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Our first duty in government has been to secure economic stability for the country. Stability is the foundation on which prosperity and progress can be built and is the basis for sustained investment in strong public services. In last week's Budget, my right hon. Friend the Chancellor of the Exchequer locked in the stability that the Government have created.
When the Government came to office in 1997, inflation was back in the system, interest rates were rising and the public finances had spiralled out of control. In the previous 18 years, the national debt had doubled and the economy had been allowed to lurch between the deepest recessions and ever-shorter periods of unsustainable growth. Mass unemployment and a growing debt burden had skewed public spending. For every £1 of extra public expenditure, 42p was being spent on servicing the national debt and paying the social security bills of economic failure.
Today, just 16p in every pound is spent on those debt and social security payments. Interest payments on debt used to exceed payments on schools, but today, schools are the Government's priority. The public finances are back under control. Interest rates, and therefore mortgages, are averaging half their rate under the previous Government. Our inflation rate is among the lowest in Europe, there are 1 million more jobs in the economy, and manufacturing, despite its significant difficulties, is expanding, investing and exporting. After decades of neglect, public investment is also growing, especially in the key services: health, education, transport and the fight against crime.
None of that has come about by chance. It has happened because of the choices that the Government have made. New fiscal rules, independence for the Bank of England, and new programmes to create jobs and to make work pay have all helped to secure prosperity and progress for our country.
Each and every step of the way, those choices have been opposed by the Conservative party. In August 1998, the shadow Foreign Secretary predicted a bleak outlook for the economy. Today, Britain has the lowest inflation that it has had for 30 years. The Leader of the Opposition said that independence for the Bank of England was dangerous arrogance. Today, Britain has the lowest long-term interest rates for 35 years.
The shadow Chancellor warned the House that a minimum wage would lose the country more than a million jobs. Today Britain has a minimum wage; it also has the lowest unemployment for 25 years. Rather than a million jobs being lost, a million have been created. Today's Conservatives, therefore, have been wrong on economic performance, wrong on the Bank of England's independence, wrong on ending poverty pay, and wrong on every prediction and forecast. Not even Michael Fish gets it that wrong. [Interruption.] I am glad that the right hon. Member for Kensington and Chelsea (Mr. Portillo) is perking up.
The Budget has been well received precisely because we avoided the temptation, to which Chancellors have traditionally succumbed, to make judgments for the short term that could not be sustained in the longer term. The shadow Chancellor still advocates precisely that approach today. As history proves, that is an economic policy that can end only in boom and bust.
The right hon. Gentleman will recall that when he was a member of the Government in 1988, the then Chancellor, Lord Lawson, declared that there had been an economic miracle in Britain. The problem was that the then Government assumed that surpluses one year were sustainable every year. The Budget that year cut taxes by £6 billion in 1988 prices. Within just three years, Britain was in the deepest recession that it has ever seen. Where was the right hon. Gentleman at the time? He was in the Treasury, presiding over 15 per cent. interest rates, 10 per cent. inflation rates, 3 million people unemployed, 1 million people in negative equity and a £50 billion public sector borrowing requirement. That truly was a recession made in Downing street. Today, he claims to have enough credibility to run the economy. Frankly, with his record, he does not have the credibility to run a bath, never mind the economy.
Last week, my right hon. Friend the Chancellor of the Exchequer consciously took a balanced approach, involving the repayment of national debt alongside targeted tax cuts for hard-working families; help for pensioners, motorists and savers alongside action to increase employment opportunities; and new measures to boost private sector productivity alongside prudent public sector investment.
The national health service is a major beneficiary of our approach. The NHS in England will receive an average of £275 million extra a year for the next three years. That is in addition to the record levels of investment that we are already making. Health service spending is now growing by an average of 6.6 per cent. a year in real terms this year and over the next three years. In the previous Parliament, when the right hon. Gentleman was in the Treasury, health service spending grew by just 2.6 per cent. Indeed, in the previous Conservative Government's last year in office—with him in the Cabinet alongside the Leader of the Opposition—they cut health service spending in real terms.
Today, under a Labour Government, the NHS is the fastest growing health service of any major country in Europe. The whole nation knows that there is a huge amount of catching up to do. Real problems remain in the health service, but real progress is being made too. This year, for the first time in years, the NHS overall will balance its books. Just as we have sorted out the state of the overall public finances, so our prudent management has paid off the NHS debts that we inherited.
Hospital waiting lists have fallen below the 100,000 target that we promised at the previous general election, and outpatient lists are now falling as well. There are improved waiting times for cancer patients. More heart operations are being carried out than ever before. For the first time, cancer and cardiac services for prevention and for treatment are receiving earmarked funding worth hundreds of millions of pounds.
This year, for the first time in 40 years, there are more beds in hospitals. The biggest new hospital building programme in health service history is under way. When the right hon. Member for Kensington and Chelsea was Chief Secretary, he cut capital investment in NHS buildings and NHS equipment by almost 6 per cent. in real terms. Capital spending in the NHS was lower at the end of the previous Parliament than at the beginning. Over this Parliament, capital investment is growing again by an annual average of almost 10 per cent.
Even in my own West Surrey health authority area, the number of beds in the system has been cut by 25 per cent. since the Government came to power. If the investment is coming through, it follows some of the most savage cuts ever witnessed made in the shortest time on record.
With due respect, the hon. Gentleman is on shaky ground. After all, over just 10 years, his party in government cut NHS beds by 40,000. This year, for the first time in 40 years, the number of NHS beds is growing. Indeed, during the next few years, that number will grow still more precisely because of the investment that we are making in the NHS—investment that the Conservative party still refuses to match. The biggest problem that the NHS faces is a shortage not of cash or even of the latest equipment or modern buildings, but of capacity.
Does not the Secretary of State recognise that there is still a shortage of cash as a result of the Government accepting two years of Tory spending plans? A lot of the extra spending goes to meet previous deficits. I hope that I can share his optimism that, a year from now, we shall see some real outputs, but the majority of health authorities are still in debt.
That is not the case. I can tell the hon. Gentleman, who is normally more assiduous on such issues, that this year, for the first time in seven or eight years, the NHS overall will balance its books. The extra money does not go to paying off debts. It goes on new hospitals, new primary care premises, extra pay for nurses and doctors and more doctors, nurses, therapists and scientists.
The Liberal Democrats tell us that not enough money is going to the NHS, but at the previous general election they promised a meagre increase of only £700 million a year, which is dwarfed by the amount that we have invested. The Liberals are in danger of becoming the Oliver Twists of modern party politics—they always beg for more and nothing is ever enough. They always want to spend money that they do not have.
The problem in the NHS is not so much a shortage of cash as a shortage of capacity and of trained qualified staff—doctors, nurses, midwives, therapists and scientists—who have the skills on which NHS patients depend. Those staff are the best asset of the NHS and the NHS simply needs more of them. Here, we have made a start.
There are 17,000 more nurses working in the NHS than when we came to office. There are 6,700 more doctors, but we need to do much more. The NHS is still short of doctors, nurses and other qualified staff. The NHS plan, which we published last year, sets out our ambition to have by 2004—compared with the l999 position—20,000 more nurses, 7,500 more consultants and at least 2,000 more general practitioners working for the health service.
Last week, my right hon. Friend the Chancellor outlined a new £135 million fund to help us to achieve those ambitious plans for staff expansion in the NHS. Today, I can give the House the details of how we shall deploy those extra resources. I begin with nurses, who are the backbone of our health service. From this Government, they get the recognition and, indeed, the pay rises that they deserve—pay rises paid in full rather than staged. There is extra pay, too, of up to £1,000 in those parts of the country where shortages are greatest and the cost of living highest.
Of course that issue, which the hon. Gentleman has raised with me before, is one that we keep under review. This is the first year in which there will be an increase in the cost-of-living supplement, targeting extra money on areas where we know that, for a variety of reasons—largely to do with property prices—the cost of living is highest. We will continue to keep the matter under review, and I am aware of the representations made by him and, indeed, many of my hon. Friends about the situation in Kent.
Not every nurse shortage problem has been solved, but progress has been made. Under the present Government—but not under the last—nurse numbers have risen every year: they have risen by more than 6,000 in the last 12 months alone. Nurse training places, which were cut in the last Parliament—incidentally, at precisely the time when the right hon. Member for Kensington and Chelsea had his fingers on the purse strings—have risen under this Government. Training places are up by 36 per cent., and there has been a 56 per cent. increase in United Kingdom applicants for nursing and midwifery courses.
There is more that we can now do. We will take three steps. The first relates to nurses who are considering returning to work in the NHS. In the last two years, more than 7,000 nurses who left the health service have rejoined it. Many may not have been in nursing for many years, and may need training to get them up to speed with modern practice. Return-to-work courses last an average of 12 weeks. Currently, there is no direct financial support for nurses during that period of retraining; that is a significant disincentive, which I intend to remove. From next month I will introduce a new payment for nurses, midwives and other health professionals who are retraining for a return to work in the NHS. Each payment will be worth at least £1,000. We will consult nursing and other unions on how best to make the new payments work.
Secondly, there will be more help for nurses with child care responsibilities. About 50 per cent. of nurses have children, and many find it difficult to combine their family and work responsibilities. In the NHS plan, we committed ourselves to spending more than £30 million by 2004 to provide more child care, including 100 on-site nurseries. Today I intend to go further: I will increase spending by half—by £15 million—over the next two years, to provide a further 50 new NHS nurseries. I can confirm that no new NHS hospital development will get the go-ahead unless it contains plans for such a workplace nursery.
Thirdly, we will increase the incomes of student nurses, midwives and therapists. For much of the 1990s, the student bursary was frozen; in the last three years we have increased it. Each of the 50,000 students currently studying for a nursing diploma now receives £4,805 a year.
Student nurses are crucial to the future of the health service. One in six currently give up a course before completing it, and that must change. Student nurses deserve more than they are getting now. I can announce that, from September, each student nurse studying for a diploma will receive a £500 bursary increase. That is a 10.4 per cent. rise, and it will extend to all NHS-funded students studying for degrees. It is the biggest increase since the bursary was introduced in 1989.
Let me say something about family doctors. General practitioners do a brilliant job for the NHS. They are working under real pressure; we have shortages of GPs, and we need more of them. Under the last Government, GP training numbers fell by more than 20 per cent., which has cost the NHS more than 700 family doctors. After big reductions in the number of GP registrars in the mid-1990s, their numbers have risen by more than a quarter.
In the NHS plan, we said that we wanted to increase GP numbers by at least 2,000 by 2004. We have already taken action to improve both recruitment and retention, but today I can go further still.
First, we want to retain GPs in the NHS. So today I can announce that GPs who continue working in the NHS beyond 60 will receive a golden thank-you payment on their 65th birthday as an incentive to remain in general practice. On their 60th birthday, £10,000 will be set aside. On their retirement, they will receive the lump sum plus interest.
Secondly, many family doctors have left general practice but could be persuaded to return—[Interruption.] Even the hon. Member for Isle of Wight (Dr. Brand) might be persuaded. With the prospect of a general election around the corner, he should think about it. It might be a good career opportunity for him.
The improvements that we have already made to the GP retainer scheme have enabled more than 1,000 GPs, mainly women, to keep in touch with practice. I intend to do more. From next month, I propose to pay up to £5,000 to GPs on the scheme who return to a permanent post, either full-time or part-time, in the health service.
Thirdly, I want to deal with the imbalance between the supply of GPs and the health needs of the poorer parts of the country. The Government are determined to tackle the health inequalities that scar our nation. We have set new demanding targets to help us do so. Currently, the areas with the greatest health needs often have the lowest numbers of family doctors. The introduction of the new personal medical services contract is of course helping to deal with that historic problem.
Today, we can take another step. From next month, we shall make payments of £5,000 to every new GP who chooses to practise in an under-doctored or deprived area for at least three years. Places that will benefit include Barnsley, Brighton, Bristol and Birmingham. The new incentives will be good for family doctors, good for the health service and, above all else, good for families in those parts of the country where, for too long, there have been shortages of GPs.
Our country as a whole is short of family doctors. So today I am making available extra funding for training GPs and for supporting newly qualified GPs in all parts of the country. There is one further step that I want to take to make general practice a more attractive career for young doctors. I have already announced the £5,000 extra for GPs who choose to work in deprived areas. I can also announce that, wherever they work, in any area, north or south, rich or poor, every new family doctor will receive a £5,000 payment for working in general practice in the health service.
Details will be discussed with GP representatives, but the package that I have been able to announce today will involve new GPs in all parts of the country receiving £5,000, with new GPs in the poorest parts of the country receiving a total of £10,000. Those measures are an important recognition of the work that family doctors do and the need to make their careers more rewarding.
The measures that I have taken today—for nurses, midwives, therapists and GPs—will help to expand the numbers of those key staff working in the health service. In the next few years, the measures will help to bring more family doctors than ever before, and an average of 5,000 extra nurses per year, into the NHS. Consequently, patients will receive better, faster treatment.
As a Government, we can make that investment because of the choices that we have made. As the Budget makes clear, our choice is for economic stability, for targeted tax cuts that are affordable and for extra investment in our key public services. As announced in the Budget, spending growth will now average not the 3.4 per cent. annually that was promised in the spending review, but 3.7 per cent. annually in the next three years. That investment is targeted at our priorities: health, education, transport and the fight against crime.
Perhaps uncharacteristically, I should like to put an entirely non-partisan question to the Secretary of State. Is he aware that 1.4 million people have been diagnosed with diabetes, but that another estimated 1 million people have not been diagnosed? Is he also aware—I suspect that he is—that serious complications can result from late diagnosis, including heart trouble, kidney failure and even blindness? In the light of those disturbing facts, will he endorse the call by Diabetes UK for commitment to the diabetes pledge, which is a pledge for the Government to commit themselves to a thorough and continuing screening programme?
The hon. Gentleman makes an extremely important point. Diabetes is a disease that affects very many people in our country. If it is not diagnosed and treated early, it can have precisely the effects that he described.
The hon. Gentleman will be interested to know that I hope over the next year or so to put together a new blueprint for improvements in diabetes services. The new national standards will apply everywhere, and not just in one part of the country. He will be aware that there is a lottery in care in diabetes services, but that lottery has existed for too long in too many NHS services. However, the choices that we have made and the investment that we are putting in means that we can change that.
For example, the hon. Gentleman will know that diabetes patients need the support of social services as well as of the NHS. The question for him is whether the shadow Chancellor will promise at the Dispatch Box to match the Government's increases in spending on social services and on the NHS. The hon. Gentleman should understand that I mean not only the social services spending that comes from the Department of Health, but the local government spending through the Department of the Environment, Transport and the Regions. The hon. Gentleman's constituents—those who are diabetes patients, and those who are not—will be listening carefully to what the shadow Chancellor has to say on the matter.
The Government are to increase public spending by 3.7 per cent., but the shadow Chancellor, in contrast, has committed the Conservative party to spending rises of just 2.25 per cent. a year, or even less. How will the Opposition fill the spending gap? That is the challenge that they face. If they grow spending at just 2.25 per cent. a year, they will have to cut the Government's spending plans by more than £16 billion by 2003–04. If they postpone cuts for just one year—as they now say they will—they will have to find more than £10 billion of cuts over the following two years.
As the Opposition have failed already to find £8 billion of savings to close the spending gap, there is precisely no chance that they will find £10 billion in savings unless they do what they have promised to do in the past—cut into the country's vital public services. Those services—health, education, transport and the fight against crime—are now under threat from the choices made by the Conservative party and the shadow Chancellor. They have chosen unaffordable tax cuts, instead of investment in our key public services.
The hon. Gentleman says that that is wrong, but he should read more carefully what the right hon. Member for Kensington and Chelsea has had to say on the matter. Otherwise, he—and, I suspect, his constituents—will be in for a surprise at the next general election.
Careful costing is not the preserve of the right hon. Member for Kensington and Chelsea, his Front-Bench team or today's Conservative party. They cannot commit to invest to modernise the NHS, so that is why they are now committed to privatising it. We know that from what the shadow Chancellor and other Conservative Members have said. The shadow Chancellor could not have made it clearer. I think that it was in October last year that he told the "Today" programme that he expected those who were able to do so to make "a little extra contribution".
Day by day, the Opposition's economic policy becomes more threadbare. They claim savings that they cannot make, they make tax cuts that they cannot afford, and they make spending pledges that they cannot meet. It would be laughable were it not so serious. The party that once naturally assumed the mantle of economic competence now lives on the never-never, in a world of fantasy economics, spurious spending pledges and unsustainable tax cuts.
The Opposition's policies do not make sense. Their sums do not add up: they are unaffordable, unsustainable and unbelievable. The choice before the country could not be clearer—between policies that bring economic stability and policies that would bring a return to boom and bust, between sustained investment in public services and a return to cuts in public services, and between an expanding, reforming NHS and a contracting, privatising NHS.
Those are the choices for Britain. They are the choices today, and they will be the choices at the next general election.
I refer the House to my declaration in the Register of Members' Interests.
I believe that the House will not be overly grateful to the Secretary of State for coming here this afternoon and making a series of announcements that we all read about in this morning's newspapers and heard about from this morning's media. It is typical of the Secretary of State and of the Government to display such discourtesy towards, and contempt for, the House of Commons.
Every time the Government announce more money for the national health service, they tell us that they will revolutionise the service, but nothing ever improves. Before the last election, the Prime Minister stood in front of posters that said that waiting lists would be shorter, but, in fact, they are longer. Doctors in today's national health service are forced to put Ministers' political priorities ahead of patients' clinical needs, which means that the sickest patients are often those who are made to wait the longest. There are 20,000 nursing vacancies in the national health service. The Government promised to end postcode prescribing, but they have not. They promised to end mixed-sex wards, but they have not. They have imposed dogmatic restrictions on new consultants, which means that many doctors could be leaving the national health service.
Nothing that the Secretary of State said today was new because we had already read it. Nothing that he said today changes any of the underlying conditions in the national health service.
Will the right hon. Gentleman clarify one aspect of policy? He has made much of matching our spending on the national health service. Will he give a cast-iron guarantee that, were there to be a Conservative Government, he would match our social services spending across the piece and not just in the Department of Health?
The right hon. Gentleman has obviously forgotten a lot since he left the Treasury. The Government are not in a position to guarantee social services spending because much of it is controlled by local government.
We have illustrated our £8 billion of savings against the Chancellor's plans; they could be made without affecting social services. We have not had to propose any reductions in the Government's plans on social services. The right hon. Gentleman knows that perfectly well. That is what made the last part of his speech so appallingly shabby.
This year's Budget, like all the Chancellor's Budgets, has unravelled very quickly. Now that we have had a chance to study the details, six points emerge. First, it is evident that the Chancellor's speech was, as usual, more spin than substance. That has become a new Budget tradition. Secondly, the Chancellor's claims about economic management completely ignore the golden inheritance that we bequeathed him. In his review of the economy, the right hon. Gentleman completely overlooked the fact that most of our competitors are doing better than we are.
Thirdly, the Budget continues the process of undermining this country's competitive position. Fourthly, it confirms that the Government plan a programme of unsustainable increases in tax and spending. Fifthly, the Chancellor continues his mission of taking money in taxes from those who can ill afford to pay them and forcing them to go cap in hand to the Government for benefits. Sixthly, the Budget did nothing to reduce Government waste and bureaucracy, so that despite the relentless increases in taxation that the Chancellor has imposed, our public services are actually getting worse. The Government have taxed more and delivered less.
Under this Chancellor, the Budget speech has become a series of soundbites, intended to mislead rather than inform. For example, the Chancellor claimed that the rate of increase in Government spending was to rise from 3.4 per cent. to 3.7 per cent., something that the Secretary of State for Health dwelt on towards the end of his speech. More plainly, the Chancellor meant that he had underspent this year by £3.4 billion, that he would underspend over three years by £5 billion and that the figure for 2003–04, which is the last year of his plans, is virtually unchanged. That is a very curious way of presenting his figures.
Similarly, the Chancellor greatly overdid his pre-Budget spinning. The House will remember that there was much talk of tax cuts in advance of the Budget. In the event, the Chancellor brought forth a mouse. The flagship of his tax cuts was his plan to widen the 10p band of income tax. Now that we have analysed it, it turns out to be worth 69p a week.
When people next go to the petrol station and see that Britain still has the most expensive fuel in Europe and that it still costs £50 to fill the tank of a Mondeo, I do not think that they will feel overly grateful to the Chancellor of the Exchequer for the fact that he has allowed them to keep an extra 69p. After 45 stealth tax rises, the right hon. Gentleman has responded with a miserly 69p.
The Chancellor approached the Budget with a very large surplus, but it is not his surplus; it is the people's surplus. The Government's money is not theirs; it is the people's money. The people have been overtaxed and they had every reason to expect that they would get their money back in this Budget.
The Chancellor trumpeted his tax cut, which turned out to be worth 69p, but he did not want to talk about the new taxes that he had invented. Even in an election Budget, he managed to smuggle in tax rises, for example, £2.90 a week more in national insurance for people earning more than £28,400 a year. There was a new energy tax, which the Confederation of British Industry said will seriously damage United Kingdom competitiveness. Council tax is up on average by £1 a week. A new tax on quarrying will be introduced next year. There are higher fuel scale charges for those who have company cars and extra value added tax is to be imposed on spectacles. None of those merited much of a mention in the Chancellor's Budget speech.
The Chancellor was not much more frank when he spoke about the economy, which has been growing not, as he would like us to believe, since May 1997, but since the beginning of 1992. By definition, five of those nine years were under the previous Government. Unemployment has been falling not, as the Chancellor would like us to believe, since May 1997, but since the middle of 1993. Indeed, it has been falling more slowly since 1997 than it did between 1993 and 1997.
It is true—I give the Chancellor this point—that economic growth and falling unemployment enable Governments to spend less on debt interest and on benefits for people who are out of work, but the foundations that brought about those possibilities and changes were laid by the Chancellor's predecessors. In fact, the proud boast of this Government is that, uniquely among Labour Governments, they have not reversed the improving economic trends that they inherited—they have merely slowed them down.
I grant the achievement of the right hon. and learned Member for Rushcliffe (Mr. Clarke), but four years have been added to the period from 1993 to 1997. Has the right hon. Gentleman ever known eight years of such stability in the post-war years?
It was the 18 years drubbing that the Labour party took in opposition that at last convinced it that it had to commit itself to sustainable economic development and the control of inflation. However, I am about to come to the right hon. Gentleman's point, as I think that it is not sufficient for the Chancellor of the Exchequer or the right hon. Gentleman to say that we have had growth for a long period and that that has not happened before.
We are in a new world and it is not sufficient to say that we are growing. What matters is whether we are growing by comparison with our competitors and the answer to that question is that we are not; we are under-performing the competition. The Chancellor and the right hon. Gentleman need to bring themselves up to date. We may have longer economic cycles, but that is no reason for complacency. This country must benchmark itself against the performance of other countries.
If they have proved anything, the past four years have proved that the spending plans of the previous Government were economically sound. The Secretary of State for International Development claimed last week that the Government had been prudent for the first two years, thereby betraying the fact that they had ceased to be prudent now. The Chancellor stuck to the Conservative spending plans for two years and, sure enough, he has got his reward for doing so. We do not yet know—we cannot know it because it is too early—what will be the economic cost of the rapid acceleration in Government spending that started last year: the return to Labour's tax and spend policies.
In answer to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the long period of growth that Britain has experienced should not be a reason for complacency. What matters is how well we are doing by comparison with our competitors. During this period of Labour Government, our rate of growth has been half that of the United States and lower than the average rate of the eurozone. Our productivity is growing at half the United States rate; the rate of growth was 50 per cent. higher under the previous Conservative Government. Unemployment has fallen, but 14 OECD countries have had a better record on unemployment during the period that the Labour Government have been in office.
We have rapidly lost our share of world trade, which went down from 5.1 per cent. to 4.5 per cent. in only three years. Our balance of payments shows an £18 billion deficit and the Chancellor expects to double that during the coming years—I have every confidence that this Chancellor of the Exchequer will do so.
It is true that during the 1980s and 1990s, Britain developed a reputation for being competitive. That reputation was based on maintaining lower taxation in this country than in Europe and on creating flexible labour markets. British companies succeeded and inward investment flowed. During the past four years, however, the Labour Government have begun to reverse those hard-won gains. The Red Book shows that the burden of taxation has risen by 3 per cent. of national income. Under the Labour Government, since the Chancellor came to office the tax burden has risen by £28 billion. None the less, the Prime Minister takes every opportunity to tell the House that the tax burden is not rising, but falling—something he could accomplish only by holding the graph upside down.
My right hon. Friend describes the balance of payments problem that this country is encountering and the increased tax burden we face. Is he aware that the OECD has said that since 1997, because of the increased tax burden and regulation imposed by the Labour Government, our competitiveness has fallen from fourth to ninth place in the world league?
My hon. Friend is right. Those are new figures. When the Government came to office, we were in fourth place in the competitiveness league. By 1999, we had fallen to eighth place and figures that have just been published show that we have fallen to ninth place. That is hardly surprising, not only because of the relentless increase in taxation and regulation under the Labour Government, but because other Governments are moving in the opposite direction. That is why we are losing competitiveness.
Does my right hon. Friend recall that, for 15 successive years, the previous Conservative Government published an assessment of the impact of both direct and indirect taxes on the average family and on families in other income deciles? Is it not a disgrace that the current Chancellor has refused to continue that sensible practice? Was it not, therefore, entirely appropriate that, in March 2000, the Select Committee on the Treasury published a report that criticised the Chancellor for his failure in that regard, denouncing him with particular severity at paragraph 35?
Order. Before the right hon. Member for Kensington and Chelsea (Mr. Portillo) replies, may I point out to the hon. Member for Buckingham (Mr. Bercow) that he needs to practise brevity? He has had a great deal of opportunity—I am looking at the length of his interventions.
