is interesting to observe the defence by the Conservatives of private medical insurance, where they are defending only a few people—in the past seven years, the number of people getting the tax subsidy has barely changed. In 1990, there were 350,000 private medical insurance contracts. Seven years later, there are only a few thousand more than that. We have chosen to remove that subsidy from the few to benefit the many, to help to pay for the reduction of VAT on fuel. That illustrates the different priorities of the Labour party and the Conservatives. We benefit the many people in this country, not just in that individual measure. The Conservatives are concerned about the few, which is one of the many reasons why they were thrown out of office on 1 May.

This is a Budget for the future. It will give this country economic stability and create the right conditions for more investment, not just in industry but in infrastructure. It will ensure that we have a fair tax system and it will implement the people's priorities in the areas of education and health. I am sure that the House will endorse the Budget tonight, just as the whole country has endorsed it in the past few days. It is a Budget for the future, and it commands support up and down the country.

Question put:

The House divided: Ayes 342, Noes 196.

Division No.42][9.59 pm
AYES
Abbott, Ms DianeCampbell, Ronnie (Blyth V)
Adams, Mrs Irene (Paisley N)Campbell-Savours, Dale
Ainger, NickCann, Jamie
Ainsworth, Robert (Cov'try NE)Caplin, Ivor
Allen, Graham (Nottingham N)Casale, Roger
Anderson, Janet (Rossendale)Cawsey, Ian
Armstrong, Ms HilaryChapman, Ben (Wirral S)
Ashton, JoeClapham, Michael
Atherton, Ms CandyClark, Rt Hon Dr David (S Shields)
Atkins, CharlotteClark, Dr Lynda (Edinburgh Pentlands)
Austin, John
Banks, TonyClark, Paul (Gillingham)
Barnes, HarryClarke, Charles (Norwich S)
Barron, KevinClarke, Eric (Midlothian)
Bayley, HughClarke, Rt Hon Tom (Coatbridge)
Beard, NigelClarke, Tony (Northampton S)
Beckett, Rt Hon Mrs MargaretCoaker, Vernon
Begg, Miss Anne (Aberd'n S)Coffey, Ms Ann
Bell, Martin (Tatton)Colman, Tony (Putney)
Bell, Stuart (Middlesbrough)Connarty, Michael
Bennett, Andrew FCooper, Yvette
Bermingham, GeraldCorbett, Robin
Berry, RogerCorbyn, Jeremy
Best, HaroldCorston, Ms Jean
Betts, CliveCousins, Jim
Blackman, LizCranston, Ross
Blears, Ms HazelCrausby, David
Blizzard, BobCryer, Mrs Ann (Keighley)
Blunkett, Rt Hon DavidCryer, John (Hornchurch)
Borrow, DavidCummings, John
Bradley, Keith (Withington)Cunliffe, Lawrence
Bradley, Peter (The Wrekin)Cunningham, Jim (Cov'try S)
Bradshaw, BenCunningham, Rt Hon Dr John (Copeland)
Brinton, Mrs Helen
Brown, Rt Hon Gordon (Dunfermline E)Curtis-Thomas, Mrs Claire
Dafis, Cynog
Brown, Rt Hon Nick (Newcastle E)Dalyell, Tam
Brown, Russell (Dumfries)Darling, Rt Hon Alistair
Browne, Desmond (Kilmarnock)Darvill, Keith
Burden, RichardDavey, Valerie (Bristol W)
Burgon, ColinDavidson, Ian
Butler, ChristineDavies, Rt Hon Denzil (Llanelli)
Byers, StephenDavies, Geraint (Croydon C)
Caborn, RichardDawson, Hilton
Campbell, Alan (Tynemouth)Dean, Mrs Janet