My hon. Friend the Member for Buckingham (Mr. Bercow) was right on both counts. It is indeed a disgrace that the Chancellor suppressed information in that way and he was criticised by the Select Committee. However, I am not sure that it makes much difference whether the information is published. Information on the tax burden is published, but we cannot get the Chancellor or the Prime Minister to admit to the House what it says—that the tax burden is rising. They simply refuse to admit the truth. They are capable of any amount of wriggling in order to avoid addressing the fact that the tax burden has risen under the Labour Government.
Does the right hon. Gentleman recall that the Red Book for the last Budget delivered by the right hon. and learned Member for Rushcliffe (Mr. Clarke) predicted that the tax burden would rise during every year from 1997 to 2002? Why did the Conservatives propose that rise?
I recall clearly that the tax burden fell by 2 per cent. when I was at the Treasury—[HON. MEMBERS: "Ooh!"] Hon. Members are hopelessly ignorant. I was at the Treasury with my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). The tax burden fell by 2 per cent; it was 5 per cent. lower than at present. I just want the House to focus on that fact. The tax burden has risen by 5 percentage points from where it was under the last Conservative Government. That is an extraordinary change in the tax burden.
Our competitive advantage is being whittled away. PricewaterhouseCoopers estimates that two thirds of the competitive advantage that Britain enjoyed in the mid-1990s has been frittered away. As the Government remorselessly impose taxes on business and impose regulation, other countries are cutting their taxes. The Labour Government are swimming against a global tide, blunting Britain's competitive edge while other countries are busy sharpening theirs. The CBI estimates that the extra burden of tax on business is £5 billion a year, and the Institute of Directors estimates that the extra burden of regulation on business is £5 billion a year, yet the Secretary of State for Trade and Industry just haughtily dismisses all the worries of business.
In this election Budget, the Government have added a higher minimum wage and have extended paternity leave, without—
So, the Chancellor of the Exchequer can listen sometimes. That is very revealing. I am so sorry; I thought that the Chancellor of the Exchequer was involved in a much more interesting conversation. I did not think that he would be listening to me, but I am very pleased that he has been.
The Chancellor should, however, have listened to the end of the sentence. The Government have added a higher minimum wage and have extended maternity leave, without any commitment to make offsetting reductions in the administrative burden elsewhere. The Government should, for example, commit themselves to remove from employers their responsibility to pay the working families tax credit. That is something that should be paid by the Government to parents, who have responsibility for the children.
The Red Book reveals that the Government's receipts from corporation tax are to rise by £5.7 billion in the coming year. The Chancellor of the Exchequer never indexes the thresholds for corporation tax; he just gets a windfall every year from business. After all, business does not have votes, so what does it matter to the Chancellor of the Exchequer? Surely those windfall gains should have prompted the Chancellor to do something for the businesses that are in difficulty at the moment; for manufacturing, which Labour Members are meant to represent; for small businesses everywhere; and for farming. Instead, he used this Budget as another opportunity to demonstrate his complete indifference to the suffering of those sorts of business.
Many Labour Members know that people in the countryside are deeply dismayed that the Budget offered absolutely nothing to them in their hour of need.
The right hon. Gentleman is talking about burdens on business. I understand that one of his proposals for savings is to privatise industrial injury compensation benefit and make businesses take out insurance policies against disease or injury that may befall their employees. Is that not a burden?
When we announced that proposal, we said that we would relieve the burden for business elsewhere, and we have a series of proposals to do so. [Interruption.] Ministers crow and groan because they have never heard a straight answer before. [Interruption.] That is right; things must add up. The Chancellor of the Exchequer would always talk about the national insurance reduction without talking about the climate change levy, for example. I say that if a change is made, an offsetting change must be made elsewhere. I believe that it is absolutely responsible that employers should be obliged to insure their employees against industrial injury, because then they have an even greater incentive to ensure that their employees are safe. If the hon. Member for Shipley (Mr. Leslie) thinks that it is wrong to do that, let him get up and campaign. I am sure that his opponent in Shipley will be happy to take him on on that exact territory.
May I take my right hon. Friend back to the points that he made on the countryside? He said that many people would have been very disappointed to have heard nothing about the countryside in the Budget. Why should they be disappointed? After all, as far as the Government are concerned, the crisis is over.
Ministers have made a series of very unwise statements that are reminiscent of the Prime Minister's statement during the fuel crisis. The House will recall that he said that it would all be over in 24 hours. That leads us to a broader point. The whole of the Chancellor's strategy is based on never-ending economic growth. Ministers as a group put themselves in a very precarious position when they make such predictions—when they commit themselves to controlling things that are inherently uncontrollable—but the Chancellor is an example writ large of what my hon. Friend the Member for West Derbyshire (Mr. McLoughlin) has just pointed out in relation to agriculture.
The shadow Chancellor has just clarified the extra costs involved in industrial injuries benefit—incidentally, this year's pay-out is £750 million, which is a burden on business. Will he clarify whether the abolition of the energy levy will be paid for by increasing employers national insurance, the tax on jobs, under his plans?
The Chancellor of the Exchequer has promised to reduce people's national insurance in return for the energy levy. The energy levy is an absurd, bureaucratic tax, which will make no difference to our environment. However, it will be extraordinarily damaging to manufacturing, farming, small businesses, newsagents, pubs and all sorts of businesses in this country. Yes, I proudly say that I would reverse it absolutely.
The Chancellor is raising spending much faster than the economy's underlying; growth rate. He is doing so just when caution would suggest that we should be prudent, given the slow-down in the United States and as other Governments around the world are being prudent. It is no wonder that the European Union and the International Monetary Fund have criticised the Government for their lack of prudence; nor that the Financial Times has said that the Chancellor's self-advertised prudence is now much more a matter of faith than of fact.
The Chancellor's policy is based on being able to increase the tax burden without limit. He has made a lot of his so-called golden rule that the Government should borrow only to invest, but he offers us no definition of the word "investment". Indeed, he daily abuses the word "investment" and now uses it as though it were absolutely the same as the world "spending", even though we all know that the Government waste much of the money that they spend. We all know how much money was invested in the dome, and we all know what we have to show for it. If the Chancellor's rules have any effect at all—
I am coming to my rules; they have all been set out, and I shall set them out again in this speech.
If the Chancellor's rules have any effect at all, it is merely to impress on him that if he is to spend a lot, he must tax a lot—a point fully demonstrated by his first four years. His rules allow him to spend and tax any proportion of gross domestic product. Irrespective of whether the figure is 40 or 50 per cent., or whatever, it fits his rules so long as taxing and spending increase together.
The Chancellor is committed to a path of Government spending that will require further tax rises, if he wins the next election. As the Institute for Fiscal Studies said:
If spending is to grow by more than GDP growth beyond 2003–04 then further increases in taxes will be required.
That is undeniable, and because it is undeniable we can expect the Chancellor to deny it with ever-mounting bluster. Perhaps he would like to begin his denials now. No, apparently he would not, but in due course he will, no doubt, deny what the institute says and plain common sense. Increasing public spending relentlessly faster than the growth rate of the economy means that he will have to raise taxes again. Again, they will be stealth taxes, directed at the poorest members of society.
It is clear that the Chancellor will need to raise taxes further because he can take one of only two positions: either he continues on his current spending path, which means higher taxes; or he admits that Conservative policy on spending is right and he reduces his spending after the three years of his plan. I am absolutely confident that he has put behind him his days of Tory prudence, so I have no doubt that he wants to increase taxes.
The Chancellor may resemble his Labour predecessors in his addiction to tax and spend, but there are differences between him and his predecessors. Previous Labour Governments prided themselves on taxing the rich; this Government pride themselves on mixing with the rich and taxing the poor.
The Chancellor has been too cunning to raise income tax rates, so he has adopted every sneaky means of raising revenue, most of which have fallen most heavily on those least able to pay. There have been 45 stealth taxes. He patronisingly believed that his tax increases were too complicated for most people to understand. He does not care that the tax on pension funds will make people much poorer in their retirement than they would otherwise be. All that matters to him is that people should not find out that that is the case before the election.
The Prime Minister betrayed the Government's real cynicism in answering questions last week. He chose to defend his Government's attack on our pension funds on the ground not that his policies are in any way morally defensible, but that, as it happens, the stock market has risen. That speaks volumes for this Government. They do not think that they have to explain to people why they have the right to take away their hard-earned money; they assume that people should give them a good reason why they should be allowed to keep it. That, in a nutshell, is the difference between the two parties.
The Chancellor's stealth tax policy was rumbled last September with the fuel protests. He had been too clever by half. No pensioner could overlook—I do not believe that any pensioner will ever forget it—the cynicism with which the Chancellor raised the price of petrol by the rate of inflation, which he calculated at 3.4 per cent., and raised pensions by the rate of inflation, which he calculated at 1.1 per cent. When he was shadow Chancellor, he told a Labour conference that he would do away with the means-testing of retired people, but what he has actually brought about is the most massive increase in dependency. Well over half our pensioners—56 per cent. of them—will be required to reveal their intimate details to the state in the hope that they may be granted an income sufficient to pay the Chancellor's 45 stealth taxes. The form that they are asked to fill out runs to 40 pages and it even asks pensioners whether they are expecting a baby.
There is a better way. We should leave people with more of their own money. This is not just about economics; it is about creating a better society—one in which people are encouraged to save for the future and are rewarded for doing so. People who save have more choices, can face the future with more confidence, and are better able to take responsibility for their families and to recognise their wider obligations to society.
The Conservatives recognise that the money politicians spend is not their money. We do not believe that we know how to spend it better than the people who earned it. We do not adopt a tone of moral superiority when we take hard-earned money from parents, who would have spent it on their children, and, instead, hurl it into the bureaucracies of the state.
The Conservative party will campaign on removing savings from income tax. Why should people who have paid income tax on the money that they have earned then be taxed again if they decide, instead of spending their money straight away, that they will put some of it into savings? We want pensioners who have saved to enjoy independence in their retirement, because that was the very reason for which they saved in the first place. We want them to be able to look back on a lifetime of savings and believe that they did the right thing and that they were rewarded for doing so.
The Chancellor boasts of 7 million pensioners who will pay no tax or pay only at the lowest rate. There are two ways of increasing that figure of 7 million. The Chancellor's way is to tax pensions funds and discourage saving. In that way, the majority of people reaching retirement will have incomes too low to pay income tax, and the Chancellor can gloat as, year by year, the figure of 7 million increases.
However, there is a different way—our way—which is to encourage saving and to reward those who have saved by a massive increase in the income that they can have before they pay tax. In that way, pensioners will be better off and fewer of them will pay tax. We shall take 1 million of the pensioners who currently pay tax out of income tax altogether and, for many of the remainder, the weekly tax bill will be reduced by £8.50 a week.
The Chancellor boasts of helping families. Again, there are two ways to do that. The right hon. Gentleman has created hugely complicated systems of dependency, which trap more and more people in the indignity of the means test. The Conservative way is to simplify the system and leave people with more of their own money to spend or save as they wish.
We shall also remove the tax from the widowed parents allowance and give married couples more choice about whether to work or not to work, enabling a man or woman to transfer his or her allowance to the spouse. Each of those two reforms will be worth about £20 a week off parents' tax bills.
After the Budget, we should perhaps be grateful for small mercies. I do not mean the crumbs that the Chancellor has handed back, but the collapse of most of the Government's economic arguments. Until recently, they claimed that it was impossible simultaneously to cut tax and spend more on services. I think that we will hear rather less of that economic illiteracy from now on. In the late summer, the Prime Minister claimed that petrol tax could be reduced only if hospitals and schools were closed. As he now claims to have cut the price of fuel, we should expect to see the list of closures.
Over the winter, the Labour Party spent millions on advertisements that referred to the Tories alleged £16 billion of public spending cuts. In his Budget speech, the Chancellor was forced finally to abandon that false claim. In fact, our policy is to raise Government spending in line with what the country can afford, which is by very large amounts.
The Conservative campaign, "You've paid the tax, so where are the improvements in public services?", has been rather more successful. The Government spend money with extraordinary incompetence. How do they manage to tax so much and end up with 2,500 fewer police officers? How could they take so much money from retired people in extra taxation and in return ask those same elderly people to wait still longer before they can have an operation that will transform their quality of life?
On education, I received a letter today from a head teacher in Wales, who says:
The governors are finding it more and more difficult to support the excellent teaching staff … with the limited and reducing funds at their disposal, whereas the publicly announced Budget"— [Interruption.]
I know that the Government like to intimidate people and to yell down any public servant who dares to speak up, but I am quoting a head teacher. She says that
the publicly announced Budget proclaims that the government is spending more on schools. Not at this school, they aren't!
That is what people are saying.
Throughout the country, even people who voted Labour are frantically calling on the Government to improve services, not to produce meaningless statistics, to double count, to spin and to blame the previous Government. They just want them to do something that means that we can have better schools and hospitals and make our streets safer. The Chancellor's response in his pre-election Budget was to move from double counting to triple counting. He claimed to be adding £1 billion to health, but it turns out to be £290 million in 2003–04. The Secretary of State for Health did not even attempt to repeat the Chancellor's claim, which demonstrates that the deception did not survive even the first 24 hours after the Budget and merely added powerfully to the Chancellor's reputation for being unable to represent any figure accurately and fairly.
Is my right hon. Friend aware that health authorities have informed me that the Government have increased funding for the NHS assuming inflation of 2.5 per cent., whereas inflation in the NHS is now running at 5.2 per cent.?
I am pretty sure that the Government are doing exactly as my hon. Friend says, and calculating their increases using an inflation factor that is flattering to them. My hon. Friend can also count on the fact that they will use the much higher NHS inflation factor when they calculate the figures under the previous Government. That will almost certainly be part of their subterfuge and double counting. Fortunately, no one believes anything that the Chancellor says any more.
In place of spin and double counting we shall introduce truly rigorous economic disciplines. We shall have our own currency, and interest rates will be set in Britain. We shall enhance the independence of the Bank of England and appoint an independent committee of economic advisers. We shall ensure that there are proper national accounts to end the Chancellor's fiddled figures and we shall increase Government spending within the limits of what the nation can afford. We shall set about making Britain competitive, responding to tax cuts abroad with tax cuts at home and lifting the burden of regulation.
We shall slash taxes on saving and leave pensioners with more of their own money. We shall cut taxes for families, giving help to them when their children are youngest, and giving women more scope to choose how they balance their family and career. The Chancellor has broken his promise not to raise taxes. He has over-taxed the British people and hit hard those who can afford it least. People have seen no improvement in their public services and received almost nothing back in the Budget.
The Prime Minister once said that a high spend economy is not a high success economy. In that respect at least, time is proving him right. If Labour were returned at the election, we would see higher taxes, more stealth taxes and more crises in our hospitals, schools, transport and the police. Fortunately, there is a better way, and the Conservatives will lead the country along that better way.
The right hon. Member for Kensington and Chelsea (Mr. Portillo) referred to productivity. I have found the document "Productivity in the 1JK: Progress towards a productive economy" most valuable. Its publication is an interesting aspect of the Budget, which I hope will be repeated. I intend to cover that document in detail.
Every Budget hay two maxims. One is that a Budget that looks good in the spring appears less favourable in July. The other is that before a general election, bribes must be delivered. Everyone can see that the Budget is consistent with my right hon. Friend the Chancellor of the Exchequer's aims as they have shown themselves for the past four years. It is a responsible Budget, which will continue to look good in the coming months and perhaps even longer.
My right hon. Friend has shown himself to be a successful long-term planner—we have not had such a person before in the post-war years. From Hugh Dalton to the right hon. and learned Member for Rushcliffe (Mr. Clarke), the consideration has essentially been to keep the show on the road. From the time of his appointment as Chancellor, however, my right hon. Friend began the task of planning for the whole of this Parliament. Right at the beginning of his term of office, he made the momentous decision to give interest rate policy to the Bank of England. That has worked beyond the expectations of many and has underpinned the stability that he sought to bring to public finances.
I have one comment to make on that aspect of policy. I do not want a wide range of interests to be represented on the Monetary Policy Committee, but it could do with having one member who understands manufacturing and who could perhaps reflect a more regional outlook. Apart from that, the change in responsibility for interest rates has been a foundation of my right hon. Friend's success. In the past, the pressures on a Chancellor for decisions on interest rates have been constant—at times weekly, and even daily. As a consequence of removing that pressure, he has been able to devote his energies to economic reform and long-term plans.
Initiatives include the welfare-to-work programme, greater control of public expenditure, investing for the long term and—of great importance—my right hon. Friend's concern for productivity and the manufacturing industry. I should declare an interest in a small textile company. In the absence of any comments on that industry, I do not believe that it is necessary to inform the House of that, but the Standards and Privileges Committee considers it to be a grey area.
As I have already said, I especially welcome the document "Productivity in the UK", which was published with the Budget. Although our performance is lower than that in the United States, France and Germany, some factors are more encouraging. First, unemployment has fallen by 1 million under the Government. Although that means that many new employees are entering the work force with less in the way of sills and consequent productivity than those already employed—that is mentioned on page 11—with levels of unemployment much greater in France and Germany, any sharp reduction in their unemployment rates would be likely also to reduce their levels of productivity.
Secondly, I find it much harder to measure productivity in services than in manufacturing. For example, how do we measure productivity in retailing? Do we consider values sold per member of staff'? Should that take into account the kind of services on offer and the arrangements in place? What about cleaning services? There are other examples. Now that the service industry has grown so large and the number of people in manufacturing has fallen, the computation of general productivity is uncertain at best.
Thirdly, I believe that productivity is closely related to demand. It is when the pressures to produce are great that improved methods of working are devised. It is one aspect of necessity being the mother of invention. With a pound that is not as competitive as we should like, the demand effect of exports is not as high as I would hope. My right hon. Friend has produced his five economic tests for entry into the euro. I am strongly in favour of entry, but I would add a sixth test: we need to have a competitive exchange rate on entry.
The relationship between productivity and demand is important. Many years ago, I was the manager of a machine shop for the refrigeration company for which I worked. It had about 100 employees then. There was a problem with a machine doing the boring for compressor heads, which was a limitation on production. Because demand increased so much, all of the company's attention focused on that single machine and, eventually, we managed to raise production levels from eight to 20 compressors a day. That kind of pressure brings about such solutions. Productivity is related to demand, and I hope that demand will come from overseas in due course.
Finally, on that point, I take issue with box 2.3 on page 8 of "Productivity in the UK", which seems to suggest that gross domestic product per capita is the same as productivity. Of course, GDP per capita is greater in London than in the regions. Wherever the more affluent live and work, the more they earn. To say that productivity is greater in the London area than in the regions is too simplistic. In London, people earn more and spend more on goods and services. The entire question of productivity is more complex than the explanation set out in the footnote to box 2.3.
The table on page 32 is encouraging; it represents a study by the Organisation for Economic Co-operation and Development showing that barriers to entrepreneurship are lower in Britain than in any other country. Britain beats the United States, which is in sixth place; Germany, which is in 16th place; and France, which is in 20th place. In terms of administrative burdens on start-ups, we rank third; for regulatory and administrative capacity, we rank first; and on barriers to competition, we rank fifth. The ranking on regulation and administrative burdens is particularly encouraging. Quite rightly, we draw attention to those barriers to entrepreneurship, only to find that we are so much better at removing them than others. That makes one wonder about the bureaucratic labyrinth devised by some countries.
There is no doubt about that. However, the position accords with our general understanding. One only has to go to some of those countries and see the bureaucratic nightmare involved in the simplest transaction to realise that, although there is much to be done in this country, we do a lot better than others.
On investment, at the micro level, I am a great believer in capital allowances for plant and machinery, and, of course, information technology equipment—even up to 100 per cent. I am very pleased indeed that the Chancellor of the Exchequer shares many of my concerns. As Chairman of the Public Accounts Commission, which looks after the operation of the National Audit Office, I had been a little uneasy about the NAO being given the task of verifying the assumptions and conventions underlying the fiscal projections of the Budget. That task was given to the NAO in the Finance Act 1998, so it has a responsibility for what is published in the important document, "Productivity in the UK".
We now have had experience of such reports, which show that the Treasury's assumptions and forecasts on important matters, which are given to the NAO, are reasonable. At first, there was a little anxiety about involving the NAO in that novel task, as there was concern that it should be a little distant from the Government. However, involving the NAO in that task imposes discipline, not on the present Chancellor—who does not need it—but on those who, from time to time, have strayed outside the areas of proper financial prudence. It would be an interesting exercise to work back and see if previous Chancellors could always claim the same kind of endorsement as that gained by the present holder of the office.
One great achievement of the Chancellor has been his welfare-to-work programme. With the establishment of the minimum wage, higher levels of employment are reducing the connection between poverty and low paid work. However, poverty and unemployment have still gone hand in hand, so we have the continuing drive to get people into work. The new deal programmes, the child care provisions, and the schemes set out in the "Budget 2001" document on page 71, under the heading "Easing the transition to work", all set out the way in which employment is the key to ending poverty.
I find all that impressive, but there is one issue that is not fully addressed in the Budget: the high cost of earning a living. Earning a living is an expensive business. It was not always so. In the days when the cotton industry was the mainstay of my constituency, women did not need any encouragement to work. We had one of the highest proportions of working women in the industrialised world.
I am grateful to the right hon. Gentleman for giving way. Does he find it equally impressive that according to Government figures, the number of registered child minders is falling? He expects people to move from welfare to work, but how does he expect them to find the necessary child care to allow them to do so?
In the Budget, the Chancellor has given encouragement to those very schemes.
In my constituency, the work was always there—just along the road or alleyway—and the cost of earning a living hardly existed. There were grandmothers and aunts to look after the children, transport costs did not arise, as people walked to work, and income tax was for the better-off only. Now we have the expense of travelling to work, the cost of eating away from home and the need to dress more suitably for work. All those large expenditures must be paid for from taxed income and they act as an disincentive.
Fundamental changes have been necessary for a long time. Ideally, one would wish the costs of transport to be tax deductible, but I know the problems associated with that. The child care provision is a recognition of some of those work-related expenditures. In London, of course, we have the London weighting allowance, but many of the Londoner's expenses are now being faced in other cities around the country, without any comparable allowance. I believe that more should be done to meet the Chancellor's objective of making work pay and reducing the barriers to full employment. These matters need to be considered further.
I come to a little hobby-horse of mine, concerning hypothecation. As anyone who has worked at the Treasury knows, one must always agree with the Treasury line on hypothecation. To earmark an expenditure is to lose the ability to decide on priorities. That is the argument against it, and it is compelling. Not only that, but the amount of tax collected may not accord with future expenditure plans. For some years, however, I have been pursuing a case for hypothecation—for earmarking some money from taxation for particular purposes. The one case which, to me, satisfies the rare condition that might justify its introduction is expenditure on the health service. I am glad that my right hon. Friend the Secretary of State for Health is present.
It is clear to me that the cost of the NHS will rise ever faster than the rate of inflation or even growth in the economy. That is because the population is ageing. As needs are met, health needs become a, or perhaps the, major area of increasing expenditure. The time is coming when we shall need to think more about private medicine. which I do not favour, or a special NHS tax.
Anyone who has served in the Treasury has a visceral feeling about hypothecation. The road fund licence still casts its shadow 70 years later. One important weakness of hypothecation is that it does not take account of changing patterns of priorities in expenditure, but, as I said, one certain aspect of the health service is that demand will increase into the indefinite future. People may be more willing to accept an NHS tax if they can see the consequences of that expenditure, whereas other taxes just disappear in the vast generality of public expenditure. The time has surely come to explore sensibly the possibility of introducing such a tax.
I welcome the decision to ensure free entry to museums—a matter that is dear to my heart. It is necessary to retain the enthusiasm shown in the millennium year, which was wonderful for our museums and galleries, and free entry should help to achieve that.
People such as me usually make a number of critical comments, but I believe that this Budget could be the best on which I have had the privilege of speaking in the House and I wish my right hon. Friend the Chancellor well.
The Conservatives have placed throughout the country a series of posters telling people that they have paid for the taxes, but asking where the doctors, nurses and police officers are. The posters are correct in both respects, and an understanding of why they are correct—the way in which the Government have pursued their economic strategy in this Parliament, and so the fundamental weakness in the Conservative party's decision to place the call for tax cuts at the forefront of its campaign—is the key to understanding the Budget,
Taxes have been raised to cover a deficit that the Government inherited from the Conservatives: almost pound for pound, that is where the taxes have gone. It was money that the Conservative Government, including the shadow Chancellor, were spending but not receiving in income. As everybody knows, spending in excess of income means going bust sooner or later. That is precisely what happened over and over again when the Conservative party was in office.
Taxes have risen, but spending has not; indeed, under the current Government, it has been falling as a proportion of national wealth. That is why the Conservative party is in such a dilemma when it tries to offer any coherent explanation of where it will find the money for tax cuts, and why the current Government have been delivering less spending than the previous one.
The Budget illustrates that process well. As the Conservative shadow Chancellor pointed out, it delivers even lower spending than the Government planned only a year ago in their original spending plans. The Chancellor says that growth is rising from 3.4 per cent. to 3.7 per cent., but unfortunately that is typical sleight of hand. It is possible only because he has failed to spend money that he previously announced. Such an approach is typical of the Government, who announce big spending figures that are not delivered, as we can see when we consider them in detail.
Indeed, our common sense tells us that they are not delivered. If we visit schools, we see that most children suffer from larger class sizes; if we wait for a hospital appointment, we suffer from longer waiting lists even to see a consultant; and when we wonder what has happened to the police, we realise that they are not there because their numbers have fallen. Again and again, the Government say that they are spending more, but although they might have planned to do so, they are not.
I shall do so in a moment. By developing my argument a little more, I may help to answer the hon. Lady's question.