Campbell, Mrs Anne (C'bridge)Denham, John
Dismore, AndrewJones, Ieuan Wyn (Ynys Môn)
Dobson, Rt Hon FrankJones, Dr Lynne (Selly Oak)
Donohoe, Brian HJones, Martyn (Clwyd S)
Doran, FrankJowell, Ms Tessa
Dowd, JimKeeble, Ms Sally
Drew, DavidKeen, Alan (Feltham & Heston)
Drown, Ms JuliaKeen, Mrs Ann (Brentford)
Dunwoody, Mrs GwynethKemp, Fraser
Eagle, Angela (Wallasey)Kennedy, Jane (Wavertree)
Edwards, HuwKhabra, Piara S
Efford, CliveKidney, David
Ellman, Ms LouiseKilfoyle, Peter
Ennis, JeffKing, Andy (Rugby & Kenilworth)
Etherington, BillKing, Ms Oona (Bethnal Green)
Fatchett, DerekKumar, Dr Ashok
Field, Rt Hon FrankLadyman, Dr Stephen
Fisher, MarkLawrence, Ms Jackie
Fitzpatrick, JimLaxton, Bob
Flint, CarolineLepper, David
Flynn, PaulLevitt, Tom
Follett, BarbaraLewis, Ivan (Bury S)
Foster, Rt Hon DerekLewis, Terry (Worsley)
Foster, Michael John (Worcester)Liddell, Mrs Helen
Foulkes, GeorgeLinton, Martin
Fyfe, MariaLivingstone, Ken
Galloway, GeorgeLloyd, Tony (Manchester C)
Gardiner, BarryLlwyd, Elfyn
Gerrard, NeilLove, Andrew
Gibson, Dr IanMcAvoy, Thomas
Godman, Dr Norman AMcCabe, Stephen
Godsiff, RogerMcCafferty, Ms Chris
Goggins, PaulMcCartney, Ian (Makerfield)
Golding, Mrs LlinMcDonagh, Siobhain
Gordon, Mrs EileenMcDonnell, John
Grant, BernieMcFall, John
Griffiths, Jane (Reading E)McGuire, Mrs Anne
Grocott, BruceMcKenna, Ms Rosemary
Grogan, JohnMcNulty, Tony
Gunnell, JohnMactaggart, Fiona
Hall, Mike (Weaver Vale)McWalter, Tony
Hall, Patrick (Bedford)McWilliam, John
Hanson, DavidMahon, Mrs Alice
Harman, Rt Hon Ms HarrietMallaber, Judy
Heal, Mrs SylviaMarek, Dr John
Healey, JohnMarsden, Gordon (Blackpool S)
Henderson, Doug (Newcastle N)Marsden, Paul (Shrewsbury)
Henderson, Ivan (Harwich)Marshall, David (Shettleston)
Hepburn, StephenMarshall, Jim (Leicester S)
Heppell, JohnMarshall-Andrews, Robert
Hesford, StephenMartlew, Eric
Hewitt, Ms PatriciaMaxton, John
Hill, KeithMeacher, Rt Hon Michael
Hodge, Ms MargaretMeale, Alan
Home Robertson, JohnMerron, Gillian
Hood, JimmyMichael, Alun
Hoon, GeoffreyMichie, Bill (Shef'ld Heeley)
Hope, PhilMilburn, Alan
Hopkins, KelvinMitchell, Austin
Howarth, Alan (Newport E)Moffatt, Laura
Howarth, George (Knowsley N)Morgan, Ms Julie (Cardiff N)
Howells, Dr KimMorgan, Rhodri (Cardiff W)
Hoyle, LindsayMorris, Ms Estelle (B'ham Yardley)
Hughes, Ms Beverley (Stretford)Morris, Rt Hon John (Aberavon)
Hughes, Kevin (Doncaster N)Mountford, Kali
Humble, Mrs JoanMudie, George
Hurst, AlanMullin, Chris
Hutton, JohnMurphy, Denis (Wansbeck)
Iddon, Dr BrianMurphy, Jim (Eastwood)
Illsley, EricNaysmith, Dr Doug
Jackson, Ms Glenda (Hampstead)Norris, Dan
Jackson, Helen (Hillsborough)O'Brien, Bill (Normanton)
Jamieson, DavidO'Brien, Mike (N Warks)
Jenkins, Brian (Tamworth)O'Hara, Edward
Johnson, Miss Melanie (Welwyn Hatfield)Olner, Bill
O'Neill, Martin
Jones, Ms Fiona (Newark)Organ, Mrs Diana
Osborne, Mrs SandraSouthworth, Ms Helen
Pearson, IanSpellar, John
Pendry, TomSquire, Ms Rachel
Pickthall, ColinStarkey, Dr Phyllis
Pike, Peter LSteinberg, Gerry
Plaskitt, JamesStevenson, George
Pollard, KerryStewart, David (Inverness E)