It is not just that the Government have failed to spend the money. Often, their claims on spending bear no relation to reality. Immediately after the Chancellor's statement, briefings were given by Government and Labour party representatives who said that the Budget balances the Government's priorities of cutting tax and investing in health and education. They said that it was so balanced that it meant £2 billion for health and education and £2 billion for tax cuts. When we stripped away the figures, we found that that meant £2 billion over three years on health and education, but more than £13 billion on tax cuts. In other wards, there is no such balance at all. In a mud-wrestling contest with the Conservative party, the Government are spending six times as much on cutting taxes than on health and education. That is why we do not see the police officers, the teachers, the doctors and the nurses.
I should like to invite the hon. Gentleman to my constituency, where we have a new hospital, an increase in police numbers and class sizes are going down. Money has been earmarked for a new secondary school and the other schools, which had fallen into disrepair over the previous 18 years, are looking pretty good. Why would my constituency be so different from the hon. Gentleman's?
I do not know the hon. Lady's constituency as well as she does, but I know that the Government's own figures show that there are fewer police, that there are more children in larger classes and that waiting times to see a consultant have increased massively under this Government. The figures also show that Labour will fail to meet moss of the pledges that appeared on its general election pledge card.
People know what has been happening. The simple fact is that the Government will deliver lower spending, as a proportion of national wealth, than was delivered in 15 of the Conservatives 18 years in government. People see the results.
May I reinforce the hon. Gentleman's arguments by highlighting the fact that, according to parliamentary answers that I have seen, even at the end of the comprehensive spending review, public expenditure in Scotland—despite all the much-vaunted largesse—will still not reach the proportion of national wealth that it had reached when the Conservatives left office? Does the hon. Gentleman agree with me on that point?
I agree with the hon. Gentleman. Moreover, that is true across the whole country, not just in Scotland.
The Labour party has come up with a defence. My arguments, although they undermine the Conservative case, also go a long way towards undermining the Labour case. Labour's defence is, "Ah! Strip out the savings we have made on reduced unemployment and reduced national debt, and you will see that we have been able to reduce spending overall, and yet spend more where it matters in those areas of the public services." However, leaving aside social security and debt, the Government have still spent less over this Parliament on important public services such as health, education and pensions than the Conservatives did.
During most of this Parliament, total spending—leaving aside social security and debt payments—will have been lower than in any previous year for which we have comparable records, going back to 1955. People know that that is the case, because they know that, on the ground, they are not getting the doctors and nurses who could help to cut waiting lists, and they are not getting reductions in class sizes. That devastates the Conservative case, but it also shows that the Labour Government exaggerate their record.
We now come to another excuse. The Government say that spending by some Departments has gone down, but that they are making the investment where it matters, on their priorities of health, pensions and education. However, we now know the Government's record. The Budget delivers the definitive position on which Labour will now enter the general election—assuming, as we all do, that it will be called within the next couple of months, if not the next couple of weeks.
During this Parliament, the Government will have cut the share of national wealth going to education, the NHS and pensioners. That share will be lower than in the last year of the previous Conservative Government, even if calculated right to the end of this Parliament. Even after the end of three years of comprehensive spending review investment, Labour will still be spending less, as a proportion of national wealth—even if we believe the figures—than the previous Conservative Government on their No. 1 priority: "education, education, education". Spending has not been committed to that priority, and that is why there has been such a lack of delivery on the ground.
Labour Members know that there is a problem. They hear about it every day from the people who voted them in to deliver improvements in vital public services. The Conservative party, which has nothing to offer but cuts, also knows that there is a problem, because its advertisements all around the country ask, "Where are the doctors?", "Where are the nurses?", and "Where are the police officers?" Quite right too, so why are the Conservatives offering cuts? Indeed, why has the Chancellor prioritised cuts in his Budget?
The figures are appalling, even if we believe Labour's spending plans, which we should not, because year after year after year the Government failed to deliver even the spending plans that they announced. It is unusual for any Government to fail to deliver their spending plans. Perhaps that is understandable on capital investment, which is not always easy to achieve, but to fail to deliver revenue spending is remarkable.
A major reason for that failure is the Government's squeeze on wages. In particular, they have squeezed the salaries and wages of police officers, teachers and health professionals, for whom increases are below private sector levels. The Government have allowed themselves to reach the stage at which they cannot even recruit staff to fill posts that they are funding, so bad is Labour's record.
The Government have a final excuse: it does not matter if the share of national wealth going to the NHS, schools and pensioners is going down because the economy is growing, which allows them, as the Conservative party argues, to cut taxes and deliver the improvements that are needed. Those improvements may not be made in line with growth in the economy as a whole and those sectors may get a lower share, but, they argue, they will get a share of a bigger cake that is therefore bigger in its own right. That, of course, assumes that there is no need for growth in the public sector to reflect growth in the wider economy. That can be delivered only by holding down incomes—most of all, those of pensioners.
There are more pensioners than ever before, but we deliver less money to them. That, of course, can be achieved only by giving them lower pensions. Which pensioners do least well out of the Government? It is the 500,000 who are entitled to the minimum income guarantee, but do not claim it because they cannot or because they will not lose their dignity to do so. They expected the pension to deliver them a decent income, but Labour has entirely neglected them.
The issue goes wider than the basic pension. Income for pensioners as a whole has fallen as a share of national wealth, which is why they have not shared in the benefits of the growth in the wider economy, despite the promise in Labour's election manifesto. That is true in health and education, too. In health, there is more technology and more people need care. We know that, simply to stand still, the health service needs funding growth that exceeds, let alone matches, growth in the wider economy. Under Labour, the share has fallen. If schools are to attract the staff they need, salaries must reflect growth in the wider economy.
Private sector salaries have risen by more than 15 per cent. under the Government, but the salaries of teachers, nurses and doctors have risen by just over 10 per cent. and those of police officers by only just over 6 per cent. They have all fallen steadily behind, but the Government act as though they are surprised that they cannot recruit people to work in those vital public services.
For years, doctors, nurses, teachers and police went into their professions even though they knew that they would be paid less than in the private sector. They believed in what they were doing, but there is a limit to how far people will go. We all meet teachers, doctors and nurses who are leaving their professions—qualified, but not practising; dedicated to the health service or to public education, but unable to afford to continue to work for them. We know that that is true because measure after measure announced today by the Secretary of State for Health admitted the problem. He targeted small sums to try to buy people back when they really need a decent salary increase.
The real growth argument is entirely bogus. Any Government who cut the share that goes to those great services cut the great services themselves, as Labour pointed out over and over again in opposition. We have heard the line before from Baroness Thatcher. Her Government kept stating the figures—more money, more money—but the truth was that those services were falling behind those in the rest of the economy. This Government knew that then and, in their hearts, they know it now. Day by day, they hear abort it on the doorsteps and see it in schools and hospitals.
I think that I heard the hon. Gentleman call for an across-the-board increase in teachers' pay. If that is the policy of the Liberal Democrats, why is it not costed in their alternative Budget?
If the hon. Gentleman had bothered to look at our alternative Budget—I have my doubts about whether he did—he would have seen that our health proposals include a specific £600 million pledge of an average of £1,000 extra for every low-paid doctor, nurse and health professional in the NHS. Moreover, under our proposals trainee teachers would be paid for the first time. At present they come into the profession and work as teachers work, but without a proper salary.
So there it is: money for teachers, money for doctors, money for nurses and money for health professionals, funded according to our specific costed proposals.
The hon. Gentleman may not like this, but if he has asked a straight question and been given a straight answer it is pr3bably time for him to sit down and stop talking.
Order. I think the hon. Gentleman has been here long enough to know a bogus point of order from a real one, and that point of order is bogus.
Labour party loyalists do not find this an easy issue to address, because they know that on the ground spending has gone down, waiting lists have lengthened, class size; have increased and police numbers have fallen. I realise that it is difficult to reconcile that with the Chancellor's propaganda, but it is easy enough to work out how truthful he has been according to the number of years that he lumps together in his spending plans.
Last year, when the Chancellor was making some real spending increases in the comprehensive spending review, he gave us the figures for one year. This year—the bogus year—when he wanted to pretend to his Back Benchers that he was doing something to meet their concerns while actually trying to deal with Conservative attacks about taxes by making tax cuts that were much larger than any spending increases that he planned, he lumped three years together.
Back in 1998, when the Government were undershooting Conservative spending plans that the last Chancellor described as eye-wateringly tight and would never have met himself in any case, the Chancellor not only lumped three years together but bunged in inflation, multiplied it several times and hoped that no one would notice. People did notice, of course, because down on the ground things were getting worse.
That is the history of this Parliament. Labour cannot go into the next election simply on the basis of promising jam tomorrow; it has been in office for four years, and it must explain its record. Its record is this: less of our national wealth has gone to pensioners, which is why they received just 75p last year; less of our national wealth has gone to the health service, which is why waiting lists are at record levels; and less of our national wealth has gone to schools, which is why most pupils are in larger classes than ever, and why students are having to pay tuition fees—the tax on learning.
We know that the Government understand that really, whatever the spin and whatever the ability to churn out headlines on Budget day. We know that they know because, when we cut through the nonsense, the real figures are there in the Red Book. The real figures were there when the Chief Secretary was challenged on "Newsnight". There he was, talking about all the extra money for health and boiling it down to
a small, but welcome, addition to the health budget".
Jeremy Paxman asked,
what percentage is that of the health budget?
The Chief Secretary replied:
It is of course a small but welcome addition".
Jeremy Paxman suggested that it was
about half of one per cent.
The Chief Secretary responded:
As I said, a small but welcome addition".
The truth is that it is a tiny amount—less than half of 1 per cent. It is less than 50p for every £100 already spent on the health service.
This was not a Budget for health and education; it was a wrestling match with the Conservatives, in an attempt to outbid them on tax cuts. It contained more than six times as much in tax cuts as would be invested in public spending, at a time when the public are crying out for teachers, doctors, nurses and police officers whom they had thought that Labour would deliver.
Labour seems to believe opinion pollsters and pundits who argue that people who say they will support increased spending secretly want tax cuts. Accordingly, Labour says that it will deliver public spending, and secretly sticks the money in voters' back pockets.
The Government want to ensure that, come April, everyone feels a little better off. They want to salve their conscience on spending, yet to tackle the Tory party by outbidding it in tax cuts. We have two parties that want to deliver stealth cuts in services. They are not seeking to fulfil the electorate's demand for proper funding for the NHS, pensions, police and schools.
At the next general election, only one party, the Liberal Democrats, will be going to the electorate offering genuine and substantial improvement and investment in those public services—to guarantee lower class sizes, shorter waiting lists, more police on the beat, and, at last, a decent deal for pensioners who fought for this country and were told that they would have a state pension in old age on which they could rely, but which has been torn away from them by successive Conservative and Labour Governments.
We have just heard a very eloquent speech from the Liberal Democrat spokesman, the hon. Member for Truro and St. Austell (Mr. Taylor). However, there were two problems with his speech. First, although it is true that there were two tight spending years under this Government—I am on the Treasury Committee and we examine the spending issue every year—Liberal Democrat Members will have to say what they would have done in the same circumstances. They have never answered that question.
No, I should like to finish my point.
Secondly, public spending is now increasing faster than growth, as has been pointed out by the Institute for Fiscal Studies and by various other bodies. Specifically, considerable extra resources are being provided for education and health. As I understand it, that spending is having an impact even in Cornwall, where there are more nurses now than there were in 1997—
Yes. I believe that police numbers in Cornwall also are higher now than they were in 1997.
I did not hear any facts in the speech by the hon. Member for Truro and St. Austell, but I heard many promises. Although I realise that we are in a pre-election phase, I should like to stand back a little and consider the issues if the hon. Gentleman does not mind. This is the Chancellor's fifth Budget, and it provides us with a good perspective from which to consider his policies and measures. If the general election is in May, as the hon. Gentleman seemed to be suggesting, this may be my last speech—certainly my last economic speech—in the House.
I read history at Oxford, although later I learned some economics at the London school of economics. I think most of my economics has been picked up in my 40 years of Chancellor-watching-28 of them spent as an hon. Member, including 14 on the Treasury Committee, four of them as its Chairman.
A long time ago, when I was young, I believed that the first objective of economic policy was to speed up the rate of economic growth, and that that could be achieved by promoting a higher level of demand. I was an enthusiastic supporter of the Wilson Government's national plan—which perhaps only a few of us remember. I used to think that the plan failed because of the decision not to devalue. Although I still think that that was a mistake, I am now highly sceptical about whether it is possible, other than in the very short term, for Governments to promote growth by boosting demand. The failure of the Maudling and Barber dash for growth was therefore inevitable.
The Lawson chancellorship had its moments. However, in 1987–88, when he allowed the economy to overheat, the consequences were almost inevitable: the brakes were slammed on and there was what the then Governor of the Bank of England described as a "domestically generated" recession.
It was the Lawson experience, above all, that convinced me that the prime objective of policy should be monetary and fiscal stability. I believe that economic growth can be achieved and that businesses can prosper and grow only against such a background of stability. That is why, in the latter 1980s and in the 1990s, a little before it became fashionable in the Labour party, I supported the idea of disciplined fiscal policy, with monetary policy controlled by the Bank of England.
In my typically non-partisan way, I am prepared to acknowledge that the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), made a contribution. He began the process of cutting the very large deficits bequeathed by the Chancellors who preceded him. He also published the minutes of the meetings he held with the Governor of the Bank of England to decide on interest rates. That was a movement forward, although the right hon. and learned Gentleman spoiled his record before the 1997 election with a bit of a pre-election spending spree. He also cut interest rates in the run-up to the election, as he should not have done.
He should have done that, yes. In fact, that is exactly what happened immediately after the election.
However, it is the present Chancellor who has had the boldness to carry through the revolution in monetary and fiscal policy needed to achieve stability. He gave operational independence in monetary policy to the Bank of England, and set up the Monetary Policy Committee.
My right hon. Friend the Chancellor has also introduced fiscal rules. The golden rule states that borrowing should not finance current expenditure but investment only, while the sustainable debt rule holds that public sector debt should be kept at a stable and prudent level. That level was originally thought to be 40 per cent. of gross domestic product, but it is now much lower.
Earlier, I challenged the shadow Chancellor from a sedentary position about his fiscal rules, and he said that he would give them to me later. He has not done so because he does not have any. The shadow Chancellor criticises my right hon. Friend the Chancellor for his golden rule, but he has no rules at all of his own. That is a weakness in his argument.
There is no doubt that the two innovations introduced at the beginning of this Parliament have produced impressive economic results, which my right hon. Friend was able to announce in his Budget—the lowest inflation for 30 years, the lowest long-term interest rates for 35 years, and the lowest unemployment since 1975.
The right hon. Gentleman says that the Opposition have no rules, but has he not noticed that we have a spending rule? We will increase spending in line with what the economy can afford. That rule means something, unlike the Chancellor's borrowing rules which, as my right hon. Friend the shadow Chancellor said, have no bite at all.
I hope that the hon. Gentleman does not mind my saying so. but that was a pretty feeble intervention. All Governments and Chancellors hope to increase spending in line with what the economy can afford. The question is whether the rules governing a Chancellor's actions are sharp enough to enable that to happen. I believe that this Government's rules are sharp enough for that.
Surely there is all the difference in the world between saying that spending will be increased in line with growth in the economy, and increasing spending above the economy's sustainable growth rate. The latter is what the Chancellor proposes to do, and in the long run it will not be sustainable without massively higher taxes.
The Government had a two-year period in which they stuck to the Conservative spending targets. Even the previous Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe, said that those targets were merely illustrative and that he would not have implemented them. In that period, public spending was massively below growth in the economy. We are now moving into a period when it is above growth in the economy. The level evens out over a period. I am sure that the Government will want to have public spending in line with the growth in the economy over a period of, say, 10 years. That would be sensible. In any case, the Government's golden rule and sustainable debt rule will ensure that, even if spending does rise above economic growth, the necessary discipline will be in place.
In addition, stability has produced steady economic growth—of 3.5 per cent. in 1997, 2.6 per cent. in 1998, 2.3 per cent. in 1999. and 3 per cent. in 2000. The forecast is for growth of 2.25 to 2.75 per cent. in 2001. In other words, throughout this period, the economy has been growing close to trend. I admit that it was growing under the previous Chancellor as well, so we have had a long period of economic growth which has been extremely good for this country. It has helped to create room for substantial increases in education and health spending—contrary to what the hon. Member for Truro and St. Austell implied, without quoting any figures. I would like to have him before the Treasury Committee—we would soon take him apart. We have also made a sustained attack on child poverty. All that has been done without putting the public finances at risk.
The announcements in the Budget and the measures previously announced by the Chancellor amount to a 1 per cent. stimulus. We have to ask: how risky is it and will it stoke up inflation? The Treasury Committee put those questions to expert witnesses this morning. It is true that some of them world have preferred less stimulus, but none thought that this was particularly imprudent. Indeed, there was a sub-text: they thought that it was quite surprising that the Budget was so restrained in the run-up to an election.
The experts are right to say that such a stimulus is not imprudent because the background is one of very low inflation, below the target. We are still running substantial budget surpluses and we face the possibility of a United States downturn. It may be necessary to have some stimulus to the economy. A 1 per cent. stimulus, which is not very substantial, could well provide that in the coming year.
There is general agreement that there is little point in running budget surpluses indefinitely. It makes sense, therefore, to spend above trend for a period and then run small deficits by the end of the forecast period, provided that those deficits support public investment and not current spending, and that they are affordable in terms of public debt. I note that the public debt is now down to 30 per cent. of gross domestic product.
The hon. Member for Truro and St. Austell made the point that the Treasury has consistently underestimated its surpluses. That is partly because its assumptions, particularly of growth, are extremely cautious and conservative. That gives the Treasury a strong position because there is always a margin of error. That is why the Chancellor has been able to announce some of these increases.
To sum up, in the Government's fourth year, the Chancellor is in an enviable position. If any Conservative Members doubt that, they should consider how much they would like to have a Chancellor who is about to face the voters with the lowest inflation for 30 years, steady economic growth—I quoted the figures—and the lowest unemployment figures since 1975, as well as rising investment in health and education. That is not a bad position to be in, and if Conservative Members were honest they would agree.
Of course there are no miracles, and certainly no economic miracles. There is no doubt that despite what the Government are doing with regard to productivity, we have a long way to go before we catch up with the United States, Germany and even France. Under this Government, many extra people have been taken back into work. Such people are, by definition, likely to be less productive in the short term than other workers, so the slowing of productivity growth is not surprising. Most experts expect an increase in the years ahead, and so do I.
There are no economic miracles, and although the Government have created the conditions for stability, I am able to announce this afternoon that the economic cycle has not been abolished: there are still risks on the inflationary side, and especially on the recessionary side.
Critics say, of course, that the Chancellor has been lucky, in that on the whole—excepting the late part of 1998—economic conditions have been relatively benign. It may be true that he has been lucky, but he has also made his own luck. It was his decision to give the Bank of England independence and to stick by his predecessor's spending plans for the first two years. It was also his decision to keep to the fiscal rules that he had devised. His courage has yielded the results that I mentioned.
The Chancellor's boldness of conception and his determination in implementation have put the United Kingdom economy in a strong position to continue on its path of stability and to take advantage of opportunities that may arise—including, if I may say so so late in my speech, entry into the euro. I salute him for his achievement and I wish him and the Government well in the coming months and years.
I follow the precedent of other hon. Members by reminding the House of my declaration of business interests in the Register of Members' Interests.
I am delighted to follow—not for the first time in a Budget debate—the right hon. Members for North Durham (Mr. Radice) and for Ashton-under-Lyne (Mr. Sheldon). I say with some sorrow that it is probably the last time that I shall follow either of them in such a debate as they both propose not to stand for the next Parliament. I propose to throw myself at the mercy of the electors of Rushcliffe once more. If they do me the honour of returning me to this House, I shall miss the contribution of the two right hon. Gentlemen and the chance to debate with them. Neither of them are Blair's babes and they do not use the sillier slogans to describe economic policy to which we have become accustomed in the House. Also, they do not use too many of the extremely dodgy figures that the Chancellor is inclined to produce for the House. Alas, we will no doubt have a touch more orthodoxy in the next Parliament from those who defend the Government's record.
I cannot get very excited about the Chancellor's fifth Budget. In the overall context of macro-economic management, it is not very important. He did not do a great deal and it is not of huge significance for the coming election either. He took his last important decisions in the so-called pre-Budget judgments last autumn, when he set us on the course of a massive proposed increase in public spending in the next three or four years
I suppose that I should be grateful that the Chancellor did not get carried away. I, too, faced the pressures—I had to deal with a pre-election Budget and some people felt that I ought to do something spectacular to win the election. Various previous Chancellors faced the same problem. This Chancellor would have made matters far worse for his successor had he given in to that sort of pressure and made the problem even worse by making serious tax cuts or spending increases on top of those he has already made.
I wish that the Chancellor would not keep on saying that Tory predecessors did not show such restraint. It is 50 years since we had a pre-election Budget that showed the slightest irresponsibility, and I doubt whether we will see one again. Today's electorate are too sophisticated to be bribed with their own money a few weeks before a general election. This electorate know that the present Chancellor has been a tax-increasing Chancellor on a substantial scale. The fact that he will not admit that the burden of tax has risen under his chancellorship is a blemish on his presentation of policy, but he will have to go into the next election as someone who has raised taxes.
On the details of the Budget and the micro-economics of the tax and other changes, the Chancellor has continued, in a not very spectacular way, his overriding policy of mild redistribution of income by stealth without being very clear about it. I am glad to say that he has continued the policy of welfare to work, which he inherited from the previous Government: it was not only a slogan but a policy direction, too. I welcome the family element of the policy, whose effects are beneficial.
The Chancellor has persisted in his attempts to combine the tax and benefits systems, developing ever more tax credits. I admit that I was attracted by the idea of combining those systems. One has to go back to a Government of 30 years ago to discover Conservative Chancellors toying with the idea of a tax credit system.
The difficulty is that the present Chancellor has embarked on that course without solving most of the big problems that put us off it. In particular, he is introducing a system of bewildering complexity. That gives rise to two large problems.
First, the system is so complex that the electors do not understand it—that is why the Budget has little electoral appeal. More important, many of the people who should be claiming the benefit of those tax credits will not actually do so.
The second problem is the worst; it is one that most of us foresaw when the Chancellor embarked on the working families tax credit. The system is appallingly complex for the employer. It is one of the worst burdens imposed by the Government on those responsible for small business. That burden gets worse and worse as he further complicates the system. It is a pity that he proceeds with it.
I continue to suspect that the Chancellor likes to plunge further into tax credits because they help him and his Chief Secretary to present the figures in the slightly bewildering way that they use in the Red Book. To keep down the tax burden as presented to the general public, tax credits are still treated as though they were tax reductions when they merely transfer payments that should emerge as benefits. They should be accounted for more clearly. The Chancellor has not solved the problem that, as soon as one uses the Inland Revenue to make such transfer payments, it produces complication, cost and a great propensity for evasion and misuse.
I should have liked to see the proposals on taxation and savings made by my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) adopted in the Budget. I wondered whether the Chancellor would have had the wit to steal that extremely good pre-election idea from my right hon. Friend; it is a sensible way to encourage saving by people of modest means. We need to get the savings ratio up.
I regret the fact that the Chancellor has not tackled the problem of annuities for those who have made provision for their own retirement. That must be tackled, but he has done nothing. He should also have had the political courage—there are no votes in the matter—to raise the starting threshold for the 40 per cent. higher rate of tax. During the Labour Government's period of office, 700,000 more people have become higher-rate taxpayers, by a process of pure drift. I agree that that was also happening under the Conservative Government, but it is now out of hand. There is nothing wrong with a 40 per cent. tax rate for people on high incomes, but people of above average yet perfectly ordinary incomes now have a 40 per cent. marginal tax rate. That should not be allowed to continue.
I shall not go further into the detailed provisions, but I regret that the Chancellor felt forced to go back to widening the l0p income tax band—to trivial effect for most taxpayers. The 10p band was a mistake; we do not need three bands of income tax. The 10p band was a silly political promise made before the previous general election. It is a pity not only that the Chancellor stuck to it, but that he has started widening it.
The Budget is not of great consequence. It is the least interesting of the five produced by the Chancellor. Perhaps he is running out of steam—who knows? He may he preparing to leave office—perhaps for the Opposition Benches or perhaps for another Cabinet post. However, it looks as though his time at the Treasury may be coming to an end.
I now turn to the consequences of the Budget for economic performance. The background is that the Government say that the country's economic performance has been good, as indeed it has. However, that has nothing to do with the Chancellor: I shall return to that point in a moment. The Chancellor's management of the balance between tax and spending has been positively eccentric. There is no consistency.
The hon. Member for Truro and St. Austell (Mr. Taylor) rightly pointed out that the first three years of the Parliament were years of rigour beyond anything we expected. At the previous general election, as a Conservative, I tried to alarm the public about the forthcoming risk of a Labour Government by talking about the black hole in their finances. That black hole vanished because they raised taxes at a rate about which they had warned no one. They squeezed spending to an extent that no Government—even those led by Mrs. Thatcher—had ever achieved. That is how they filled the black hole during the first two or three years.
The Government began with a stringent iron Chancellor period; they go out with promises of fat years to come. Were they to win the general election, the next Parliament would, apparently, be handled quite differently, with a hugely expansive approach to public spending during the first two or three years. Perhaps, if the right hon. Member for North Durham is right and the Government find that they cannot afford that, they will have to make cuts before a general election. However, if they are returned and continue to follow this strange pattern and get into difficulty, it is mole likely that they will be taxing but trying to deny it.
This rollercoaster is unwise and unnecessary. Too often in the past, the public services have had the painful experience of thin years followed by fat years, although never on the present scale. It is unnecessary, because the Government took over healthy public finances. At the opening of the debate, the Secretary of State for Health was talking nonsense when he referred to public finances and debt spiralling out of control. Debt was on a sharp downward path.
My figures contained a mistake that benefited my successor: we underestimated the revenues that came in. We gave the present Chancellor economic growth, with buoyant revenues. We gave him the particular gift of self-assessment of income tax, which produced tax revenues on a scale that we had underestimated. The public finances were perfectly healthy.
I do not know why the Chancellor felt it necessary to go in for the undesirable taxes that this Budget has not reversed—taxes on pension funds and on business. He continued to add to them, even though he was well on the way to the balanced Budget to which he had committed himself. Sometimes, I think that it was because he wanted to create a good reputation in the City; he thought that there might be alarm in the financial markets that a Labour Government would be soft, so he had to be a tough iron Chancellor.
The Government were somewhat consumed by the record of previous Labour Governments, who had spent like mad during the first half of a Parliament and been in a mess during the second half. Perhaps the Prime Minister and the Chancellor were over-impressed by the experience of Harold Wilson and Jim Callaghan. Perhaps the Liberals were right and the Government had a war-chest theory—"Let's screw things down now arid spend like mad in the run-up to the election."
I suspect, however, that it was all a bit of an accident. The Government found that they had been tighter than they had intended. The Prime Minister panicked and after Lord Winston complained, we found that billions were on offer. There was a sudden splurge of public spending in the run-up to the general election, to avoid upsetting the Labour movement. But that is no way to run the country's finances.
That is what happened; it is irrefutable. However, I object to the constant telling of the myth that the reason the Government were so tight at first was that they stuck to Tory figures. I know that Blair's; babes produce such slogans like mad, but they seem to overlook the Government's remarkable decision, which astonished me at the time, to cancel the annual public spending rounds, in which every previous Conservative Government had engaged. Green as the Labour Government were, I cannot understand how the then Secretary of State for Health and the Secretary of State for Education and Employment could have agreed to that. Their Departments must have been in despair. All over Whitehall, people preparing for the spending round were in grief when that decision was inflicted on them. Those were not Tory figures; to hold down spending was a mad gesture.
The hon. Member for Truro and St. Austell is right; the results were spectacular. I regret that during my last year in office total managed expenditure was 41.2 per cent. of gross domestic product; I was trying to get it down below 40 per cent. That was the rule that I was aiming for. By 1999–2000, we were down to 37.7 per cent. of GDP. Public spending as a proportion of GDP was taken by this Chancellor and this Government to its lowest level since the 1960s. As the Liberals acknowledge, the Conservative posters are right. That is the history of, "You paid the taxes and you didn't get the services".
We are now faced with promises that goodies are to come. It is said that the good to come can be afforded because the economy is in such a sound state. It is indeed reasonably sound. Starting in 1992, we have experienced nine years of growth, with low inflation and rising employment. That has a cumulative effect—the country feels good and feels wealthier—so we have been able to survive some of the strange vagaries of Labour management during the past four years.
The reason is that the right hon. Gentleman has been an extremely lucky Chancellor. First, he took over a very good inheritance. He has also had the particular luck to be Chancellor, so far, through four years of the most remarkable growth in the western economy since the war. I have been quoted various times about the things that I would give my eye-teeth for. All those who hoped to be Chancellor would have given their eye-teeth to be Chancellor of the Exchequer in the past four years. The right hon. Gentleman has not faced a problem. He took over a good inheritance and, thanks to Uncle Sam going through the boom period of a classic boom-and-bust phase, the world economy has grown and grown and grown.
My right hon. Friend the shadow Chancellor is right that the public are complacent about this. I was glad that he pointed out that our economic performance compared with that of the developed world has been rather lacklustre—second rate, actually. The British are pleased with second best again. We have not been doing as well as our competitors.
Of course our growth has been miles behind that of the United States, but everyone in the developed world has been enjoying growth with low inflation and rising employment. Our growth performance is below the eurozone average—below that of Ireland, the Netherlands, and France. They are already wealthier than Britain in GDP per head. The relationship of our productivity to theirs has been worsening over the past three or four years and we have not been performing well.
Before the Labour party took over, we were the fastest-growing major economy in western Europe. Why have we not been performing as well as we were? One reason has been the mistakes made by the Bank of England.
I applaud the giving of independence to the Bank of England, but I feel free to criticise the performance of the Monetary Policy Committee. I have been on the doveish side of that divided Committee throughout, and I believe that the doveish side was right. It is not the case that we have been facing higher inflationary pressures than the rest of Europe. It was a mistake when people judged that we were. No one has had inflationary pressure over the last three or four years, but our Bank gave us the highest short-term interest rates in the developed world for most of the period of the present Government. Obviously, that slowed down our growth.
The other reason is that the Government have damaged our growth—I shall not repeat the arguments of my right hon. Friend the shadow Chancellor—by adding tax and red tape on business and adding labour market regulation of a kind from which we were previously free. While the western Europeans are lectured by the Chancellor about moving to more liberal labour markets and lower burdens on business, we are narrowing the benefit of our advantage over the rest of western Europe by going in the other direction.
That luck may be coming to an end. It is no good just carrying on with the somewhat happy but chancy approach that the Chancellor has proposed. The global economy cannot carry on growing for ever. We have not solved economic cycles in free-market economics, and the United States economy is at last slowing down—and slowing down remarkably rapidly—as most European commentators have been forecasting for the past three years.
Most people involved in Wall street say that the slowdown is temporary and will soon flatten out; they say that it will be V-shaped and that the trend will go up again. Most people involved in the real economy in America are very worried. They find that consumer demand is dropping like mad, and given that the bottom has dropped out of Wall street in the last two days, once consumer confidence goes in America, there could be a very sharp downturn indeed.
I do not think that the downturn will be a disaster. A slowdown in the American economy was probably overdue. The Americans have in fact gone through boom and bust. Their economy was held up as a model by some people in this country over the last three years, as opposed to that of the lacklustre, over-interventionist socialist Europeans. But the United States has got it slightly wrong now.
The Chancellor, having entered his days of being more generous to the public services, is counting on continued growth in the British economy. He supposes that the economic cycle does not affect him here. He supposes that it will be rather as before. He forecasts 2¼ per cent. to 2¾ per cent. growth for this year. That may be right, but I would not bank on it. We will be affected by any global slowdown.
Just a second.
Such growth as we get from now on will be driven by the public sector—by public consumption. It will be driven by the big increase in Government expenditure. If there is any slowdown, there must be some corresponding cuts in private consumption and private sector activity to make room for it, and that is not a healthy background against which to face the real issue, from which the Government keep running away. Given that their policy now is a massive increase in public spending, what will happen if the growth upon which it is wholly dependent does not materialise over the next three years?
As they do when we discuss so many other things, the Government just dumb down the argument. We raise this fear, and we are told, "Oh, they are talking about cuts, cuts, cuts." Big scissors appear, with fictitious figures for what we are supposedly saying that we would cut, just because we are raising the question. What if the economy cannot afford it between now and 2004? We are told that it means going back to boom and bust. I cannot for the life of me see how our proposals have anything to do with boom and bust.
I have already said that I do not believe that the Chancellor has given us any stability or predictability in his economic performance. A lot of things could go wrong, not only the slowdown in the economy. If the economy slows down at all, the Treasury's estimates of revenue are likely to prove overestimates. History shows that the Treasury tends always to underestimate its revenues when the economy is going up. That is why, every year, the Chancellor comes along with billions more than he expected to have. History also shows that when the economy suddenly goes down, the Treasury always overestimates the revenues that it has coming in.
Labour Members would be wise to recall what happened under Nigel Lawson, in 1988—it is a great pity that they pretend that nothing happened after 1988, and that the only Conservative record that they contrast themselves with is that of 13 years ago. What they discovered then, as we discovered then, is that the big numbers change very rapidly indeed.
On their own plans and estimates of growth, the Government already predict a deficit three years out. That deficit could be very large and unsupportable. I have no time to go into all the other things that are becoming unsupportable, such as the huge current account deficit that they are running as long as the pound remains overvalued.
When we talk about restraining growth in spending, it is no good rejecting our criticisms by saying that it simply means that we intend to cut public spending. It is also no good rejecting criticism from the International Monetary Fund. I introduced openness in respect of producing IMF reports. The IMF points out that the golden rule is a slightly dodgy approach, and the Government dismiss it.
The fact that the European Commission's doubts about all this are rejected may be more popular among Conservative Members, but the Commissioner, Pedro Solbes, was an extremely good Minister of Finance in Spain and he had his head screwed on the right way. Despite that, he is wrong, apparently, when he raises queries about all this. He was a socialist; he was not when he was appointed, but he joined the PSOE just as it was defeated. The other Finance Ministers also have doubts.
The golden rule is not a golden rule at all The golden rule allows borrowing for investment only, but, as has been pointed out, it all depends what is meant by investment—and as far as I can see, any form of public expenditure known to man can be described as investment by the present Government. Unfortunately, like all other public expenditure, it must be paid for eventually. The criticism is rejected as though that were not true.
The previous Government did have rules. A balanced Budget over the cycle was our rule. We set an inflation target. My predecessor, Norman Lamont, set an inflation target of 2½ per cent. We were aiming to keep spending down below 40 per cent. of gross domestic product. We introduced rule-based economic management; this Chancellor replaced it with dodgy rules, such as the golden rule, which is infinitely flexible, and he altered the definition of half the public expenditure figures that we now have to try to stop people following what was happening. Therefore he should not reduce the queries about his spending to a silly level of argument to prepare for the election. The figures are there before us.
According to the Government, we need not worry, whatever happens bell weep now and 2004, if departmental estimates go up by 8.4 per cent.—6 per cent. in real terms—each year, come what may, to April 2004. They get the total spending down by making some dubious assumptions about cutting social security expenditure, but even so, total spending is anticipated to be 3 per cent. per annum overall above the trend growth of the economy. If the world economy slows down, it will be well above the likely growth of our economy, and it is difficult to see how it can be afforded. That is our valid argument.
My right hon. Friend the Member for Kensington and Chelsea addresses that valid argument, and it is foolish for Labour Members to reject it, not least because if they were to win the election their biggest nightmare would be how to get out of that obligation, having told everyone that anything else involves great cuts. Fortunately, the expenditure is not on health and education—we can match that spending—but the Government will not return to their current position in respect of GDP for some considerable time. The Home Office and transport are the big beneficiaries of this year's largesse. Lots of bus lanes, cycle paths and tramways in cities throughout the country are promised, but expenditure of every kind can be found across Whitehall.
If the Government are re-elected, we warn that they will raise taxes or abandon their plans, which are not supportable if economic growth falls back to trend or below. Theirs is an extraordinary approach, and that is the note on which the Chancellor will go out. I hope that he goes by handing over to a Conservative successor, but if the Prime Minister has his way, I suspect that he will hand over to a Labour successor—if the Prime Minister can win the election and get himself back in for a second term. The Chancellor had an excellent inheritance when he took office. It is my opinion that he will hand over a much dodgier and poorer inheritance to whoever has the opportunity to take over, which I trust will be my right hon. Friend the Member for Kensington and Chelsea.
It is a special pleasure to follow the right hon. and learned Member for Rushcliffe (Mr. Clarke), partly because many of us are looking forward to campaigning shoulder to shoulder with him for a yes vote for British participation in the single European currency in the not-so-distant future. I am afraid that his declaration of undying support for the shadow Chancellor was not altogether convincing. I suspect that, like the right hon. Members for Henley (Mr. Heseltine) and for Old Bexley and Sidcup (Sir E. Heath), he is deeply unhappy and worried about the direction that the Conservative party is taking.
As I recall some of the awful Budgets that I have heard proposed by forgettable Chancellors like Nigel Lawson and Norman Lamont, I take great satisfaction in registering my support for a Budget that cuts the burden on taxpayers while increasing provision for families, education, the NHS and other services.
The Chancellor of the Exchequer, my right hon. Friend the Member for Dunfermline, East (Mr. Brown), is the ultimate canny Scot, and he has demonstrated conclusively that prudence pays. This is not a giveaway Budget for an election; it is a business-like Budget for businesses, a friendly Budget for families and a constructive Budget for communities.
Last weekend, I spent a minute or two looking at my notes for my maiden speech, which I made on 9 November 1978 in the debate on the Queen's Speech. Much has changed in the past 22 years. When I was first elected, my constituency's economy depended largely on the National Coal Board and the farming industry, whereas now the biggest employers in East Lothian are based on science, services and nuclear power. In my maiden speech, I supported Denis Healey's valiant efforts to control inflation in very difficult times. I referred to the fact that the right hon. Member for Old Bexley and Sidcup was unhappy about what was happening to the Tory party—so some things do not change However, there is absolutely no risk of inflation with the present Chancellor.
Communities in my constituency suffered cruelly during the Tory years from 1979 to 1997. That might account for the fact that the Labour majority in my constituency increased from 1,673 in 1979 to 14,221 in 1997. Indeed, I find myself worrying about what is happening to the Tory party in Scotland. I never thought that I would have such anxieties, but it is not that long ago since the right hon. Member for Devizes (Mr. Ancram) represented my constituency as a Tory Member. At the Scottish Parliament election in 1999, the Tory candidate came third.
One of the reasons why the Tory party has been rejected is that local unemployment statistics ran into thousands during those years. With this Chancellor, unemployment in the county of East Lothian has fallen by 55 per cent. since 1997, to just 897 people, as more and more opportunities are created and as people build up their skills. Happily, we can take pride in the fact that everyone is protected by the new statutory minimum wage.
We are getting a lot of public investment, too. Thanks to the success of the Chancellor's strategy, our neighbourhood has new hospitals—either under construction, or planned shortly—improvements to schools and, at last, the commitment of £32 million to dual the Al from Haddington to Dunbar. I sincerely hope that that road project will not have to be delayed by a public inquiry into a small number of outstanding objections.
The Budget will increase the resources provided to the Scottish Executive by £200 million. I must advise the Opposition that there is no evidence of support for the shadow Chancellor's plan to cut public expenditure in each and every constituency by £24 million or so.
I am grateful to my constituents for electing me to the House six times. I have done my best for them through some difficult times, but, happily, unlike some of the hon. Members who are leaving the House, I shall have the privilege of continuing to represent my constituents for some time yet as their Member of the new Scottish Parliament, which has responsibility for Scottish legislation and the functions of the Scottish Executive. After the long struggle to achieve devolution, I want to do my little bit to make it work. We all know that that will take time; we are going through some difficult times, but it is an experiment that can work, and we are determined to ensure that it does so.
I shall miss a lot of good friends in the House, but, with respect, Mr. Deputy Speaker, I shall not miss some of the Ways and Means and procedures of the Palace of Westminster. We saw some of them in action last night, with three votes after 2 am. There is a lot to be said for the timetabled debates and electronic voting—if it can be made to work reliably—that we have in the Scottish Parliament.
I want to make two quick points about the Scottish Parliament, which is now responsible for Scotland's devolved share of the Budget. First, it is a completely new Parliament, with new procedures, elected by a new electoral system. We should not, therefore, be surprised by what occurs in those circumstances, such as last Thursday's vote on subsidies for the fishing industry. As someone who has been committed to the principle of a Scottish Parliament for a long time, I say with feeling that the Scottish Executive cannot be allowed to sidestep its accountability to the Parliament. However, the Parliament has an obligation to make coherent decisions. I trust that the Parliament will now have a proper opportunity to make a clear choice between a quick fix and long-term sustainability for fisheries with, I hope, all Labour Members of the Scottish Parliament present and with our Liberal Democrat partners focused on the responsibilities of government. That may be a forlorn hope, but we never know.
Secondly, I must emphasise the crucial importance of mutual understanding and confidence between Westminster and Holyrood to the integrity of the United Kingdom. The overwhelming majority of Scots and their MSPs—with the possible exception of the hon. Member for North Tayside (Mr. Swinney), who is in his place—are determined to remain part of the British family, because we understand the shared value of the United Kingdom and the strength that we all derive from the historic and successful partnership of the United Kingdom.
For example, my Scottish constituents are proud of Britain's contributions towards overseas aid, debt relief and peacekeeping, and there is more of that in the Budget. We all understand the need to work together on shared problems, such as the current foot and mouth crisis. We will never regard the English as foreigners, with the possible exception of the Leader of the Opposition and one or two of his more alarming acolytes.
Before I conclude, I wish to make two quick points as a rural Member of Parliament, with a farming background.
On the issue of the Scottish Parliament and its development, does the hon. Gentleman have a view on an issue that has reared its head in the opinion polls recently? The majority opinion in Scotland is that the Scottish Parliament should have more powers and, in particular, greater fiscal freedom. Does he support arguments in favour of fiscal autonomy and would he lend his voice to those arguments in the House tonight?
I know that the Scottish National party is interested in breaking up the United Kingdom and in establishing Scotland as an independent country, but I do not agree with that. There are immense benefits to be achieved by the partnership of the United Kingdom. Scots should be warned about the obvious costs of separatism, which include the costs of establishing a Scottish army, navy and air force. Moreover, where would our embassies be located if independence were to take place? That is absurd, so the answer to the hon. Gentleman's question is no. I believe that our purpose should be to make the devolution settlement work. I am determined to work with the majority of my colleagues in the Scottish Parliament to ensure that that happens while maintaining the integrity of the United Kingdom.
I was about to make a couple of points about rural issues. First, I wholeheartedly endorse the policy of eradicating foot and mouth disease, which can be achieved only by the rigorous implementation of the slaughter policy. It is a grim process, and I hate to think what it will cost. No doubt Treasury Ministers are turning their minds to that at present, but the alternatives are unthinkable and will certainly be far more expensive. We must persevere with the policy.
In passing, I must say that I am apprehensive about the prospect of a general election at a time when vast tracts of rural Britain are virtually under seige. For example, I do not know how postal votes can be processed when direct postal deliveries are seriously disrupted in many areas. It is a difficult issue, and it is one that my right hon. Friend the Prime Minister will have to take account of along with other considerations. However, I strongly support the action that has been taken by my right hon. Friend the Minister of Agriculture, Fisheries and Food in the difficult task that he faces. The second point on a rural issue is slightly more personal, but it is relevant to—although at the periphery of—this debate. I would like to comment on my exclusion from agricultural responsibilities when I was a Scottish Executive Minister in 1999. That happened apparently as the result of collusion between the civil servant then in charge of agriculture in Scotland, Mr. Tony Cameron, and the president of the National Farmers Union of Scotland. A new interpretation of the ministerial code was triggered to prevent me, as the Deputy Minister for Rural Affairs, from even seeing papers about agriculture on the ground that I might be perceived to have a personal—
Order. I am sorry to interrupt the hon. Gentleman, but I must remind him that this is a debate on the Budget resolutions. I am having difficulty in connecting what he is now saying to the main subject before us.
I apologise, Mr. Deputy Speaker, but I was hoping for a little leeway, given that this will be my last speech in the House. The point that I want to make is relevant to economic policy.
We now have an interpretation of the ministerial code that prevents people who might be perceived to have interests or even experience in particular industries from holding ministerial office in certain Departments. That trap was sprung on me, and I want to draw it to the attention of the House. If it applied to me as a Minister in the Scottish Executive, it could apply to Ministers in other parts of the United Kingdom. Frankly, that is silly. Members should be aware of the issue, but I shall leave it at that.
The time has clearly come for me to shut up after 22 years in the House. I would like to leave a final message and do so, quite happily, in the presence of the hon. Member for North Tayside. Scottish nationalism is a risk rather than a threat, and the only thing that could aggravate that risk would be to interfere with the formula for distributing the UK Budget between the devolved Administrations. Devolution is all about enabling different parts of the UK to address different priorities in different ways. The House should have the confidence to let that diversity develop, and this mother of Parliaments must always resist any temptation to abuse its power on the distribution of resources in ways that could undermine the vital partnership of the UK.
This is an excellent Budget, which will increase resources for every part of the United Kingdom and for all our vital services, while reducing the burden on taxpayers and businesses. Our economy is going from strength to strength, and we shall be able to take advantage of even better trading opportunities when we are able to join the euro currency zone in the near future. These are historic achievements for a Labour Chancellor. It will be a pleasure to cast my last vote in the House in support of this Budget. I congratulate my right hon. Friend the Chancellor of the Exchequer, and I wonder whether he may yet be destined for even higher office.
This was a Budget for complexity. We know that the Chancellor is addicted to complexity in the tax and benefits system and he got yet another fix last Wednesday. His new Labour nanny statism and his interventionism are deeply damaging to the long-term economic performance of this country and the living standards that all of us—whether on high, low or middle incomes—want to see.
The benign economic conditions, which were largely bequeathed to the Chancellor by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), have masked the serious harm that the Chancellor's last five Budgets have done to the country's competitiveness and productivity. All economists of all political persuasions understand that productivity is the key driver of strong economic growth, economic growth that will deliver sustainable rises in public spending and downward pressure on unemployment.
We should all therefore be very concerned by the figures for worsening productivity tinder the new Labour Government. The documents published by the Treasury itself highlight the worrying state of the UK's productivity performance. I also came across a rather chilling statistic from the National Institute of Economic and Social Research last week, which said that, in 1999, the average working hour in the United States was 38 per cent. more productive than an average working hour in the UK. That figure had worsened from a mere 28 per cent. in 1996, so we have evidence of a widening gap with the United States. That story is reproduced in terms of the gap between ourselves and France and Germany.
Why is that occurring? My right hon. and learned Friend the Member for Rushcliffe and others have put their finger on the answer, which is the increasing complexity of the tax and benefits system and the sclerotic state of the British labour market that has resulted from rules and regulations and from the gold plating and the new impositions from Brussels that the Chancellor willingly embraces.
The working families tax credit has been increased in the Budget, but it is turning businesses into outposts of the Department of Social Security. Employers, as well as employees, have to fill in forms. Employees wishing to claim the working families tax credit have to answer interesting questions, such as, "Are you the director of a limited company?". When employers fill in the form, they have to make calculations for each individual employee and pay the credit through the pay roll monthly. At the end of the month, they have to tot up everything that they have paid out and get a rebate from the Inland Revenue. That is all at a cost—we know the cost because the British Chambers of Commerce has told us—of about £300 per employee.
We also know that the working families tax credit, in the labyrinthine form that the Chancellor has introduced it, deters the creation of employment at the margin. We know that because the National Association of Citizens Advice Bureaux said in a recent report that the credit had
backfired for those it was meant to help the most.
The confusion endemic in the convoluted system means that, at the last count. more than 400.000 individuals have not claimed the benefit to which they are entitled.
Does my hon. Friend agree that the administrative burden of the working families tax credit is especially acute for the 99.6 per cent. of British companies that employ fewer than 100 people? Those companies employ about 57 per cent. of the private sector work force and account for two fifths of our national output.
I hesitate to venture that individual businesses in the hon. Lady's constituency might not feel that they would get a sympathetic hearing from a Labour Member of Parliament. I have had many complaints from companies in my constituency. The British Chambers of Commerce has received many complaints, and my remarks about that are on the record. Even the National Association of Citizens Advice Bureaux has made the point that the working families tax credit is damaging the interests of the people whom it is most meant to help.
The children's tax credit has risen to £520 a year in the Budget. Some 10 million couples in receipt of married couples allowance temporarily thought that the CTC would be a replacement, but only 5 million of those couples are eligible for it. We discover that only 3 million of them have bothered to claim. Why might that be? First, a family with two earners who each receive a salary just below the top-rate tax threshold—for example, £30,000 a year—will receive the full credit, but if one working partner earns over £41,375 a year, the family will not receive the credit at all. However, if one partner earns less than that, but more than the top-rate tax threshold, the family will, depending on the increase in their income, receive a tapered relief, giving them a fraction of the full amount. That is a complex issue, as well as being unfair.
Secondly, the Inland Revenue will have to check whether couples who are claiming the CTC are cohabiting. Finally, the working families tax credit interacts with the children's tax credit. As a constituent pointed out in my surgery last week, that means that she will be no better off, even assuming that she is able to find her way through the thicket of rules and regulations.
We must fear not, however, because the Chancellor of complexity is here to help. He will abolish child benefit, working families tax credit and children's tax credit and replace them, in 2003, with something called the integrated child credit. We must not forget that that will run in tandem with the new employment credit. That complexity is nothing short of a disgrace, and it is all down to the Chancellor of complexity.
The Chancellor's magical mystery tour of the tax and benefits system has also given us the infamous minimum income guarantee for pensioners, which was increased in the Budget. A pensioner who wants to claim that benefit currently has to fill in an intrusive 43-page form. It contains such gems of questions as, "Are you pregnant?", "Are you on strike?", "Are you on parental leave?" and, intriguingly, "Are you in possession of a credit insurance policy covering your credit card?" It is little wonder that more than 500,000 pensioners who are eligible for the benefit have not claimed it, either because they cannot understand it or because of the intrusiveness of the questions asked when they claim.
Disgracefully, the minimum income guarantee has increased the percentage of old-age pensioners who are now subject to a means-tested benefit from 38 per cent. under the previous Government to almost 60 per cent. when the pensioner tax credit is taken into account. Those figures come from Age Concern, which helpfully reminds us in its briefing that the increase is in contravention of what the then shadow Chancellor said in 1993 about ending means-testing for old-age pensioners.
We must also remember that the minimum income guarantee saps personal responsibility and an individual's dependency on their own savings. The savings industry tells us that the stakeholder pension is now a busted flush because it is simply not logical for individuals to save under the stakeholder pension with the MIG set at its existing level.