Pond, ChrisStewart, Ian (Eccles)
Pope, GregStinchcombe, Paul
Pound, StephenStoate, Dr Howard
Powell, Sir RaymondStott, Roger
Prentice, Ms Bridget (Lewisham E)Strang, Rt Hon Dr Gavin
Prentice, Gordon (Pendle)Straw, Rt Hon Jack
Prescott, Rt Hon JohnStringer, Graham
Primarolo, DawnStuart, Ms Gisela (Edgbaston)
Prosser, GwynSutcliffe, Gerry
Purchase, KenTaylor, Rt Hon Mrs Ann (Dewsbury)
Quin, Ms Joyce
Radice, GilesTaylor, David (NW Leics)
Rammell, BillThomas, Gareth R (Harrow W)
Rapson, SydTimms, Stephen
Raynsford, NickTipping, Paddy
Reid, Dr John (Hamilton N)Todd, Mark
Robinson, Geoffrey (Cov'try NW)Touhig, Don
Roche, Mrs BarbaraTrickett, Jon
Rogers, AllanTurner, Dennis (Wolverh'ton SE)
Rooney, TerryTurner, Dr George (NW Norfolk)
Ross, Emie (Dundee W)Twigg, Derek (Halton)
Rowlands, TedTwigg, Stephen (Enfield)
Roy, FrankVaz, Keith
Ruane, ChrisVis, Dr Rudi
Ruddock, Ms JoanWalley, Ms Joan
Ryan, Ms JoanWatts, David
Salter, MartinWhite, Brian
Savidge, MalcolmWhitehead, Dr Alan
Sawford, PhilWicks, Malcolm
Sedgemore, BrianWigley, Dafydd
Sheerman, BarryWilliams, Rt Hon Alan (Swansea W)
Sheldon, Rt Hon Robert
Shipley, Ms DebraWilliams, Alan W (E Carmarthen)
Short, Rt Hon ClareWilliams, Mrs Betty (Conwy)
Simpson, Alan (Nottingham S)Wills, Michael
Singh, MarshaWinnick, David
Skinner, DennisWinterton, Ms Rosie (Doncaster C)
Smith, Rt Hon Andrew (Oxford E)Wood, Mike
Smith, Angela (Basildon)Woolas, Phil
Smith, Rt Hon Chris (Islington S)Worthington, Tony
Wray, James
Smith, Miss Geraldine (Morecambe & Lunesdale)Wright, Dr Tony (Cannock)
Wright, Tony D (Gt Yarmouth)
Smith, Jacqui (Redditch)Wyatt, Derek
Smith, John (Glamorgan)
Smith, Llew (Blaenau Gwent)Tellers for the Ayes:
Snape, PeterMr. David Clelland and
Soley, CliveMr. Jon Owen Jones.
NOES
Ainsworth, Peter (E Surrey)Brady, Graham
Allan, Richard (Shef'ld Hallam)Brake, Thomas
Amess, DavidBrand, Dr Peter
Ancram, Rt Hon MichaelBrazier, Julian
Arbuthnot, JamesBreed, Colin
Ashdown, Rt Hon PaddyBrooke, Rt Hon Peter
Atkinson, David (Bour'mth E)Browning, Mrs Angela
Atkinson, Peter (Hexham)Bruce, Ian (S Dorset)
Baker, NormanBruce, Malcolm (Gordon)
Baldry, TonyBurnett, John
Ballard, Mrs JackieBurns, Simon
Beith, Rt Hon A JBurstow, Paul
Bercow, JohnButterfill, John
Beresford, Sir PaulCable, Dr Vincent
Blunt, CrispinCampbell, Menzies (NE Fife)
Body, Sir RichardCash, William
Boswell, TimChapman, Sir Sydney (Chipping Barnet)
Bottomley, Peter (Worthing W)
Bottomley, Rt Hon Mrs VirginiaChidgey, David
Chope, ChristopherLidington, David
Clappison, JamesLilley, Rt Hon Peter
Clark, Rt Hon Alan (Kensington)Livsey, Richard
Clark, Dr Michael (Rayleigh)Lloyd, Rt Hon Sir Peter (Fareham)
Clarke, Rt Hon Kenneth (Rushcliffe)Loughton, Tim
Luff, Peter
Clifton-Brown, GeoffreyLyell, Rt Hon Sir Nicholas
Collins, TimMacGregor, Rt Hon John
Colvin, MichaelMcIntosh, Miss Anne
Cormack, Sir PatrickMacKay, Andrew
Cotter, BrianMaclean, Rt Hon David
Cran, JamesMcLoughlin, Patrick
Curry, Rt Hon DavidMadel, Sir David
Davey, Edward (Kingston)Malins, Humfrey
Davis, Rt Hon David (Haltemprice)Maples, John
Davies, Quentin (Grantham)Mates, Michael