The Chancellor of complexity's Kafkaesque odyssey extends even further, beyond the MIG, the CTC and the working families tax credit to the corporate sector. The Chancellor's earlier Finance Acts contained two major reorganisations of capital gains tax, and another has been announced in this Budget. It is getting to the point where chartered accountants cannot easily, on their first attempt, calculate accurately the CGT liability of a small business or even an individual. More than 3,000 major new regulations that affect business have been introduced since 1997, which is a post-war record. The Chancellor has done nothing about that and appears not to care or to see the significance of that increased red tape. "Tolley's", the tax bible, which I was privileged enough to use when I was a legal practitioner many years ago, has now almost doubled in size as a result of the last five Brown Budgets.
It is small wonder that Standard Chartered bank said:
Tax systems in other countries are getting simpler but in Great Britain against the international trend it is becoming more complicated and getting in the way of decision making.
Digby Jones of the CBI agrees with that analysis and has warned the Chancellor publicly to "get serious" about deregulation and tax simplification. Only last week, immediately after the Budget, an Ernst and Young survey of 650 businesses said that, on balance, it would discourage inward investors, who are usually the productivity leaders in the British economy.
Economists understand that the tax and benefits complexities of which I and other hon. Members have spoken are not merely an irritation or an inconvenience; they damage the national economic performance of UK plc and, ultimately, the living standards of all. That catalogue of complexity is all down to one man—the Chancellor. The Labour-dominated Treasury Committee published a report in January on the Chancellor's stewardship of the economy which said that
it remains difficult to identify anyone in the structure who has the background and the capacity to think about the tax system as a whole
policy is more likely to be successfully formulated and implemented if everyone is clear from the start what the objectives are and why
What a damning condemnation that is. The Committee went on to say that the memorandums that members of the Committee receive from tax professionals and others
support the conclusions that the tax system is too complex and that serious attempts to reduce complexity have been avoided; that tax reforms are too often undertaken without adequate analysis of the likely effects; and that consultation on detailed tax reforms is not yet regarded as standard practice. despite the introduction of the annual Pre-Budget Report
We know what a farce that is. The Committee concludes:
We firmly believe that in the area of tax policy the Treasury could do better. We recommend that the Treasury give more attention to this area in order to ensure the tax system is 'fair and efficient'".
My hon. Friend will not want to understate his case. Does he agree that the increased complexity of the tax system is not accidental? Rather, it is a calculated—and I hope unsuccessful—attempt by the Chancellor to hide the tact that people who are married, who pay mortgages, who own cars and have the temerity to put petrol in them, who acquire savings, who possess pensions and who run businesses all face a higher tax burden under this Chancellor.
My hon. Friend anticipates me. Many of us are wise to that fact. I am sure that his comments are informed by what the good burghers of Buckingham tell him, because my constituents have been saying the same thing. They understand the situation.
The report accuses the Chancellor of being, at worst, power mad and bonkers, as one of his new Labour colleagues described him. [interruption.] As my hon. Friend the Member for Buckingham (Mr. Bercow) correctly observes, that description is on the tepid side. At best, the report shows him to be an obsessive interferer, fixated with the idea that other Departments do not understand anything and cannot be trusted. He appears to think that he can micromanage business and run everything, but he cannot.
I fear that the Chancellor of complexity is not merely misguided: two much darker, more dishonest and sinister purposes lie behind this and his other four Budgets. First, he is deliberately bringing middle-income Britain into the state dependency net. The benefits and breaks of the children's tax credit, the working families tax credit and the baby bonus extend much higher up the income scale than any other comparable measure. He is trying to lure middle-income Britain into the net of dependency while disguising his truly cack-handed attempts to help people lower down the income scale by the ham-fisted redistributionism of old-style socialism. This Budget and previous Brownian Budgets are nothing less than socialism by other means.
The second purpose is even worse. The Chancellor pretends that his complicated tax changes are tax cuts, but they are nothing of the sort. New Labour is deceiving us. It is using this complex system to hide the fact that tax is rising. The complications that he has introduced into the system are a naked political attempt to try to bamboozle the electorate in the hope that he will negate taxation as an electoral issue. In reality, all we are left with is a mess of fiddled figures, amounting to no more than a large dollop of brown fudge.
The Red Book is nothing but a disgrace. The standards that would usually be expected from impartial officials are in danger of being jeopardised. The most impartial observers in the City of London who have to analyse Budgets for their clients and banking institutions think that the Red Book is an unprecedented disgrace.
I am following my hon. Friend's brilliant speech with care, especially what he says about the Chancellor's tax rises. Why does he think that the right hon. Gentleman bothers to disguise those? Surely, if my hon. Friend were a socialist—like the Chancellor and his party—he would be proud of a tax-rising Budget and a tax-rising regime, because that produces tax expenditure.
I have the honour of serving with my hon. Friend on the Treasury Committee and he poses a question that many other Committee members and journalists have asked. I believe that if the Chancellor told the truth to the British people, he would be out on his ear pretty smartly. He is fighting a tough rearguard action to conceal the truth from the British people, but I know that with my hon. Friend's help and that of my colleagues on the Conservative Front Bench, we will expose new Labour's fundamental deceit.
On the meat—the detail—of the tax increases, we know from the Red Book that taxes are £28 billion higher after the Budget than they were at the last election. Of the 45 new stealth taxes, approximately half are levied on business and half on the personal sector. The Chancellor may be in denial about tax rises, but if he looks at tables C23 and C9 in the Red Book, he will discover that the tax burden in 1996–97 was 35.2 per cert. under the excellent stewardship of my right hon. and learned Friend the Member for Rushcliffe, and that it is 37.7 per cent. in the current financial year. His own figures show an increase of 2.5 per cent. Of that there can be no doubt. It is only a pity that he does not cough to the truth, but I fear that he will not.
Taxes are up on marriage, mortgages, personal pensions and petrol. Households are paying more indirect tax in the form of higher council tax. The Government have starved rural authorities such St. Edmundsbury council in Suffolk, which is in my constituency, of rate support grant. They have deliberately targeted them and forced them to increase council tax to make up the shortfall. The public are not stupid. They know what is going on.
It is helpful, but we need to strike a balance. Paying it off saves about £1.5 billion in debt interest, but there is a more imaginative proposal. The hon. Gentleman probably does not keep up with the literature, so I shall give him the details. My hon. Friend the Member for West Dorset (Mr. Letwin) has come up with a radical and innovative plan to use mobile phone receipts to establish a higher education endowment fund, which has been extremely successful at Princeton and Harvard. The balance sheet for higher education spending would be relieved, over time, by that fund. However, on the hon. Gentleman's core point, of course it is intelligent to pay off debt if the money is available.
Does my hon. Friend agree that there is another strange feature of the scene? The Chancellor has diminished the prevalence of gifts in the long-dated market without relieving the annuity provisions for people over 75, causing widespread and unnecessary misery.
My hon. Friend's intervention allows me to showcase some of the excellent policies that have been developed by the Conservative Treasury team. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) has addressed the matter of annuity provision. That and the excellent policy on endowing higher education institutions are testimony to the fact that the Conservative party has been doing some serious thinking in opposition. We are raring to implement the policies in office.
We know that higher taxes on marriages, mortgages, petrol and personal pensions and even higher increases in council tax have had an effect on the incomes of real people in real households. As Credit Suisse First Boston has helpfully calculated in the past month, household disposable income, which is arrived at when all direct and indirect tax and inflation has been taken into account, has increased by only 1.6 per cent. under this Government. There was a 2.9 per cent increase under the regime of my noble Friend Baroness Thatcher and a 2.5 per cent. increase between 1990 and 1997. As my right hon. and learned Friend the Member for Rushcliffe observed, the Government are laggardly on economic growth and in delivering increases to ordinary households. When those families look at increases in their disposable income, they see that they are worse off than they were under previous Administrations.
The Conservative party will give people back their own money. After all, they earned it. They can spend money that they have earned and saved better than big government and certainly better than the new Labour Government. Overtaxing is not clever. My auntie could have overtaxed to the extent that the Chancellor has and delivered a huge surplus. There is nothing clever about that. We would give £8 billion back in tax cuts, funded by £8 billion of costed savings from the huge total of more than £400 billion a year that the Chancellor proposes to spend. If Labour Members are in any doubt about how deliverable that is, may I remind them that the state spends a total of £400 billion? Our proposal is practical, modest and will not frighten the horses; we propose that £8 billion, or 2 per cent. of that £400 billion, can be saved. In any business, that percentage would, dare I say it, be seen as a bog standard saving. The saving is not at all difficult to achieve.
We have published details of our proposals and we can give the money back. I shall quickly examine who will be the targeted beneficiaries of Tory economic policy. The abolition of the savings tax for everyone on basic and lower-rate tax will reward those who do the right thing and take personal responsibility for themselves and their families. We will also increase the age-related allowance for pensioners, taking 1 million pensioners out of tax altogether. As my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) said, those pensioners who remain taxpayers will be about £8.50 better off a week.
We will introduce a transferable tax allowance, worth up to £1,000 a year, recognising married women who wish and choose to stay at home to look after children under 11 and women in a similar position who decide to look after an aged relative. Those are the common-sense principles in which our party believes. We are backing our beliefs with real money, because those women would be up to £1,000 better off. Finally, we will reduce tax on petrol which, as my constituents in Bury St. Edmunds never tire of reminding me, is still, even after the Budget, the highest in Europe.
Those sensible Conservative reductions in wasteful expenditure and the tax burden will deliver incentives for work, saving and investment to stimulate the growth that will and must deliver higher living standards to all the British people. That is the Conservative way. The Labour way is the way of Complexity Brown, a man in the clutches of the delusion that interference and lever-pulling deliver the goods. That is a socialist fallacy in a modern setting. It has never worked and, as we shall soon learn, it will not work this time either.
I do not know whether to congratulate the generous Chancellor or the socialist Chancellor. Perhaps I should congratulate him on both counts.
Congratulations on the Budget are in order. The Government and the Chancellor should be applauded for a very good Budget, which is based on the competent management of the economy. It is worth repeating just how good the economy is and how it has been turned round. We have the lowest inflation for 30 years, which is really good news for anyone on a fixed low income. We have the lowest long-term interest rates for 35 years; that is very good news for Halifax, which has a high owner-occupier population. On average, mortgages are now £1,200 a year less than they were under the previous Government. More people are in work than ever before and we have the lowest unemployment since 1975. All those things are worth repeating again and again.
In Halifax, 3,463 people were unemployed in April 1997, but now the figure has fallen to just over 2,000—a drop of 36 per cent. Under the new deal, nearly 1,400 young people have found work or gone into training or higher education. The means-testing of pensioners has been criticised. I am not a big fan of means-testing; I support universal benefits, and always have done. However, at least 3,000 pensioners in Halifax—not a small number—have gained from the minimum income guarantee. From this April, a single pensioner will be on £92.15 and a pensioner couple on £140.55. That is not to be sneered at; it is to be welcomed.
All the 18,253 pensioners in Halifax benefit from the winter fuel payment given to households with someone over 60. The benefit is immensely popular—indeed, it is one of the most popular benefits that we have introduced. It is so popular that the Conservatives have said that they will not abolish it. It is not means-tested and it is flexible; people can use it when they need to and spend it on the energy that they want. In Halifax, a large number of pensioners over 75—at least 7,301—have benefited from a free television lice nee, saving them £104 a year. They have an extra £2 of income a week, which they can spend as they wish. As the Paymaster General is on the Front Bench, I shall repeat my bid for the free licence to be extended to everyone over 65.
From April, all the 18,253 pensioners in Halifax will get a boost in the state retirement pension, which will rise by £5 for a single pensioner and £8 for a couple. We must remind those who have listened to the Tories' promise to match that increase chat the Tories had 18 years in which to do something about pensioner poverty. I have been in the House long enough to remember a 37p increase in pensions, so we should have no nonsense from the Tories about 75p—[Interruption.] Yes, there certainly was a 37p increase.
The Chancellor has worked on the pension credit, which will be introduced in 2003. He should be commended for locking ahead and examining how we increase pensioner incomes. I should like the link between earnings and pensions to be restored, but I will take whatever is on offer. Over the years, I have had experience of dealing with pensioners on low incomes, so I know that any money is welcome. I can sell the package to my constituents and am proud to do so. This is a good Budget, built on good measures that have been introduced over the years.
I turn to families, and could not disagree more with the hon. Member for Bury St. Edmunds (Mr. Ruffley), who criticised the working families tax credit. More than 4,500 working families with children in Halifax are benefiting from the working families tax credit. They are guaranteed an income of nearly £220 a week, which is an enormous boost for low-paid families struggling to bring up children.
I am grateful to the hon. Lady. I would not want her to go away with the impression that I was against more money for those families. She is well aware that the working families tax credit is no more than re-badged family credit, which was introduced by my noble Friend Lord Lawson. The issue is not that we do not want to benefit those families but the manner in which that help is delivered. The burden of my argument was that it is much too complex.
The hon. Gentleman will agree that the present benefit is far more generous than family credit. My hon. Friend the Paymaster General should be congratulated on the hard work that she has done to introduce the working families tax credit, which is an excellent benefit.
I congratulate the Government on child benefit, which is a very good payment. It goes to the mother, and into her purse. In 1997 child benefit was £11.05 for the first child. From April this year, it will be £15.50, which is a significant increase. The mother can rely on receiving the payment every week. I am pleased with the measures that are being introduced. The Budget contains many more measures for the family, on which the Government are to be congratulated.
The shadow Chancellor sneered at the tax cut for the lower paid. I can tell him that 12,745 families in Halifax will receive the benefit of that, on top of all the other measures. If the shadow Chancellor and some of his hon. Friends who sneer at the size of the tax cut had any experience of living on a low income and managing a budget, they would not have made that criticism. They do not understand poverty, and they do not care.
On education, my constituency was at the heart of a scandal concerning The Ridings school, which was dubbed the worst school in Britain. It certainly was not the worst, but there were problems at the school and the media became interested. The Government have ensured that that school is properly resourced. I am sure that everyone read in the national press about the excellent Ofsted report and about how that school is coming up. The children are learning and want to learn, and congratulations are due to Anna White, the teachers, the governors and the children, and to the Government on putting money into the school.
I was delighted when the Chancellor said that local schools will get more direct cash payments. That is a popular measure: heads and teachers like it. They know the weaknesses and the strengths of their schools, and they can spend the money accordingly. I repeat to the hon. Member for Truro and St. Austell (Mr. Taylor) what I said in my intervention. I invite him to come to Halifax and see the new buildings.
The hon. Gentleman should come to Sowerby Bridge school, where I took a member of our Front Bench team when we were in opposition, to see a school that still had the same desks that my husband, who is over 60, had used when he was at the school. I invite the hon. Gentleman to come and see the refurbished school now, with its new computer centre and its wonderfully equipped new classrooms. On top of that, we have been promised £36 million for a brand new secondary school. I thank the Government for that very good news This is the first time in years that we have seen such spending on education.
My right hon. Friend the Secretary of State for Health made some important announcements today, pursuing the national health service plan and putting in the resources necessary to implement it. The plan is excellent. It is what the NHS needs and it is long overdue. The Government have guaranteed that our health authority allocation will rise in real terms by at least 6 per cent., and by 6 per cent. for the following two years. That substantial increase in our allocation is welcome.
We have been through a difficult time, but this afternoon's announcement and some of the measures in the Budget mean that we will be able to implement the plan. I congratulate the Government on our new hospital, which will open in June. There has been a merger between Calderdale and Kirklees, and we now have a merged trust. the Calderdale and Huddersfield trust. A new chief executive was appointed today. I am disappointed by the appointment, and I intend at a future date to ask for a debate on the subject. There is a flaw in the power of the regional directors and the way in which they appoint all administrators.
The appointment will be bad news for those of us in Calderdale who have spent years trying to get a new hospital. We now have it, but we will have a hostile chief executive, who did not want the new hospital and does not want two accident and emergency services. We are getting the money in through the Budget, and we could have one such service in Huddersfield and one in Halifax. We desperately need two accident and emergency services because of the geography of the area, but the new chief executive is not in favour of that. I believe that she will work hard to take women's and children's services away from Calderdale, which will be a tragedy. We have been commended by all the experts for our neonatal intensive care unit, and we are getting the money now to ensure that we have excellent services in that field.
We have enough money from the Budget allocation to have the headquarters of the merged trust in Calderdale, which would be the only fair thing to do. The health authority headquarters are in Huddersfield, and in the interests of fairness, the trust headquarters should be in Calderdale. I know that that will lead to another fight locally, following the selection of Diane Whittingham.
The extra money in the Budget is needed in Calderdale, and is extremely welcome. Our state-of-the-art hospital would never have been built without a Labour Government. The merger was managed extremely well by the departing chair, Pam Warhurst, and others, who should be congratulated on trying to keep the two communities together. Following the merger, we can attract the best doctors and nurses. It is a pity that that wonderful record has been spoiled by a civil servant, Peter Garland, who put his own empire-building before the best for my constituents, but I make a pledge: I shall fight for those constituents and for Halifax. My hon. Friend the Member for Calder Valley (Ms McCafferty), who cannot be present today, would say exactly the same.
This afternoon we heard the Secretary of State tell us that we are aiming for 20.000 more nurses and 7,000 more consultants. We desperately need them. I was pleased to hear that there has been a 56 per cent. increase in the number of applicants for nursing and midwifery courses. I am ecstatic about the visionary extension of child care help in the NHS, which will attract people back and ensure that their skills will not be wasted and under-used at home. I congratulate the Government on the increase in the student bursary. It is not enough yet, but it is a good start.
I hope that my hon. Friend the Minister of State, Department of Health, who is on the Front Bench, will forgive my little moan. It has been a good news story for health today, but I urge him to look at the flaw in the selection of chief executives, which is not democratic or fair. If we are serious about being equal opportunity employers, we should examine the civil service guidance, which gives one civil servant far too much power over everything.
The hon. Member for East Lothian (Mr. Home Robertson) said that his speech today was likely to be his last to the House of Commons, after a career of 23 or 24 years here. This is probably my last speech in the House of Commons as well and, like the hon. Gentleman, I shall concentrate on my work in the Scottish Parliament. I leave the House with perhaps not quite as much nostalgia as him, but I, too, look forward to my continued service in the Scottish Parliament.
The hon. Member for Bury St. Edmunds (Mr. Ruffley) made an interesting and lengthy contribution, in which he said that the Labour Government were deceivers on tax and spending. I think that I can agree with him on that point. The Government have successfully created a new art of spinning to their advantage an incredible quantity of financial information that amounts to little in terms of different news. I should like to concentrate on the Government's position on tax and spending, and on what they have said about the family.
In the pre-Budget report and elsewhere, the Budget has been trumpeted as a great deal for families. However, let us consider what families are experiencing. First, as a result of the Budget, families in Britain are still paying the highest fuel taxes in Europe. The Chancellor has not changed that at all. Obviously, any fuel duty reductions are welcome, but surely the amount that is levied can move in only one direction after the trend that it has followed under this Government and the previous, Conservative Government.
Secondly, some of the poorest families in North Tayside are paying the most extraordinary charge increases for certain local authority services. Under this Government, some of my constituents have seen their charges for water and sewerage services increase by 250 per cent. Indeed, they are rising almost as fast as the salaries of the chief executives of the water quangos over which the Government have presided, which rubs salt into people's wounds.
Thirdly, families in my constituency are paying in back-door taxation the equivalent of an extra 9p in income tax because of the various tax changes made over time by the Chancellor. The Government have kept their commitment not to increase the basic rate of income tax, but have used just about every other possible dodge in the book to get more money out of the ordinary, hard-working families that they were supposed to be supporting and helping. Instead of assisting such families, they have spent most time penalising them.
Fourthly, I suspect that many families voted for the Labour party on the basis that it would take action to relieve their poverty. When the Government took office in 1997, 30 per cent. of families in Scotland were living in poverty. After four years, we have arrived at a miraculous situation in which 30 per cent. of families are still living in poverty. In the light of that statistic, the Government have decided that it would be too embarrassing for words to calculate the level of poverty since 1997, so they are trying instead to deal with it from 1996. That shows a modest decline, but airbrushing 1997 out of the history books is not a short cut to achieving their objectives. A great number of people, whether they are in poverty or not, are left disheartened and dejected at the Government's lack of progress.
Fifthly, families are undoubtedly wrestling with a world that is now much more complex. The hon. Member for Bury St. Edmunds said a great deal about the complexity of the system. I do not dispute the fact that the Government are introducing beneficial measures regarding the working families tax credit and the children's tax credit, but I question the accessibility of the opportunities that they provide. I was struck by the Inland Revenue's confirmation that almost a million people who are eligible for the children's tax credit have not lodged an expression of interest in it. That comes on top of evidence that half a million pensioners have failed to apply for the minimum income guarantee and to work through the 40-page form that must be completed in order to make such an application.
All those indications show that the Government's approach to redistribution involves obstacles that the Chancellor must surmount to ensure that all families who are in need have a proper opportunity to access the information and credits to which they are entitled. The system's complexity has excluded a number of people who desperately need the support that is available from the Government, not least through the measures recently announced, and it shows no signs of getting any simpler.
The Chancellor has made a great deal of honouring his manifesto commitment not to raise the basic rate of income tax. It would be churlish to dispute that commitment, but I calculate that 28 tax rises have been made under the current Chancellor—an analysis that is supported by the Library. I am sure that the Conservative party can justify its argument that there have been 45 rises, but the 28 rises of which I am aware are equivalent to the application to ordinary people in our society of a 9p increase in income tax. The total UK tax burden has increased from 36 per cent. of GDP in 1996–97 to an estimated 40 per cent. in 2000–01.
Those increases nail the Chancellor's repeated claim that he is a tax-cutting Chancellor. There is no doubt that he is a tax-increasing Chancellor. Any redistribution measure or evidence of a tax-cutting agenda in the Budget is more than outweighed by the fact that he has raised more than £23 billion in additional taxation by imposing the changes to which I have referred. Ironically, there is a direct equivalence between the £23 billion in tax rises and the £23 billion surplus announced in the Budget statement. The Chancellor has imposed the 28 tax rises through the back door, but they have resulted in even more tax increases for ordinary families. As I said, they include greater water charges in Scotland.
It comes as no surprise that a recent poll whose results were published in The Herald suggests that almost 60 per cent. of people in Scotland think that Labour has broken its tax promise. The public are now beginning to see through the propaganda, spin and representation of the same arguments. They can see that the tax burden has increased for ordinary people and that Labour cannot be trusted on tax.
Just as Labour cannot be trusted on tax, so it cannot be trusted on spending. I would rather listen to what real doctors say about public expenditure than to what spin doctors say about it. A recent British Medical Association survey showed that 80 per cent. of Scottish GPs believed that there had been a decline in hospital care since Labour took office. I was intrigued by the bullish way in which the Secretary of State for Health presented the Government's health record, as they cut real-terms expenditure on the health service in Scotland during their first year in office. As much as I criticise the Conservative party for its ghastly expenditure and public service record in Scotland, I must accept that even it did not make such a cut in all its 18 years in power.
To compound the matter, the Government starved public services during their first two years in office. Even at the end of the comprehensive spending review period, they will be spending less of the nation's wealth on public expenditure and services in Scotland than the Conservatives were at the end of their period in government. Public expenditure increased by 2.6 per cent. a year in real terms under the Conservatives. On average, it rose by 1.8 per cent. a year from 1979 until 1997. After the current Government came into office, however, expenditure rose by 1.2 per cent. a year from 1997–98 until 2000–01. I suspect that the current Parliament is unlikely to last for five years, but, if it does, the next such figure will be 1.9 per cent. That puts into context the Government's change in public expenditure.
I was struck by a written parliamentary answer given in the Scottish Parliament, which showed that when the Conservatives left office they were spending 1.8 per cent. of United Kingdom GDP on public expenditure in Scotland. In 2003–04, the figure will reach only 1.84 per cent. at the end of the comprehensive spending review period. That shows that the Government are not investing as much of the nation's wealth in public spending as has been invested in the past.
The Government say that new expenditure will result from the Budget, and that is true. By my calculations, an extra £200 million, spread over three years, will come to the Scottish Parliament in the block formula. However, we must bear in mind the fact that, although that £200 million will be welcome, the Scottish Executive managed to underspend their budget last year by £435 million. We must put the scale of the latest increase into some sort of perspective, in terms of the increases in expenditure that the Chancellor has announced.
The hon. Member for Halifax (MI s. Mahon) described real life in her constituency to the hon. Member for Truro and St. Austell (Mr. Taylor) in terms of investment in public services. I am sure that she knows her constituency extremely well, but we all have such a constituency record and we are all aware of the limitations of public expenditure. I am certainly very concerned by what I see and hear, for example when I speak to representatives of the health authority in my constituency.
The health authority is wrestling with a £10 million deficit, which has to be eliminated before it can obtain any long-term investment for health services in the Tayside area. Countless schools in my constituency need refurbishment, and we are a long way down the priority list in terms of investment. We must keep our feet on the ground when we consider the Government's actions on public expenditure, because they are not making the quantum difference that they boasted would be the case.
The condition of the economy has teen the subject of many bullish remarks by the Chancellor, and by the Secretary of State for Health when he opened this debate. Since the Government came into office, there have been four quarters of negative economic growth, in which the economy has not increased in size. The economy in Scotland is not doing as well as that of the rest of the United Kingdom, and the latest figures show that the rate of growth in the Scottish economy is 1.6 per cent., compared to 3.4 per cent. for the UK as a whole. For the sake of international comparison with some of our small, European counterparts, I can tell hon. Members that economic growth in Ireland is projected to be 8.7 per cent. in this financial year.
Manufacturing losses in Scotland have been enormous, and the latest statistics show that manufacturing exports are down. In a number of manufacturing sectors—for example, the drinks industry, paper manufacture, food, tobacco, mechanical engineering and textiles—export figures are down. Let us also, therefore, keep our feet on the ground when considering the economic performance about which the Government are so keen to boast.
Obviously, almost everyone welcomes the decrease in unemployment. The International Labour Organisation employment trends, so frequently used by the Government as their favoured mechanism, suggest that 8.7 per cent. of the population of Scotland were unemployed in 1997, and that that figure is now 6.4 per cent. However, a much more dramatic decline has taken place in Ireland, where, according to the ILO, unemployment was 10.3 per cent. in 1997 and is now 4.3 per cent. We must, therefore, be aware of the scale of economic activity and economic progress that can be achieved in comparable circumstances.
The Chancellor has tried to present an image of a low-tax, high-spending Budget. However, he has delivered a high-tax, low-spending record, and that has led to under-performance in our economic base. It is essential for the Chancellor to recognise and accept the public mood on this issue. There is a need for much greater honesty and transparency in the tax system. People are beginning to tumble to the fact that they are paying more tax than they used to, and it is high time that the Chancellor demonstrated some transparency in the way he explains those issues to the public. The public now clearly understand that, although the promise of low direct income tax has been kept, they are paying high indirect taxes. The fuel crisis of last summer represented an explosion of people's anger that should act as a warning to the Chancellor. There is also a necessity for claims about public expenditure to be founded on reality, rather than on the extravagant claims that the Chancellor has set out.
The hon. Member for East Lothian advised the House earlier that, as part of maintaining the United Kingdom, it was essential that no one interfered with the funding formula that underpins the funding of the changes to public expenditure in the Scottish Parliament—the so-called Barnett formula—which the hon. Gentleman presented as a great formula.
The Barnett formula is often misunderstood. It is a converging formula, designed to bring per capita public expenditure in Scotland into line with per capita public expenditure in England. In certain identifiable areas of public expenditure, there is a difference. We must be clear that the formula is designed to reduce public expenditure in Scotland, and it is doing so. The gap between per capita public expenditure in Scotland and England is declining year by year because of the vigorous application of the Barnett formula.
Will the hon. Gentleman give the House an idea of when that convergence will take place, and when expenditure in Scotland will be the same as that in England?
I think that the Chancellor would be able to give the hon. Gentleman a better projection on that issue than I could. However, the pattern is taking its course and is being vigorously implemented by this Chancellor. People should be aware that that is the pattern of our public expenditure.
On that point, is the hon. Gentleman aware that we are discovering in Northern Ireland that health expenditure will be cut year by year in the near future because of the implementation of the Barnett formula?
Let us be clear on this point. In the present context, public expenditure on health will increase at a slower rate in Scotland—and, I assume, in Northern Ireland and Wales—than it will in England. That is the real impact of the Barnett formula: it is designed to bring about convergence. That is a challenge for those of us representing Scottish constituencies. I hope that the very worthy Scottish National party candidate standing in the North Tayside constituency at the general election will be able to come to the House and inform it of his concerns about the Barnett formula for a limited period in the years to come, before he returns to an independent Scottish Parliament.
I shall give way to the hon. Gentleman in just a moment.
The purpose of the Barnett formula is to bring about the convergence of public expenditure in Scotland, Northern Ireland, Wales and England. The challenge for people interested in promoting and expanding public services in Scotland will be to secure access to the resources that will allow us to do so, and to maintain a high quality in those public services. I have a solution to that challenge, but I shall wait until I have heard the intervention from the hon. Member for East Lothian.
My hon. Friend the Member for Banff and Buchan (Mr. Salmond) has a distinguished record in the House, and he is a formidable campaigner and champion of Scottish interests. He has fought a valiant campaign on behalf of Scotland's fishing industry over the past few weeks, which the Scottish Executive would do well to listen to. I think that they are probably listening to it in Edinburgh even as we speak.
I am sure that my hon. Friend the Member for Banff and Buchan will serve in this House for just as long as it takes to secure Scottish independence, and then return to the Scottish Parliament. He might see the hon. Member for East Lothian there, if the hon. Gentleman manages to hold on to his seat long enough to continue to serve in that other place. However, I must return to the Budget debate before I am reprimanded, Mr. Deputy Speaker.
A vigorous debate is emerging about the long-term funding of the Scottish Parliament. The right hon. Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, recently made an interesting speech about fiscal autonomy—I intervened on the hon. Member for East Lothian on that point—whose purpose was to acknowledge that the Scottish Parliament needs the fiscal responsibility to take major decisions on public services, public expenditure, taxation and revenue raising on behalf of people in Scotland. Most important, certainly from my point of view, it should be able to manage and steward the natural resources of Scotland, take decisions about our revenues and our expenditure and pay to the United Kingdom Parliament a sum in respect of services provided to Scotland in the longer term.
That debate about fiscal autonomy is vigorous and within it lie the answers to the limits placed on our public expenditure because of convergence under the Barnett formula. I hope that ether political parties in Scotland will engage with the debate because it contains the germs of the next development of the constitutional argument, which will further strengthen the Scottish Parliament. That will be good for Scotland and good for the public services of Scotland.
The Budget is heavily based on the spin that we have become accustomed to from the Chancellor. He suggests that he has cut taxes and increased spending, but he has of course done neither. At the forthcoming election, the public will show whether they have seen through him. As a result of the Budget, being seen through is what he deserves.
It is always interesting to listen to Opposition Members. The hon. Member for Bury St. Edmunds (Mr. Ruffley), in response to an intervention by my hon. Friend the Member for Workington (Mr. Campbell-Savours), suggested that paying off our debt is a good idea if we have the money. I take that as an official response from the Conservative party, which I understand has given a commitment to equal the public services spending announced by my right hon. Friend the Chancellor. Yet the Tories also talk about making bigger tax cuts. Their sums do not add up: the funding is not there to achieve all that.
The hon. Gentleman said that the Conservatives would find savings of £8 billion, but the information on the Opposition's alternative Budget, which I have read, suggests that it is based on a number of false premises. One is that £250 million could be saved from money being spent on regional government. Obviously it has escaped Opposition Members' attention that the Government are not spending that money, so it cannot be saved. That point highlights the problems of the Conservative Opposition and their inability to run the economy, which w a; apparent in the past.
Is the hon. Lady accusing her own Front Benchers of deceiving the nation in their latest annual report, which says that they are on course for regional government?
Would it help the hon. Lady to know that the planned savings that we have specified vis-a-vis the Chancellor's plans relate to 2003–04? As far as I am aware, that year has not yet occurred.
That is true, but the proposals relate to spending that has already been undertaken and cuts in spending on regional government. The hon. Gentleman shakes his head but, according to the Conservative budget, that spending has already been allocated, even though the money is not being spent by the Government.
That is just one issue on which we heard from Opposition Members. The right hon. and learned Member for Rushcliffe (Mr. Clarke) suggested that he is not terribly confident about the projected growth of the economy as forecast by my right hon. Friend the Chancellor. Indeed, I think he said that he would not bank on it. If he is not prepared to bank on it, perhaps he is prepared to bet on it, because the Chancellor has made betting free. Such a bet would be a good investment. I am not a gambler, but I respect the right of others to gamble and the proposal will encourage companies that took betting offshore to return to this country, which will benefit not only those who bet, but Government revenue. Everybody is a winner on that one.
The Budget is welcomed by my constituents, who will benefit from a range of policies. They will certainly benefit from the announcements on continued investment in the national health service made by my right hon. Friend the Secretary of State for Health this afternoon. I welcome the opportunities to encourage the recruitment of more general practitioners and more nurses through additional payments. In the area that I represent, it is increasingly difficult to recruit and retain people in the public sector because even though there are so many jobs available in Watford and around London, the cost of living is incredibly high.
When people have a choice about where to work, they do not automatically choose a hospital in the south-east, for example, if they can choose one in London. Costs in the south-east are the same as in London, so I welcome the proposals and hope that my right hon. Friend will recognise the needs not only of Watford, but of other areas close to London that need investment and encouragement for public sector workers to live in the area.
On a point of information, this afternoon I attended the opening of two new key worker houses in my constituency, which were established for police officers. That is an example of how a partnership involving housing associations, local authorities and the public sector can provide the sort of accommodation that is vital to encourage and enable people to live in the constituency and serve in the police force. I hope that such arrangements will be extended to other public sectors, especially health.
We already have a good record on the health service. In the Watford constituency, West Hertfordshire health authority has gained significantly from the Government. In 1996–97, it received a percentage increase of only 3.2 per cent., which was a real-terms increase of only 0.5 per cent. For 2001 and 2001– 02, there will be 8.6 per cent. increases—6 per cent. in real terms. That will make a massive difference to the service that the health authority and the hospitals are able to provide to my constituents.
The number of patients being treated has increased and the number of nurses has risen significantly. In September 1997, qualified nurses in West Hertfordshire's area numbered 1,468. In September 2000, there were 1,983. That represents a significant improvement in the health service for my constituents. There is a lot more good news, but I am not complacent and we still have a long way to go to improve our NHS. The steps taken today to encourage more people into public services such as the national health service will, in my view, reap real benefits in the future.
Education has also benefited from significant improvements in the past thanks to the present Government and, thanks to the Budget, can enjoy great hopes for the future. Primary schools will receive between £13,000 and £63,000, and secondary schools will receive between £68,000 and £115,000. That money will go directly to schools, enabling head teachers to decide their priorities along with governors.
That is not to say that I want education authorities to be removed or undermined. I believe, however, that the Government's attempt to convey additional money directly to schools is vital, enabling priorities that can be understood by schools and by head teachers working from day to day to be met.
The flexibility involved in the use of the money is also important. As I said earlier, one of our problems in Watford, in Hertfordshire and in the south-east generally is the high cost of living, which makes it difficult to recruit and retain staff. The extra money will allow head teachers to increase new teachers' pay, over and above the national increases that the Government have announced. This is flexibility determined by local circumstances, and I expect schools in my constituency to welcome the new money.
Overall, the Budget sets out a stable and strong economy for the future. It builds on the successes of the past—of the last four years—and it enables my constituents to plan investments in the knowledge that their mortgage rates will not soar out of control. Businesses will also be able to make important investments, knowing that they can begin to recruit people with the additional skills that are being made available while ensuring that they too will receive investment.
I grew up under Conservative Governments during the 1980s and 1990s. For me, the lasting images of those years were provided by the news bulletins that I watched every night. A map would appear on the screen, with pinpoints denoting the thousands of jobs that were being lost.
Another lasting memory of those times is that of the large increases in interest rates, causing more and more people to face repossession. Young couples or families just starting out invested their money, their hopes and their dreams in their first house, only to find not much later, in the years of Conservative government, that they could not afford to maintain those dreams and hopes—that they had been dashed by Conservative policies. The Chancellor's greatest achievement has been to get rid of the boom-and-bust policies of the last Government, which says a lot about his stability, strength and competence and that of the present Administration.
One important factor is, of course, employment. My constituency has done incredibly well out of a Labour Government. Between 1997 and now, we have seen a 48 per cent. drop in unemployment. There has been a significant increase in the number of jobs: indeed, it is now difficult to fill many of the vacancies that exist in Watford. I am keen to encourage those who have retired early to consider returning to employment, as, given the number of jobs available, not enough younger people who are currently working are able to take them up. Of course we want better opportunities for training and skills, which would enable us to meet the needs of employers in Watford and the surrounding areas.
A major industry not just in Watford but in Hertfordshire is the film industry. Film-making now accounts for 8 per cent. of Hertfordshire's gross domestic product; millions of pounds are going into the area. My constituency contains Leavesden film studios, where the Harry Potter film is currently being made. It is a great British film based on a book by a good British author. I believe that other Hertfordshire constituencies will also benefit from investment in the film industry. Steven Spielberg has been making "Band of Brothers", and successful films have been made at Elstree and other studios and locations in the county.
For the position to improve, however, we needed an assurance from the Chancellor that he would extend the tax breaks made available just three years ago. Working with the Minister for Tourism, Film and Broadcasting, who has just entered the Chamber, I was keen to ensure that we campaigned and lobbied the Chancellor on that issue, given its importance not just to my area but to the whole British film industry.
Those in the film industry, and those responsible for finding finance for British films, are—to say the least—ecstatic about the Government's policy. That is clear to me when I talk to them. This is the first Government to recognise the importance of British films, and the first Government to do something about it by making investment real. More films have come to the United Kingdom, and many more are likely to do so in the future as a result of the extension of tax breaks for the next three years. I congratulate the Chancellor and the Treasury on their introduction of a specific policy that will make a real difference not just to the British film industry, but to my constituency and the county of Hertfordshire.
This is, overall, a very good Budget. It maintains the stability that we have seen over the past four years, while increasing opportunities for investment in the health service and education. I believe that our constituents will gain real benefits from it in the coming years, and will not be conned by a Conservative Opposition who think they can offer tax cuts, investment in the public sector, a reduction in debt and all the other things that they promise when that clearly does not add up. I am sure people in Britain will recognise that when the time comes for them to judge this Government, and their ability to deliver a good, strong and stable economy.
Last Thursday, that famous Welsh organ of truth, the Western Mail, quoted the Chancellor as saying:
Because employment and the economy is growing and we are saving billions of pounds in debt repayments, we can target more help on Wales' priorities.
Having read that, Plaid Cymru Members read through the Budget's detail expecting to see something about a regional economic policy. Unfortunately, we saw nothing about that. I have yet to see anything in the Budget that will cheer Wales's main industries—agriculture and manufacturing. I have no doubt that Britain's economy
is doing well, as the right hon. and learned Member for Rushcliffe (Mr. Clarke) said earlier in a very interesting speech. However, that is all the more reason for formulating and implementing a targeted regional economic policy.
The hon. Member for Watford (Ms Ward) described the situation in Hertfordshire, where I am sure various economic levers will have to be operated. None the less, in relation to the United Kingdom economy overall, Wales's economy is undeniably slipping way behind. Since new Labour took office, Wales's gross domestic product has decreased by 3 per cent. relative to that of the UK generally. Although Wales's GDP has recently grown by 0.3 per cent., compared with the overall UK GDP it has been decreasing. As for the Chancellor's huge surplus of some £23 billion, surely some of it could be used to assist the less prosperous parts of the United Kingdom, including Wales.
The Budget was a missed opportunity for Wales, which has yet to receive additional funding and full match funding for objective 1. However, before it sounds like I am whingeing too much, I should say that some of the Budget measures are most welcome, such as simplification of the VAT and tax regime for small businesses. Additionally, some red tape was cut. Although more could have been done, it will help.
Nevertheless, in recent years manufacturing industry in Wales has been hit by a series of crises. Plaid Cymru Members believe that Wales is a strong and vibrant country with plenty of talent and some of the most hard-working communities in Europe. Our nation's strengths should be appreciated and used to their full potential. There is no reason why we in Wales should not share in the type of prosperity that is apparent in the south-east of England. Although I say good luck to that region, the fact is that, despite all the efforts that are being made, Wales is not as prosperous.
I do not think that the tax incentives announced by the Chancellor to regenerate coal-mining and steel areas will help places such as Ebbw Vale and Llanwern. Although he said that he will abolish stamp duty, that will not help places such as Ebbw Vale as they do not have the capital to benefit from it.
The Chancellor also announced tax relief for cleaning up contaminated land. Such measures make me think of Corus, which has been totally oblivious to Wales's cries to reconsider ending the steel industry in Wales. A package should have been offered to Corus early in the proceedings. It is still not clear whether such a package was offered. Nevertheless, the alarm bells should have gone off 18 months ago, when it was first learned that Corus was losing £1 billion annually.
Plaid Cymru Members call on the Government to find a way of regenerating steel communities, not only in Wales but across the border. We estimate that the measures necessary to regenerate those communities would cost about £200 million. That sum is not wildly extravagant or imprudent when one considers the damage that would be done to those communities by the loss of their steel jobs. It also accords with the objective 1 benchmark of about £55,000 per new job in deprived areas.
New Labour is always keen to cite figures showing how many new jobs have been created, and—new deal or not—there are some, good success stories. New jobs have been created, and it would be boorish of me to say that that is not a good thing. Of course it is good. However, although job creation is essential, job retention needs to be emphasised equally. In the past three years, 20,000 manufacturing jobs have been lost in Wales. Measures such as cutting employers' national insurance contributions in order to make more capital available to employers to secure jobs could act as an incentive for employers to recruit more employees.
Plaid Cymru Members have also said that incentives such as corporation tax cuts should be considered as a means of increasing investment. Although we have long been making such proposals, hitherto, the Chancellor has not accepted them.
Other hon. Members have mentioned the rural economy, which is struggling under new Labour. The agriculture sector is vital to Wales's economic development and to the sustainability of many of our rural communities. Agriculture is in the grip of the worst crisis for generations. It has been hit by disasters such as BSE—which clearly is nothing to do with the Government—and, more recently, by foot and mouth, which is also nothing to do with the Government. Nevertheless, agriculture is on its knees. It has had to battle against an unfavourable exchange rate, and it has been unable to export stock. It has also not been receiving the full value of its subsidies because of the pound-euro exchange rate.
We should not lose sight of the fact that, even before the foot and mouth crisis, 73 Welsh farming jobs were being lost each week. That is the equivalent of a major factory closing each year. Average income from farming activity in the UK was recently assessed at £4,500. The average for upland farmers—80 per cent. of whom are in Wales—was even worse, at £3,800. I dread to see the figures once the full impact of the foot and mouth outbreak is felt.
Let me make it clear that the Chancellor's announcement on agrimonetary compensation has nothing to do with the foot and mouth crisis, but is an attempt to bail out the industry after last year's losses. I call on Ministers to rethink compensation, as there must be a properly funded package. The other day, I read with some pleasure that the Agriculture Minister has said that there will be proper compensation and that the Government will consider consequential losses, outside the immediate boundaries of agriculture.
We have to realise that agriculture is not an isolated industry but encompasses the whole rural economy. Its problems affect other rural businesses and can trigger a drastic downturn in the whole rural economy. I therefore hope that Ministers will consider proper and consequential compensation both for farmers and for others who operate rural businesses.
The tourist industry, which is substantial across the United Kingdom, has probably become Wales's largest industry. It, too, has been hit by the crisis. I ask the Chancellor and his colleagues to consider and deal with that aspect of the crisis. Various hotels and villages in my constituency depend on tourism. A renowned Plas y Brenin Outward Bound centre at Capel Curig has just laid off 26 workers. That is a pretty bitter blow in a rural area. I am not blaming the Government for that; I am simply saying, "This is a crisis. Can you please act accordingly?" I hope that Ministers will consider the matter, and act urgently and in the short term to put it right.
The failure to guarantee the objective 1 match funding to which Wales is entitled is a glaring omission in the Budget. The Government say that obtaining objective 1 funding was their success, but the credit belongs to all parties. However, for the sake of argument, let us say that Labour obtained the funding. Why are the Government being so stubborn in agreeing to provide the additional funding and match funding?
The Government's delay means that the £600 million needed for match funding must now be taken out of the block grant, which is the money already set aside for running ordinary public services in Wales. For example, robbing Peter to pay Paul means that health spending in Wales will have to be reduced. The health problem in Wales is already much more serious, across the board, than it is in England. I shall not bore the House with statistics, but it is an established fact that people in Wales, by and large, are less healthy than our friends in England. That is a matter of great concern, and it derives from bad housing, socio-economic problems, the types of industry that exist in Wales, and so on.
Health spending in Wales recently received an 8.6 per cent. increase, but our colleagues in England are getting a rise of 9.3 per cent. The proportions should be the other way around, given the greater needs in Wales. Robbing the health budget to make up match funding for objective 1 funds will make the situation even worse. Had Wales received the same percentage health spending increase as England, the health service in Wales would have an additional £22.2 million.
The shortfall in education is even worse. Spending per head in England in 2000–01 is 2.3 per cent. higher than in Wales, but the gap is set to widen rapidly and will be at 9.7 per cent. by 2003–04. Over the four years of this Parliament, total education spending in Wales is £600 million less than it would have been had the same amount of money been spent per head as in England.
The hon. Member for North Tayside (Mr. Swinney) spoke of the Barnett formula, which has served Wales and Scotland for some time, although it was meant to be a temporary solution. Surely the time has come to be thinking carefully about rescheduling Barnett? We should start with a new, needs-based formula that acknowledges that there are different needs in different parts of the United Kingdom. That is long overdue. The disparities will continue unless the formula is reconsidered. There is no reason why less should be spent on education or health in Wales than in England.
The Budget gives Wales £100 million extra for education and health over three years. That is a help, but we must get matters in perspective: the £33 million a year that is being given amounts to £10 per person. I do not know how that can be expected to make great inroads into the health problems in Wales.
The Government have made the welcome promise to reduce hospital waiting lists. That was a Labour pledge in 1997, when 6 per cent. of patients in Wales had to wait longer than six months for their first outpatient appointment. The equivalent figure for this month is 714 per cent. higher. That is some increase. It will not wash for the Government to say that it has something to do with the Welsh Assembly. I have given the bare facts about a great problem which concerns us all.
The Chancellor announced a package of £200 million to aid teacher recruitment. That is welcome, but a considerable amount of money was spent on paying off early retirees. The Government are now talking about bringing the same people back into the profession. That does not make a great deal of sense.
It would be wrong of me to deny that there were some good measures in the Budget. I differ from Conservative Members in regard to the working families tax credit, which I think has a lot going for it. The Government have given some firm indications about child care and other matters, and money has been targeted at those most in need. Only a fool would deny that, but the Budget lacks a proper, overall examination of the macro-economic problems facing Wales. Those problems are affecting agriculture, tourism and manufacturing, but the Budget contains nothing that will give any cheer to those sectors. That is a great disappointment.
Another disappointment is the lack of movement on student tuition fees. In Scotland, applications for further and higher education have risen by about 14.5 per cent., but in Wales over the same period they have fallen by 4.5 per cent. One of the reasons for that 20 per cent. difference is the fact that students are burdened with debt as they try to secure their education.
I read law as a student. I would not have qualified as a lawyer if my father had not been a retired police officer, which meant that I had a full grant and did not pay tuition fees. It is appalling that today's young people of student age must choose whether to pursue further and higher education based on whether they have the money to do so. That is a step back to Victorian days, and I am appalled that this of all Governments should be sitting on their hands and doing nothing about the problem. I believe that the Government will find that their inaction has made them grossly unpopular with people when they go to the polls in the next few months—and rightly so.
I said earlier that the Government have been following previous spending plans. Public expenditure at 38 per cent. of GDP has led to lower health and education budgets. Some bribes are now in prospect, but I want to make one final plea, on behalf of the miners fighting for compensation following the High Court case brought by the National Association of Colliery Overmen, Deputies and Shotfirers.
Even at this late stage, I hope that the Government will reconsider the immoral and unfair clawback of compensation that has already been paid to miners. The need for a rethink is underlined by the surplus of £23 billion—or whatever the true amount is—on which the Government are sitting.
All in all, although the Budget contained some good measures, it offers no cheer at all for Wales. The main structural problems remain and objective 1 funding has not been matched. Moreover, the Government are not delivering what the people of Wales are looking for. They are turning their back on Wales. Their main objective is to look after the economy of the south-east and of middle England. For them, Wales does not really count.
I am grateful for the opportunity to speak in this debate, and I broadly welcome the Budget. Like its predecessor delivered under my right hon. Friend the Chancellor of the Exchequer, the Budget demonstrates more clearly than ever that the Government have shot the Tory fox on the economy.
I apologise for the metaphor, but I use it deliberately. Since I first became politically conscious, I and everyone else in the country have been told—by the Conservative party and conservative newspapers—that Labour could not be trusted to run the economy. We were told repeatedly in the 18 years of Conservative rule that a Labour Government would lose control of the economy, that there would be a run on the pound, and that unfinanced public spending would cause interest rates to go out of control. In short, we were told that Britain would dissolve into economic chaos.
Four years have passed since the last election, and things look a little different. We have the lowest inflation for 30 years, and the lowest unemployment rate for 26 years. Real incomes are rising and the public services are receiving more investment than has been the case in my adult lifetime. In short, the Government have achieved a degree of economic stability and success that has not been achieved before.
We should not underestimate the political significance of that. It means that people who had previously shared the Labour party's values and beliefs, but who did not trust us on the economy, are now able to support us. Like many of my colleagues, I am canvassing regularly at the moment. I am finding that people who voted Conservative in 1997 because they could not trust Labour on the economy are now coming across and saying that they will vote Labour at the next general election. I believe that the Conservative party has yet to face up to the significance of that change. Perhaps it will in May or October, or whenever the election is held.
The manner in which we have managed the economy has enabled us to invest much more money in key public services. In the face of that, the Conservative party must do much better in answering the difficult questions on public spending. Whether they are talking about cuts of £8 billion or £16 billion—and there are plausible reasons for saying that, in government, they would require cuts of £16 billion—the Tories must do better in telling us where the cuts would fall.
The shadow Chancellor's earlier exchange on industrial injuries compensation was very instructive. I understood him to say that that would be an additional burden on business but that the Tories would compensate business elsewhere. The net effect of that would be zero. They could not then claim that the abolition of industrial injuries compensation would be part of their proposed £8 billion savings.
Has the hon. Gentleman ever heard about the distinction between public expenditure and taxation? If we reduce public expenditure in one dimension and reduce taxation on business to compensate, do we not achieve a diminution of both?
We still have to make the sums add up. Including that cut within the Conservatives' overall plans to reduce spending by £8 billion clearly demonstrates that it is not sustainable or justifiable. That would lead to having to cut the core public spending plans for schools, hospitals and the police service.
No, I will not.
There is another more fundamental objection to the Conservatives' claim that they will match our spending on schools and hospitals. Why should we believe them? Even if their tax and spending plans were to add up, which I do not believe is the case, they had 18 years in power—the longest period of uninterrupted rule enjoyed by one party in this country in the past century—yet they never once attempted to deliver the increases for our schools and hospitals that this Government are delivering. I think that the public judge politicians not by what they say but by what they do, and by its record, the Conservative party is condemned.