Dorrell, Rt Hon StephenMaude, Rt Hon Francis
Duncan, AlanMawhinney, Rt Hon Dr Brian
Duncan Smith, IainMay, Mrs Theresa
Evans, NigelMerchant, Piers
Faber, DavidMichie, Mrs Ray (Argyll & Bute)
Fabricant, MichaelMoore, Michael
Fallon, MichaelNicholls, Patrick
Feam, RonnieNorman, Archie
Flight, HowardOaten, Mark
Forth, Rt Hon EricÖpik, Lembit
Foster, Don (Bath)Page, Richard
Fowler, Rt Hon Sir NormanPaice, James
Fox, Dr LiamPaterson, Owen
Fraser, ChristopherPickles, Eric
Gale, RogerPrior, David
Garnier, EdwardRedwood, Rt Hon John
George, Andrew (St Ives)Rendel, David
Gibb, NickRobathan, Andrew
Gill, ChristopherRobertson, Laurence (Tewk'b'ry)
Gillan, Mrs CherylRoe, Mrs Marion (Broxbourne)
Goodlad, Rt Hon AlastairRowe, Andrew (Faversham)
Gorman, Mrs TeresaRuffley, David
Gorrie, DonaldRussell, Bob (Colchester)
Gray, JamesSt Aubyn, Nick
Green, DamianSanders, Adrian
Greenway, JohnSayeed, Jonathan
Grieve, DominicShephard, Rt Hon Mrs Gillian
Gummer, Rt Hon JohnShepherd, Richard (Aldridge)
Hague, Rt Hon WilliamSimpson, Keith (Mid-Norfolk)
Hamilton, Rt Hon Sir ArchieSmith, Sir Robert (W Ab'd'ns)
Hammond, PhilipSoames, Nicholas
Hancock, MikeSpelman, Mrs Caroline
Harris, Dr EvanSpicer, Sir Michael
Harvey, NickSpring, Richard
Hawkins, NickStanley, Rt Hon Sir John
Hayes, JohnSteen, Anthony
Heald, OliverStreeter, Gary
Heath, Rt Hon Sir EdwardStunell, Andrew
Heathcoat-Amory, Rt Hon DavidSwayne, Desmond
Hogg, Rt Hon DouglasSyms, Robert
Horam, JohnTapsell, Sir Peter
Howard, Rt Hon MichaelTaylor, Ian (Esher & Walton)
Howarth, Gerald (Aldershot)Taylor, John M (Solihull)
Hughes, Simon (Southwark N)Taylor, Matthew (Truro)
Hunter, AndrewTemple-Morris, Peter
Jack, Rt Hon MichaelTownend, John
Jackson, Robert (Wantage)Tredinnick, David
Jenkin, Bernard (N Essex)Trend, Michael
Jones, Nigel (Cheltenham)Tyler, Paul
Keetch, PaulTyrie, Andrew
Kennedy, Charles (Ross Skye)Viggers, Peter
Key, RobertWallace, James
King, Rt Hon Tom (Bridgwater)Walter, Robert
Kirkbride, Miss JulieWardle, Charles
Kirkwood, ArchyWaterson, Nigel
Laing, Mrs EleanorWebb, Professor Steve
Lansley, AndrewWells, Bowen
Leigh, EdwardWhitney, Sir Raymond
Letwin, OliverWhittingdale, John
Lewis, Dr Julian (New Forest E)Widdecombe, Rt Hon Miss Ann
Willetts, DavidYeo, Tim
Willis, PhilYoung, Rt Hon Sir George
Wilshire, David
Winterton, Mrs Ann (Congleton)Tellers for the Noes:
Winterton, Nicholas (Macclesfield)Mr. Richard Ottaway and
Woodward, ShaunMr. Malcolm Moss.

Question accordingly agreed to.

Resolved, That provision may be made for imposing a tax on the amount of the windfall from which a company was benefitting on 2nd July 1997 in any case where—

  1. (a) an undertaking whose privatisation involved the imposition of economic regulation has been privatised by means of a flotation; and
  2. (b) the profits of the undertaking in the period after the flotation show that the company was benefitting on that date from a windfall from that flotation.

MADAM SPEAKER then, pursuant to paragraph (3) of Standing Order No. 51 (Ways and Means motions), put forthwith the Questions necessary to dispose of the further motions.