I will give way a little later.
The Budget confirms that we are prudently and cautiously giving the greatest help through the tax and benefits system to those people who need it most. Some people might call that redistribution. The hon. Member for Bury St. Edmunds (Mr. Ruffley) was clearly harking in that direction in his impassioned speech. I prefer to call it fairness. I think that the British public waned in their support for the principle of fairness for a time during the 1980s, but that they now support it again. The Institute for Fiscal Studies has recently confirmed this by saying that the reforms since 1997 have been strongly progressive and that the proportional post-tax income gain is highest for the bottom decile households. That refutes the shadow Chancellor's claim that the poorest households are hit by tax increases under this Government. The evidence shows that those households are gaining most overall, which I welcome.
I contend that because of our successful management of the economy and because we have delivered fair taxation, we are now able to deliver a significant increase in expenditure, particularly in the spending on our schools and hospitals. I was astonished to hear the shadow Chancellor talking about cuts in schools. He quoted from a letter written to him by someone who was clearly a member of the Conservative party, decrying what was happening in our schools. The Liberal Democrats expressed a similar view. My experience of talking to head teachers in primary schools in my constituency is completely the reverse. I was talking to a head teacher of a school in Harlow a couple of weeks ago, who told me that in 25 years of teaching, she had never known so much money to go to schools. That is the experience of teachers and head teachers across the primary and secondary sectors.
Let us look at the figures for capital spending. Some £686 million was spent on capital repairs of schools in 1997. Today, the expenditure figure is £2 billion and is heading towards £3 billion. That is the most substantial boost to spending on capital infrastructure in schools for more than a generation.
The same is happening in the national health service, with a third real-terms increase in spending in the coming five years. It is the biggest sustained increase in health service spending since 1948. I say that deliberately; I recently asked the House of Commons Library to produce a table on health service spending year on year since 1948 and to identify the percentage change over the previous years at 1999–2000 prices.
The table clearly shows that the projected level of sustained increase between 1999 and 2004 has not been achieved in any five-year period since the establishment of the national health service. That is a real contrast with what went before. Under the previous Government, there were years in which they delivered significant spending increases, but that normally happened in the run-up to an election. In 1987–88 there was an increase of 4.3 per cent; in 1991–92 there was an increase of 7 per cent. However, those increases were never sustained or carried through. Two years after those increases were delivered, the increases were only 0.6 per cent. and 0.8 per cent. respectively—effectively that spending was at a standstill. Under the previous Government, there were large increases in spending in the run-up to elections, but the tap was turned off as soon as they were safely back in power.
That practice is a real contrast with what is happening under this Government. We are sustaining increased spending year on year in a way that no previous Government have done. That gives me grounds for optimism. We are beginning to get things right in the national health service unlike what happened in the past. I see that in the health service in my constituency, where there is a walk-in health centre, faster cardiac care and cancer care and shorter waiting lists. Real increases are benefiting real people.
It is worth labouring the point that the improvements are genuine. I detect a developing political and press agenda in which it is claimed that those increases are not real. The Government are accused of over-spinning the increases. In fairness, I think that in the first comprehensive spending review, we over-egged the pudding slightly. We have learned from that experience and now our claims are genuine. The polar opposite is apparent from the comments of some newspapers and political parties, which argue that an increase in spending is not real even when it is manifestly genuine.
At the weekend, The Sunday Times said that the national health service was a net loser in the Chancellor's Budget, contradicting my right hon. Friend's claims that he had given it more cash.
No, I will conclude this part of my argument before I do.
When I read that article, I referred to the Budget Red Book for last year and this year. The Red Book shows that in 2000–01, £46.6 billion was spent on the national health service. For this year, the figure is £46.7 billion. The figure is £50.5 billion for 2002–03 and £54.5 billion for the following year. Given those figures, how any newspaper can claim that that is equivalent to a net loss for the national health service is beyond me. It does no credit to any newspaper or political party to make such a claim.
Has the hon. Gentleman had a chance to look at the parallel figures on education and measured the actual change since the last Budget Red Book to this Red Book for education spending, as opposed to the figures presented in the relevant table in this Red Book?
The spending figures on schools and the education budget show that over the five-year period from 1999 to 2004 we are sustaining one of the biggest increases for many years. My experience of talking to head teachers in my constituency bears that out.
A former Liberal leader, Sir David Steel, described Margaret Thatcher as knowing the price of everything and the value of nothing. The Liberal Democrat party has effectively turned that phrase on its head. It is the party that knows the electoral value of every spending pledge, but has not got the first clue of the cost of any of those pledges and is certainly not straight with people about that cost and who would have to pay.
The starting point for the Liberal Democrats is similar to that of The Sunday Times: it is to claim falsely that the increased funding for the national health service is not happening. In their alternative Budget for 2000, they claimed that NHS spending was increasing by only 3.7 per cent., which was only the average rise for the past 45 years and that there was not therefore a significant improvement. Again, the Library table that I mentioned shows that that is not the case. Over this Parliament, we are looking at a 5.4 per cent. real-terms increase, which compares very favourably with the average and is the biggest sustained increase in the 48-year history of the NHS.
My greatest concern with the Liberal Democrats is the way in which they recycle a limited and insubstantial number of tax increases and then claim that they would fund an ever-burgeoning list of spending pledges. We have seen that today. A detailed reading of the Liberal Democrats' alternative Budget is instructive. Last year, they said that they would introduce a top rate of tax for those with incomes of more than £100,000 of 50p in the pound, which would pay for reducing the 10p rate to zero, which would be a significant boost to people on low incomes. In this year's alternative Budget, we find that the 50p tax rate is to fund extra improvements in the NHS. One would imagine that, given that change had taken place, the commitment on changing the 10p rate to zero would have been removed, but no, the only difference is that we are not told where the money will come from to fund that proposal.
We see that sort of practice time and again. A limited tax increase to fund something in one year funds something else the following year, but the spending commitment of the previous year is still trumpeted as official Liberal Democrat policy. That is dishonest politics of the worst kind. It is not being straight with people about the cost of spending pledges.
One sees it again if one looks at the detail of the Liberal Democrat alternative Budget on long-term care. We are explicitly told that, were the Liberal Democrats to come to power, they would pay for all long-term personal care costs. There are no qualifications and no time scale is given. The problem is that the cost of that commitment is £1 billion but the ready reckoner table at the back of the alternative Budget contains only a commitment to increase funding by £400 million in the first year, which is meant to pay not only for long-term care but for a host of other commitments on the NHS.
There is a word to describe that sort of politics, but I know that I am not allowed to use it in this Chamber. However, if the Liberal Democrats' alternative Budget were a pension policy, they would be on the point of having to pay massive compensation to people because what one paid for is certainly not what one would get under a Liberal Democrat Government.
I have warmly welcomed the significant measures that will make a difference to my constituents and to people elsewhere, but I have one area of concern. I have made it clear that the increases in spending on hospitals are significant and of an order that we have not seen before. However, in Harlow and elsewhere in the south-east, the huge challenge that we face is that of recruitment to the key public services.
My constituency is typical of the south-east. We have effective full employment—unemployment is only about 2 per cent.—and a typical two-up, two-down, house costs £80,000 or £90,000. Those two factors are causing us real problems in recruiting teachers, nurses and the police. I welcome the fact that the Government have given us significant help with recruitment to teaching and the police, but when they introduced the cost of living allowance for nurses of £1,000 a year, it was granted to London, Hertfordshire and Cambridgeshire—it missed out Essex, which is a genuine concern.
I recently heard a story about someone who met 10 general nurses in my constituency who were in their third year of training, only four of whom planned to work locally at the end of their studies. The others will either go north because of the lower housing costs or will move to London because of the enticement of inner London weighting and the additional £1,000 a year. I end with a plea to the Secretary of State for Health, who has said that he is reconsidering the allowance. A mistake was made by missing out Essex and I hope that that can be rectified.
This is a significant Budget that will benefit my constituents as never before.
First, I must explain that I had to leave the Chamber for a little more than an hour in the middle of the debate to attend the Select Committee on Foreign Affairs and deal with a matter that produced a vote, which illustrates the pressure under which some of us are placed when we have to be in two places at once, as many Ministers will no doubt understand.
The date of 8 October 1959 is not one that is in memory of most of my colleagues here, but it was the day that I fulfilled an ambition by becoming a Member of Parliament, after fighting a general election in Poplar in 1951 and fighting Geoffrey de Freitas in Lincoln in 1955. It seems unbelievable that my first general election fight was 50 years ago. It seems like only yesterday, but I do not think that many people will believe me.
I will not try to produce a great analysis of the Budget—my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) did so most excellently. I think that, in time, history will designate the Budget to a back burner, or even to the waste paper basket. It was marvellous spin but, on analysis, little has been given away to the benefit of my constituents. Therefore, I do not want to make a broad-brush speech—there are too many of those and they do not get far. In my last speech on the Budget, I pass on to the House the advice that I was always given: take three subjects, deal only with them and nothing more and they might be remembered. That is what I shall try to do.
First, it amazes me that during the whole of the Chancellor's speech of just under an hour, with the countryside reeling and farming in a desperate plight because of the foot and mouth epidemic, the only words that we heard from the right hon. Gentleman on that tragic situation were about agrimonetary compensation, which was in the pipeline long before the outbreak of the disease. Even in this Budget debate, I stress that the Government must take the situation much more seriously than they do at present. Since yesterday's report, a further 24 cases have been confirmed, bringing the total—at 3 o'clock this afternoon—to 180 cases. More than 985 movement restrictions have been imposed throughout the country, covering 25 counties in England and Wales.
The Government must look at consequential compensation. It is imperative that they consider the consequential damage of the epidemic across the board. Farmers who have had to slaughter their cattle, sheep or pigs are rightly compensated—we all understand that—but other people in the countryside equally face financial ruin. A haulier in my constituency told me that during the past three weeks his takings were only 10 per cent. of what they had been during the same three-week period a year ago.
Farmers who cannot move their beasts to market do not have to have them destroyed, but are unable to obtain the proper value for them. They face desperate financial problems—as do hoteliers and tourism. A person who runs a tourist park in my constituency told me that he dreads answering the telephone because it will be yet another cancellation. He said that the park was full about a month ago, but that almost no one will be going there at Easter.
The Government must take that into account when they consider the overall effect of the epidemic. It affects not only those people whose animals have to be destroyed, but those for whom the consequential effect is disastrous.
Can the financial action for which I ask be taken? Let us study the Red Book. Under income, the total figure is £399 billion: £61 billion from VAT; £38 billion from corporation tax; £37 billion from excise duty; £63 billion from national insurance; £104 billion from income tax; £15 billion from council tax; £94 billion from all other income; and £17 billion from the business rate. I have listed the figures so that hon. Members can see how the £399 billion is made up.
On spending, the amounts are £109 billion on social services; £18 billion on housing and the environment; £23 billion on law and order; £16 billion on industry and agriculture; £23 billion on debt repayment interest; £24 billion on defence; £50 billion on education; £10 billion on transport; £59 billion on the national health service; and about £52 billion on other matters. The total is £394 billion.
There is a difference of £5 billion between income and spending. I have the right to stand here tonight and demand that the Government use some of that money to help constituents—not only mine in Devon, but those in the north of the country where matters are just as bad. Throughout 25 counties, there are people who deserve some assistance from the Government.
Such compensation may never have been paid before, but the Government can no longer use that defence. They claim to be a Government who rethink everything. The tragedy that we face in the countryside demands a rethink from the Government; they must take positive action to provide compensation for people who face the bitter prospect of bankruptcy.
Secondly, I want to consider the help that should be given to elderly people who go into homes or hospitals during the latter years of their life. In my constituency—in Budleigh Salterton, Sidmouth and Exmouth—a vast number of retired people who are coming to the end of their lives are entering care homes and being looked after well. The difficulty is that the costs of those homes are constantly rising, and many people who enter them, believing that they can meet the costs, find themselves only a short time later in the frightening position of being in real hardship and beset by great worry about the ever-growing cost of sustaining themselves.
If those people were thrown out and had to be looked after by the state, the costs would be much greater than they would be if the Government gave them some help in meeting their costs. As a matter of humanity, any Government must take the matter seriously and adopt a modern approach. Unfortunately, such an approach is not being taken at present.
Thirdly, I want to ask why there was no mention of the euro—one of the major sources of worry and contention—in the Budget. By this time next year, there will be no French francs, German deutschmarks or Italian lire. Thirteen European currencies will have disappeared and will have been replaced by a single currency: the euro. Tourists will increasingly want to bring that currency into this country and use it, and in this country there will be increasing demand for commercial and industrial aspects of trade to be settled in the euro.
How do the Government envisage those changes affecting their budgetary position? What consideration are they giving to the matter? A number of us believe that it is essential that if, taking into account the economic position, it is seen to be to the great benefit of Britain to enter the euro, no political party should desist from taking that action. What is that great benefit? That factor must be analysed, and I believe that the Government have to start to bring that analysis before the country as a whole. I believe that it is necessary for us to have a clear understanding—which I do not believe exists now—of what the advantages can be and what some of the disadvantages might be of the euro in operation.
People have been speaking about the euro theoretically until now, but by this time next year it will be not theory but a practicality, and it is a practicality that cannot be swept under the carpet. It is a practicality that the Government and the Opposition will have to face in different circumstances from those that exist now, in 12 and 15 months' time. The Government must start to explain exactly what their view will be when they begin to notice that effect, and what effect that will have on their budgetary position, because I would bet my bottom dollar that the euro will have a considerable effect on that position, which no one is considering now.
I could continue for some time, but I believe that a number of hon. Members wish to speak and that if I sat down it would be welcomed more than if I continued. Thank you very much for calling me, Madam Deputy Speaker.
We have heard much from Conservative Members about the inadequacy of spending on the national health service, among other services, but the words that have stuck with me are those on the no-nonsense NHS plans that we heard from my right hon. Friend the Secretary of State for Health this afternoon. They are no-nonsense plans because the Government recognise the need to recruit and retain nurses and essential health staff in areas such as mine in Luton.
Last week, I visited Luton and Dunstable hospital in my constituency and saw for myself the effects of the Government's investment in the health service. During the next few years, more than £3 million will be invested in our hospital's infrastructure, providing a new accident and emergency department; and new wards and other facilities, including those for cancer care, are opening. We certainly did not see that under the previous Government. I commend the health staff, who work so hard and whom we need to retain in our hospitals so as to continue to improve on the achievements so far.
On Thursday, I will be work shadowing a GP in my constituency. I shall do so because I am aware of the intense pressures that GPs are under in parts of our country. In my constituency, there are often far too few GPs in the areas of greatest deprivation, and they are under intense pressure. In an area that I shall visit on Thursday, the GPs tackle the ill health that is a consequence of the multiple deprivation in Bury Park, where housing is poor. There are overcrowding and health problems, such as diabetes, heart disease and cancer, and the unemployment rate for many Pakistani and Bangladeshi young people is four times the national average.
All those problems are linked and must be tackled if we are truly to give opportunities to all. That is why I welcome not only today's announcements on recruiting and retaining health staff and providing bonuses to retain our GPs, but the other measures in the Budget that address the opportunities for employment, good housing and regeneration. They are part of the bigger picture that makes up the problem of poor health, which must be addressed if we are to tackle the health and other inequalities that we experience in our constituencies.
I particularly welcome the health action zone, which the Government have given to my constituency. It will spend more than £3 million in the next few years to tackle those health inequalities. We are looking at the big picture—what we call the joined-up approach—and spending not only on health, but on regeneration and on opportunities and employment prospects for our communities. The Government are doing the right thing for constituencies such as mine.
I am absolutely astonished about the shadow Chancellor's announcement that the Conservative party intend to match the Government's health spending, by means which simply do not add up, so where would the cuts fall? They would fall on those measures that contribute to creating better health and reducing health inequalities. The Conservative party would slash our regeneration and housing investment funds. In other words, that is another example of the short-termism that we experienced during the 18 years of the previous Tory Government.
The previous Government slashed and burned their way through housing investment, which has been responsible for unprecedented housing need and homelessness. All the research shows that their policies have been responsible for creating greater health inequalities because health, housing and job opportunities go together. That is why I find the shadow Chancellor's words incomprehensible.
The Conservative party says that it intends to maintain health spending, while cutting the essential services that contribute to the maintenance of good health. That is why I particularly welcome the Chancellor's comments, which were less discussed, that he intends to ensure that, under the Budget, we regenerate areas of least opportunity and tackle the causes of unemployment and low economic activity.
Those measures are particularly important in my constituency, which is still reeling from the announcement of the Vauxhall closure. I am pleased that there will not now be any compulsory redundancies and that there is a greater prospect that a replacement vehicle will ensure future employment in vehicle manufacturing in my constituency. Government support and their promise of cash has enabled us to make that move. That is in stark contrast to the approach of the member of the Conservative party who said that 3 million unemployed was a price worth paying.
This Government put their money where their mouth is. They have already put money into ensuring that those who lose their jobs as a result of supply chain job losses receive the support, the job opportunities and the reskilling to which the Government believe they are entitled. I pay tribute to the shop stewards at Vauxhall who have worked so hard in partnership with Members of Parliament, Members of the European Parliament and the council to get the best deal for the workers at the plant.
The shock announcement of the Vauxhall closure did not reflect what has been happening in Luton. In fact, Luton has been looking up, although it is difficult to see that through some of the recent announcements. More jobs are coming into the constituency through our business park at Capability Green where Astra Zeneca is about to move in. The airport is expanding, and 5,000 extra jobs could be created in a new business park if we obtain from the Treasury, as we hope we will, funding for the widening of the east Luton corridor. I hope that the Treasury recognises the employment and regeneration opportunities that that development might bring at a time when we need it in Luton.
Let us examine how far Luton has come. In the late 1980s, we had the ignominious reputation of being the negative equity capital of the country. Boom and bust and the Tory years hit Luton hard. Millions of families across the country lost their homes, and repossessions were rife. Interest rates hit 15 per cent., causing havoc for hard-working Luton families. However, I am pleased that, as a result of this and previous Budgets, things are looking up for Luton. That is because the Government have taken tough decisions and not chosen the easy way out, such as the everlasting 1p of the Liberals or the boom-and-bust economics to which the Tories would return. Lutonians now benefit from the fact that they have low interest rates and a stable economy. Mortgage misery is, by and large, a thing of the past for Lutonians.
Under the 18 years of the previous Government, my constituents were struggling against record unemployment, they were struggling to keep their homes and they were struggling against 22 Tory tax rises and worsening public services. They literally paid the price of Tory failure. For every £1 that was spent under Tory economic mismanagement of the economy, 42p was spent on the cost of despair—the cost of dole, debt and borrowing. Now things have been turned around: the economy is stable, debt is being repaid at unprecedented levels, and youth unemployment is down in my constituency by an amazing 83 per cent. We now have the equivalent of 84p in the pound to invest in our schools and health service.
I go around my constituency frequently and I have visited all its schools twice in the past year. Everywhere I go, I see new classrooms, new information technology suites and new libraries. My constituency is benefiting from reduced class sizes, and mums tell me that they make a real difference to standards.
When the hon. Lady visits schools, will she point out that spending on education as a percentage of gross domestic product has fallen under this Government, that secondary school class sizes are rising according to Government figures and that, according to House of Commons Library statistics, in early years education, more children are now being taught in classes of more than 30 pupils than was the case under the previous Conservative Government?
My mums tell me that there are more nursery and early years places in my constituency than there ever have been before. An extra £120 extra is now spent in the classroom per pupil in my constituency.
More money is being made available than ever before for regeneration in deprived parts of my constituency, such as Ramridge and Ashcroft in the centre of Luton. We tried to calculate the amount, and worked out that we are spending at least £21 million on regeneration this year alone, through the single regeneration budget, sports action zones and health action zones. On top of that, the Government have successfully argued for objective 2 and assisted area status, so there are more job and training opportunities than ever before. As I said, the Government put their money where their mouth is.
We recognise that there is much more to do, particularly if we are to create job opportunities for everyone who needs them. One of the problems in my constituency is that business start-up rates are among the lowest in the country, while business failure rates are among the highest. Despite the fact that Luton council's venture fund lends money to start-ups that have difficulty getting traditional funding, we still have a major problem in ensuring that small business start- ups are sustainable and can grow in the long term.
Given the legacy of the 1980s—the Tory dark days—when people lost their homes and the future was uncertain, many traditional lenders are wary of lending money to some of my constituents. That is why I particularly welcome the Budget's proposed tax incentive for community investment. The Chancellor has rightly identified the fact that business creation is often lowest in our most disadvantaged communities, and Luton is a case in point. We need to tackle the causes of low economic activity and unemployment, so we need new financial incentives. Instead of community enterprises being totally reliant on filling in forms to apply for grants—in other words, handouts—we must ensure that we have hand-ups for start-ups and small and growing businesses. That is where the tax incentive comes in.
By opening up economic and business opportunities to our most disadvantaged communities, we can unlock their potential, as well as flows of private finance which would not ordinarily find their way into such areas. I think of Bury Park, one of the most deprived areas in Luton, as I said earlier, which suffers from low employment and poor housing and has an urgent need for regeneration. I hope that the tax incentive will encourage more social and ethical investment opportunities because some investors have been very slow indeed to recognise the potential of some of our deprived communities.
Community organisations in my area, such as the Bangladeshi youth league, traditionally develop the next generation of community leaders. They could venture forth and develop the next generation of job and wealth creators in the community, ploughing the investment back into the community and helping to regenerate their own areas to a much larger extent than they have the opportunity to do now. Small local enterprises could establish themselves in areas where unemployment and dereliction would otherwise be the norm. The case for the tax credit is powerful—it could fill the gap in the market between finance for regeneration and community development through grants and private finance.
The tax credit also has the potential to deal with the effects of the years of Tory disinvestment in housing. The same areas that need business start-ups need investment in housing. We inherited a £19 billion backlog of disrepair from the previous Government. There is also an acute housing crisis, which is reflected in the fact that 9.3 per cent. of my constituents are in housing need, yet for every homeless person there are seven empty private properties. Investment is needed to bring them back into use. If we extended the tax credit to property, ensuring that debt and equity are taken into account, it could usefully regenerate the physical infrastructure as well as providing job opportunities.
In my former life, I was chief executive of a housing association. The tax credit would have been extraordinarily useful in producing the comprehensive regeneration that we wanted. We did not want to tackle just problems of bricks and mortar, but problems within the community and of employment as well. I commend the Budget and that initiative in particular to the House. They will bring real benefits, especially to mortgage holders in Luton, who will no longer have to wear the label of living in the mortgage misery capital of the country. To my right hon. Friend, whose policies have created mortgage stability, my constituents say, "Cheers."
As several other hon. Members want to speak, I shall confine my remarks to one subject and be brief.
I am concerned about the impact that the Government's fiscal and monetary policies have had on pensions and their provision. However, I applaud the Chancellor for accepting most of the recommendations that Sir Paul Myners recently made in his excellent review of institutional investment, many of which relate to the provisions of the Pensions Act 1995. I was a critic of many aspects of that legislation, although it tried manfully to deal with the problems that arose out of the Maxwell pension scandal. It imposed a great deal of useful regulations on the pensions industry, but it also created problems. Most notably, it did not deal with custody, which Myners specifically addresses. Will the recommendations on custody be fully implemented, because only independent custody can prevent another Maxwell scandal from taking place?
The Budget does not deal with the costs that the 1995 Act imposed on providers of company pension schemes. The regulatory burden has driven many people away from the provision of defined benefit schemes and into defined contribution schemes, to the detriment of the public. It will be interesting to know whether the Treasury has proposals to deal with the problem of the regulatory burden, which acts against the national interest.
I applaud the abolition of the minimum funding requirement. I always opposed it. I said in 1995 that it would distort investment decisions and diminish the value of funds because it would lead to more cautious investment. It also has the perverse effect of increasing the purchase of gilts, thereby depressing the yield on annuities. There was a double whammy for pensioners. First, the value of their funds was diminished and, secondly, the fund would buy less of an annuity on maturity than would otherwise have been the case. To the extent that the Chancellor has accepted that problem, I welcome what he has done to address it.
However, other policies have made pension funds and people with private pensions considerably worse off. Despite the fact that the value of pension funds was diminishing, because of the factors that I have outlined, the Chancellor introduced in a previous Budget the £5 billion a year tax on pensions. In response to questions about this Budget, he said that the total value of pension funds has increased. It has, but their liabilities have increased even more, so that what will be bought in terms of pension has less value. There has been a significant net reduction in the value to pensioners as a result of that policy.
The fact that the Chancellor, highly commendably, has made substantial repayments of the national debt has also affected pensions dramatically. Those repayments, amounting to £34 billion, do not all result from his prudence; they result largely from the sale of telecoms licences, which accounts for £23 billion alone, and other privatisation receipts. I applaud the repayment of debt, but we must look at its effect on pensions that will become in-payment. It will reduce dramatically the volume of gilts available on the market at a time when Government policies are encouraging their greater purchase. That will drive gilt deals down even further and annuities will yield less and less.
We are creating a black hole for annuities; more of them have to be purchased to produce less and less income. Because they produce less income, even more of them have to purchased. Until the Government tackle the annuities problem, we will not get over the difficulties that will face all pensioners who save for their retirement.
That is a very severe problem indeed. I have introduced a private Member's Bill, the Pension Annuities (Amendment) Bill, which we tried to debate last Friday. Sadly, it was blocked by the Government Whip, but I hope to have further discussion with the Economic Secretary on the subject. It is interesting that her officials are telling her that the cost of an annuity equal to the minimum income guarantee, if one disregards the tax-free lump sum, is about £72,000. The Government do not realise that that £72,000 is related entirely to the yield on gilts. They are constantly increasing that cost through their action. If the policy on annuities were reversed and another form of investment, not based on gilts, were accepted, the cost of replacing the minimum income guarantee would be reduced dramatically.
The Government have double standards on the minimum income guarantee. Although they say that it will cost £72,000 to replace it for someone with a private pension, a pensioner wanting to claim it is excluded from doing so if he has a mere £12,000 of savings. One cannot equate easily equate £12,000 and £72,000. We are faced with a Government who discourage people from becoming independent by saving for their retirement and ceasing to be a burden on the state. At the same time, they rely on means-tested benefits, which are ever more complex and difficult to claim and which create a dependency society. The minimum income guarantee encourages people not to save because, as the Government's own figures demonstrate, under the present rules, it is difficult for most pensioners to save enough money to avoid it. People who buy stakeholder pensions, as urged by the Government, will therefore be led into a colossal mis-selling of pensions, because nearly all of them would be better off not buying them and relying on the minimum income guarantee.
The remedy is in the hands of the Treasury. If it gets rid of its obsession with annuities, which are an outdated investment—no one was advised to buy them—it could solve the problem. Annuities are such a bad investment that the actuarial profession is saying that most people would be better off buying the underlying gilts that are being bought by insurance companies. They would have a better income and their capital would not be lost on their death, as they would avoid the position of having nothing left to pass on to future generations. The Treasury and Inland Revenue would do better because they would pick up additional inheritance tax on the way.
I listened carefully to the hon. Member for Bournemouth, West (Mr. Butterfill), who speaks with clarity about a difficult subject. Every time I hear him, I learn a little more, and some day perhaps I will understand the complexity of pensions. I sense that some day those on the Treasury Bench will be receptive to the issue that he rightly persists in raising.
I, too, shall be brief. Like the right hon. Member for East Devon (Sir P. Emery), I tender my apologies to right hon. and hon. Members for my absence during the bulk of the debate. I was in Standing Committee B, where we were considering the International Development Bill under the chairmanship of the hon. Member for Bournemouth, West.
Replying to the Budget statement of my right hon. Friend the Chancellor, the Leader of the Opposition spoke for 34 minutes. During the whole of that time, he never mentioned the word "poverty" once, and he made no reference to the eradication of it. Perhaps that is hardly surprising, as the subject does not lend itself to stand-up comedy or pre-scripted jokes. However, the subject is important to many of my constituents.
On 12 July 1999 the Select Committee on Scottish Affairs published its report entitled "Poverty in Scotland". To measure the extent of poverty in Scotland, the Committee drew on a statistical base for the period to the end of 1996, and concluded in paragraph 22:
Broadly speaking 25 per cent. of Scottish households are in poverty—that is, living on incomes below half of the average, which is a slightly higher figure than the UK as a whole. This represents a significant increase since 1979.
That was some understatement.
The Committee went on to report:
One third of children are in or at risk of poverty. Whilst lone parents form a small percentage of the total numbers in poverty, both they and their children are highly likely to live in poverty. Two thirds of lone parents are in poverty. Twenty-nine per cent. of Scottish pensioners survive on incomes of half the UK average. Overall, women are the biggest group in poverty. Elderly women are particularly vulnerable.
The seriousness of the problem of child poverty in the UK at that time was best illustrated by comparing its position to that of other countries in the European Union. Although by no means the poorest country, we had the highest level of child poverty in Europe.
I understand that the factors that cause and sustain poverty are complex, but in my constituency, Kilmarnock and Loudoun, over the period from 1979 to 1997, we had them all. We witnessed a decline in our industrial and manufacturing base and a trend towards part-time, flexible and short-term working. Industrial and economic change brought high unemployment, low pay and poverty in work. Conservative Government priorities between 1979 and 1997 increased that poverty and inequality.
It is with great relief that my constituents see that they now have a Government who not only talk about poverty, but set targets for tackling it. Not only are they committed to the eradication of poverty, but they have set indicators of progress towards that target and policies designed to improve the incomes of the poorest pensioners, the poorest families and the poorest children.
I have the regard for the right hon. Member for East Devon that his seniority and position in the House demand, and I listened carefully to his remarks. Like him, because I represent a constituency that is substantially rural and has many farmers in it, too, hope that the Government will rethink the previous policy on consequential losses arising from foot and mouth disease. However, the right hon. Gentleman will forgive me if it sticks in my throat a little to hear a call based on morality, allegedly, coming from those on the Conservative Benches, when throughout the period during which they were in charge of the country's economy, the Conservatives did nothing, while consequences much worse than those now faced by the farming community in my constituency were faced by the industrial and town communities of my constituency.
I should like to speak briefly about some of the micro-economic announcements contained in the Budget statement. I believe that they will build on the steps that the Government have already taken to deal with the consequences of Tory policy. The omission of any measure from my comments should not be taken as a lack of support for it. Like my hon. Friends, I welcome the Budget, which will greatly improve the lot of almost 10,000 working families in my constituency. I represent a community that is among those with the highest unemployment in the UK. On any measure, whether claimant count, the labour force survey or International Labour Organisation figures, the community in the East Ayrshire local authority area is one of the top 20 in the country in terms of unemployment.
Opposition Members groan and jeer in unison when my right hon. Friend the Chancellor or other Labour Members describe the macro-economic objective of trying to avoid a return to boom and bust. Every time I hear them do so, I wonder whether they still fail to understand the need for a stable economic platform to establish policies that deal with the concerns and problems of communities such as that which I represent, or whether they still do not care. Whichever is the case, it is none the less an indictment of them.
It is to the Government's credit that they established that platform of stability. Despite the difficult decisions that had to be made, unemployment in my constituency has dropped significantly—by about 26 per cent. overall—and long-term youth unemployment has fallen by more than 60 per cent. The most interesting thing is that it never dropped at all—never mind significantly—in any of the boom periods that occurred under the previous Government. Of course, there was no new deal when they were in power. [Interruption.] The right hon. Member for Kensington and Chelsea (Mr. Portillo) guffaws, but those who have been among the long-term unemployed in my constituency, perhaps as youths, have lived through booms before. Governments of whom he was a member were responsible for managing those booms, but they never delivered jobs. In the current growth period, with the help of the new deal, 60 per cent. of unemployed youths in my constituency have found work. He can guffaw if he likes, but those who have benefited from the new deal will recognise his attitude.
Despite the success of the new deal, there is still persistent unemployment in East Ayrshire. If that unemployment, including the continuing redundancies in manufacturing, are not dealt with, my community will be left behind while others move on towards the goal of full employment. I share that goal, which was last achieved in this country the 1950s. The news on the jobs front is not, however, entirely bleak. Since I was elected to Parliament, more than 1,200 new jobs have been attracted into my constituency. About 80 per cent. of those jobs are in call centres, while the rest has been produced by attracting further inward investment. All of them are a tribute to the partnership between local and national Government agencies. The new M77, which is due to be completed in 2005, will link Ayrshire with the national motorway network and enhance the work that has already begun. The Budget contains specific provisions that could have been framed for constituencies such as mine. Indeed, I hope that they were.
Like my hon. Friend the Member for Luton, South (Ms Moran), I welcome the provisions that are designed for regeneration. In particular, I welcome those that aim to cut the cost of small business borrowing. I welcome the new community investment tax credit, the community development venture capital fund and the accelerated tax credits that are designed to encourage brownfield development. Developers in my constituency have already contacted me about those credits, as they are interested in developing sites that were previously unattractive. I welcome also the abolition of stamp duties on all property transactions in the most deprived and disadvantaged urban areas. God knows, enough wards in my constituency should qualify. Those measures, which all seek to regenerate our poorest communities, could all have been designed with towns such as those in my constituency in mind.
In recognition that East Ayrshire is a localised pocket of high unemployment and deprivation, it was chosen as an area for the job action team pilot. I pay tribute to Jim Burns, the manager of the employment services pilot scheme, his staff and their partners for embracing so enthusiastically and imaginatively the opportunity provided by the pilot. In the first six months of their work, they have managed to identify job opportunities and to match them with long-term unemployed people so successfully that they have found work for 20 per cent. of those registered for jobseeker' s allowance in the pilot area. In addition, they have helped a number of other jobseekers into work. They have shown that targeting resources works, and they welcome the extension of the action team funding for the whole of the spending review period.
A serious problem exists in my constituency in terms of opportunities for work. Throughout Scotland thousands of unemployed people are unable to cope with the demands of training or to hold down jobs because of drug problems. The announcement of a £40 million, three-year project to address that problem will bring welcome additional help. However, in our poorest communities a longer-standing, and just as devastating, problem has blighted the job prospects of countless thousands for generations. That is the problem associated with alcohol abuse. I make a simple appeal to my right hon. Friend the Chancellor to consider the extension of the rightly lauded drugs initiative to those with alcohol misuse problems.
I welcome the Budget. It contains welcome provisions to support families, women and children, and strikes a proper balance between economic stability and social justice. It has been warmly welcomed by the thousands of families in my constituency who will benefit from its provisions, and by many others. It also contains great promise that policies have at last been marshalled that will begin to address the persistent problems that have kept many of my constituents in poverty for far too long.
Like the hon. Member for Kilmarnock and Loudoun (Mr. Browne), I represent many small businesses. Any help for small businesses is to be welcomed at the moment.
In the midst of all the benefits that have been announced for pensioners, I must make a plea for a group that has consistently been overlooked. I received a telephone call recently from someone who is not a constituent of mine—his elected representative stood for Parliament but will not sit in Parliament on the same terms as the rest of us. His name is Jim Steele and he is 83. He phoned me to say that, when he became 80, he received an increase of 25p a week in his pension. Despite all the other increases that have been announced, nothing has happened to that 25p a week. It is an insult to continue to pay only 25p a week to a person over 80, so many years after that increase was made to help those in old age.
I welcome the proposals concerning climate change that will allow the expansion of the gas industry in Northern Ireland. Ultimately, I believe that that will help the nation as a whole to reach the Kyoto targets. I welcome, on behalf of my colleagues, the news on the additional spending on health, staffing, equipment and renovation. We also approve of the increased long-termism in many of the spending announcements. However, like others in the House and throughout the nation, we do not take it for granted that those announcements are intended only to help us now. The Government might also have another aim in view: that of winning an election in five years' time, as well as in the immediate future.
When one reads the seemingly impressive figures published in the Budget—such as the total of £1 billion for the NHS over three years, including a cash handout of up to £1 million for each of the 200 or so acute care hospitals, and £135 million for the new recruiting drive—one must be cautious. We ask for consideration to be given to the impact of such increases. What impact will the additional funding, coupled with the other spending increases due to take place next month, have on the day-to-day problems experienced by the health service?
There is a staff shortage in the health service. Last year, the Secretary of State announced plans to recruit 20,000 nurses and 2,000 general practitioners by 2005. Naturally, they were roundly welcomed. That is true of the Chancellor's plans for a new £135 million fund to recruit front-line staff, but it must be ensured that additional resources effectively target and eliminate the sources of staff shortage, which I touched on in Question Time.
Retaining staff is just as important, if not more so, than attracting young people to the health service. The value of work experience must never be underestimated, nor must it be forgotten that we do not have enough training places for prospective nurses or GPs. There is a restriction in place and we must re-examine it.
To retain nurses, fairer salaries must be paid. In Northern Ireland and throughout the United Kingdom, people are asking why police officers start on £17,000 a year whereas nurses get much less. Many do not earn the overtime that some police officers receive, which is why they take on agency employment outside normal working hours. Nurses must be paid fair wages commensurate with those paid to workers of equivalent skill.
I reserve judgment on the establishment of the capital renewal fund, which will be paid directly to GPs, although I welcome any plans to address the shortage of family doctors. Additional funding for acute care hospitals over the next three years must be welcome, although I have residual concerns about how effectively hospital trusts will transfer such funding to improved equipment and improved hospital buildings.
Departing from the domestic health service for a moment, let me put on record my pleasure that the Government have introduced a new tax credit to encourage British companies to play a fuller role in global disease relief. The measure will promote the development of new drugs and facilitate their widespread distribution. We should enhance both in acknowledgement of the damaging effect of disease on the third world.
I want to mention health funding in regions in which responsibility is devolved. I was not altogether amused to discover last week that the Secretaries of State for Scotland and for Wales would be making announcements in the next few weeks. Northern Ireland seems to have been put into semi-orbit and, as the regionalisation of the nation increases, we must be careful not to allow any part to become semi-detached. I hope that the Northern Ireland Assembly puts health at the top of its agenda by allocating a large proportion of the additional resources resulting from the Budget to hospitals to ensure that the standard of health care in Northern Ireland matches, if not betters, that in the rest of the United Kingdom.
When funds were reallocated recently, £10 million that had not been used was discovered in the health pot, even though people throughout Northern Ireland were crying out for better surgery and better equipment and operations were not being carried out. What is going on with the management of our health resources? I believe that sometimes we waste them.
We need not just greater funding, but more prudent funding and more prudent spending of financial resources. Health service morale is at an all-time low. The additional funding may halt the fall in morale, if it has not already hit rock bottom, but it will take further funding to rebuild both morale and public confidence in the health service.
In that context, the hon. Member for North Tayside (Mr. Swinney) kept referring to percentages, but they are not a good guide. If I understand my maths, 10 per cent. of 1 million is 100,000 and 50 per cent. of 100,000 is 50,000. We need hard figures so that we can make comparisons and draw valid conclusions.
Today's debate takes place against the sombre background of foot and mouth disease, as was mentioned by my right hon. Friend the Member for East Devon (Sir P. Emery). As he and others pointed out, however, there is nothing in the Budget about it. I am especially surprised—given that the Budget will have been prepared somewhat in advance—that we have heard nothing from Ministers about the reallocation of some of the £1 billion underspend that they pushed into the subsequent year to fund compensation payments.
No, it does not mean more spending this year. It means the same amount of spending this year, reallocated. It would be good if the Chancellor were able to do what I believe he is fond of accusing us of not being able to do, and could do his sums.
As usual, we are confronted by a Budget which, as my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) pointed out, contains a good deal more spin than substance. The hon. Member for Harlow (Mr. Rammell)—who, alas, has had to leave the Chamber, but was courteous enough to let us know in advance—made an interesting speech, but fell into a huge heffalump trap. I am in the fortunate position of being able to reveal the results of a little further investigation. After all, such discoveries are made 24 hours by 24 hours as we disinter the astonishing palimpsest of the Red Book.
We now find that the extra money for education, which we already knew had been reduced from £1 billion to £400 million, is a conjuring trick in itself, as it is based on a comparison with the pre-Budget report. If we refer to the Red Book relating to the last Budget, we find that the amount turns out to be £200 million. I agree that the Chancellor is a magician, but making £200 million into £1 billion is certainly a magic trick even by his standards.
Then there are the dogs that did not bark. My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) rightly made another impassioned plea for a change in the annuity rule. There was nothing about that in the Budget, although the Chancellor prided himself hugely on having vastly worsened the annuities situation by repaying a huge amount of the national debt.
Although the Chancellor made no announcement of a rise in corporation tax, it will rise by £5.7 billion next year after four years of failure to index the various thresholds. I could go on, referring to the national insurance changes, the company car tax changes and all sorts of other things that we never heard about—as is, I think, widely acknowledged now.
My right hon. Friend the Member for Kensington and Chelsea and, in a brilliant analysis, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made clear just how much what is claimed in the Budget—and, indeed, in his previous Budgets, and in all his preenings about his great success—depends on the inheritance that he received. It goes back to 1992 and 1993; it was not suddenly invented in new Labour Downing street. That was the burden of another brilliant analysis yesterday by my right hon. Friend the Member for Huntingdon (Mr. Major). In fact, this Budget debate has been more distinguished by ex-Chancellors making clear what is going on in the present Chancellor's Budget than any other such debate in the current Parliament. I admit that that is only a minor compensation for the deficiencies of the Budget itself.
Much more seriously, my right hon. Friend the Member for Kensington and Chelsea and, again, my right hon. and learned Friend the Member for Rushcliffe made clear just how far the Budget continues the process of undermining British competitiveness by increasing taxes and regulation. My right hon. and learned Friend described—accurately, I believe—the Chancellor's programme of deceleration and acceleration of public spending as an eccentricity. I shall explain in a moment why I think he slightly understated the case.
Does my hon. Friend recall that in April 1997, in his foreword to Labour's business manifesto entitled "Equipping Britain for the Future", the right hon. Member for Dunfermline, East (Mr. Brown) specifically stated in terms—[Interruption.] The Chancellor can chunter from a sedentary position, but he cannot deny the facts. He stated in terms: "We will not impose burdensome regulations upon business, because we understand that successful businesses must keep costs down."
Does that not contrast radically with the verdict of the director general of the British Chambers of Commerce, Mr. Chris Humphries, who says, also in terms, "Whatever its rhetoric, the reality is that the Government have dramatically increased the regulatory burdens that threaten small business competitiveness"?
This Budget does much worse things than any of those, such as hugely increase the spread of means-testing. As my hon. Friends the Members for Bournemouth, West (Mr. Butterfill) and for Bury St. Edmunds (Mr. Ruffley) made clear, it is also a Budget for complexity, but complexity for a purpose. What is the purpose? The purpose is huge redistribution. What is the effect? The effect is huge disincentive—a disincentive to save and to be thrifty. In fact, it is a disincentive to do the very things that the Chancellor wants everyone to do.
There is, however, a worse problem, and it is on that that I wish to dwell as we conclude this debate. The right hon. Member for North Durham (Mr. Radice)—who, alas, is not in the Chamber—made an interesting speech in which he made an admission which I suspect will earn him discredit in the eyes the Chancellor. He made the astonishing admission that the Government had not wholly abolished the economic cycle.
My right hon. and learned Friend the Member for Rushcliffe speculated that, at some time in the future, there might possibly be a somewhat slowing economy. We do not speculate or predict, but let us imagine that there is a faint possibility that even the magic of this Chancellor has failed to produce Elysium. It might just be that even this Chancellor has failed to produce a permanent solution to the economic cycle.
If there were an economic slowdown, what would the Chancellor do? He has vastly accentuated the cyclicality of tax receipts and pushed the emphasis of tax ever further on to those components that are most affected by the cycle. He has vastly aggrandised his corporation tax receipts, to which I have already referred, precisely because he has taken steps to ensure that he can. His climate change levy is highly cyclical in its effect. IR35 is about the most cyclical tax that there has ever been. His aggregates levy is cyclical. Every time that he transfers the burden on to business, he makes his tax receipts more cyclical.
Currently, of course, that has the most marvellous result for the Chancellor. As my right hon. Friend the Member for Kensington and Chelsea and my right hon. and learned Friend the Member for Rushcliffe pointed out, that has the effect that his taxes increase faster than he himself can predict, because the output gap is positive. What a wonderful scenario for a Chancellor—more tax revenue than even he could have dreamed of a year before.
The flipside of that coin is that, as soon as there is a slight slowdown, those tax receipts will diminish, not just as they always do—my .right hon. and learned Friend the Member for Rushcliffe was absolutely right that every Treasury has been bad at predicting how fast they will decline—but faster, because the cyclicality has increased. However, that is not the half of it.
This Chancellor, in his extension of means-tested benefits, has also made the social security system, which is the cyclical part of the expenditure side of the equation, vastly more cyclical. The Chancellor shakes his head because he is proud that he has managed to cure the unemployment trap, as he sees it, by having extended the working families tax credit and other in-work benefits. He has done something to cure the unemployment trap but, in so doing, has also vastly accentuated the poverty trap.
The consequence for spending in a slowdown is that it will increase much faster than it has hitherto. It is obviously true that if there is a vast extension of means-tested benefits—such as the working families tax credit, the pensioner credit, the minimum income guarantee, the children's tax credit and the new children's credit—and there is a slowdown, as incomes decline, public spending in the Department of Social Security will accelerate more quickly than it has previously.
We have a Chancellor who has introduced arrangements that will increase the effect of a slowdown on decreasing taxes and increase the effect of a slowdown on increasing expenditure. That means that the deficit that he would be generating if there were a slowdown would be greater than it had previously been.
All of that comes against a background of a huge, locked-in ramping of those parts of public expenditure that are less cyclical in character. If a slowdown gets under way, the Chancellor will find it extraordinarily difficult to constrain the growth that he has set for the other elements of expenditure. He knows that, and we know it. It has always been the fate of Chancellors in the past.
The Chancellor has built the basis not for the Elysium of permanent stability, but for turning the economy into something that gives people the wrong incentives. It gives people a disincentive to save, to work more, or to behave responsibly towards their young and their old. Beyond that, the Chancellor has created circumstances that will mean that his much-trumpeted fiscal stability will give way more quickly than was the case in the past to the slightest downturn.
That is not what a responsible Budget, or sequence of responsible Budgets, would produce. The set of Budgets announced by this Chancellor looks good today, but may not look so good tomorrow. It is important that the House recognises that, and puts it on the record. If there is a slowdown and if the Chancellor's policies are fulfilled because he is lucky enough to be re-elected—which we hope will not happen—there will come a time when he will claim that something very strange has happened. However, nothing very strange will have happened. The Chancellor himself will have brought about the circumstances that I have described.
The answer to those problems is clear. It is to moderate the growth rate of public spending, so as to be able to reduce rather than increase the tax burden. It is to find means to do that so that people will not rely on means-tested benefits because they will have more of their own money. The answer to the problems that I have outlined also involves an honest taxation policy that does not shift the burden on to cyclical business taxes but acknowledges where tax lies.
In short, the answer to our economic problems is a programme that tries to bring back to the nation's finances some long-term stability. The Chancellor believes that he has achieved that, but he has not done so at all. Such a programme would continue the process bequeathed to the nation in the final four or five years of the previous Conservative Administration. They were the first four or five years of the very process on which the Chancellor now congratulates himself.
If the nation does not follow that path, there will come a time when it will rue that decision. There will come a time when the Chancellor's wonderful smile will be wiped off his face. Our duty is to ensure that that smile is gone before the nation has to wipe it off at a time of economic slowdown. We can do that by making sure that we win the next general election and follow the right policies, rather than the wrong ones.
That was an extraordinary speech. Clearly, it meant nothing to half the people in the Public Gallery, who left after five minutes. It certainly will not mean anything to any member of the general public unfortunate enough to chance upon it. The hon. Member for West Dorset (Mr. Letwin) went on about my right hon. Friend the Chancellor somehow creating disincentives to work. People will ask why there are a million more people in jobs under this Government.
My right hon. Friend the Chancellor has delivered a Budget that makes a clear choice about Britain's future. It sets out a platform on which to build opportunity and prosperity for all. It is a Budget that takes a balanced approach, and stability is the foundation. It proposes more investment in our public services, not less. It puts schools and hospitals first, and offers affordable tax cuts for hard-working families. It is a Budget that locks in stability and rejects the short-termism of the past. It rejects underinvestment and cuts in public services, and unaffordable tax cuts that would put investment at risk.
In this debate, the House has heard possible valedictory speeches from distinguished hon. Members. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who has made a distinguished contribution to fiscal matters in this House, praised the Chancellor's long-term approach to stability, investment and welfare-to-work policies. He said that it was the best Budget that he had been privileged to take part in.
My right hon. Friend the Member for North Durham (Mr. Radice), whose chairmanship of the Select Committee has drawn admiration from both sides of the House and respect from those of us who have appeared in front of him, praised the Chancellor for carrying through the radical reforms necessary for monetary and fiscal stability. As my right hon. Friends and others pointed out, that commitment to stability has meant that Britain has the lowest long-term interest rates for 35 years, the lowest inflation for 30 years and the lowest unemployment since 1975. It will remain the bedrock for all that we do.
The right hon. and learned Member for Rushcliffe (Mr. Clarke) spoke as though my right hon. Friend the Chancellor was somehow the lucky Chancellor and had a golden inheritance from the previous Administration. Who took debt as a share of GDP up to 44 per cent.? Who borrowed an extra £28 billion before we came into office? In contrast, who, within days of coming into office, made the Bank of England operationally independent? Who put the fiscal rules in place? Who sorted out the public finances so that we have a platform for stability and lower interest rates?
The Chief Secretary likes to pose as the high priest of prudence. Perhaps I can put to him the question that I put unavailingly to the Paymaster General the other day. What assessment has the right hon. Gentleman made of the impact of the change in the rules for the use of capital receipts from the sale of council houses on the size of interest repayments on local authority debt?
A prudent assessment. [Laughter.] It is because we have been prudent that the Chancellor was able to announce that he can pay off £34 billion of debt this year. That will cut the cost of debt interest which, when we came to power, cost more than the entire schools budget, and we are now putting more than £10 billion extra into the schools budget.
We remain on track to meet our fiscal rules. The Chancellor announced that we will retain our 2.5 per cent. inflation target. He has rejected calls by Conservative Members to set a lower target, a policy that would lead to upward pressure on interest rates.
With stability as the foundation, our ambitions for Britain can be met—more investment, not less, and targeted tax cuts on the nation's priorities. For example, as my hon. Friend the Member for Luton, South (Ms Moran) said, the community investment tax credit can bring great benefit to disadvantaged communities.
The right hon. Gentleman takes great credit for this extraordinary repayment of national debt, which was plainly unintended, and resulted from the Government failing to spend the money proposed in the Chancellor's previous spending plans. Does the right hon. Gentleman appreciate that over the past four years, the average European country has achieved faster growth than this country? Many have created employment at a faster rate than us, and all of them have enjoyed that with low inflation. Does he accept that his basking in the glory of the past four years is due to the lucky event of having had a good inheritance followed by four boom years for the world economy?
I can understand the right hon. and learned Gentleman's regrets about the way in which things turned out, but it is not a question of luck. Who put the fiscal discipline in place? Who paid off the debt? It was not "plainly unintended". We set out the fiscal rules. Unlike the right hon. Member for Kensington and Chelsea (Mr. Portillo), we set out the rules when we were in opposition—the golden rule that we will keep debt at prudent and sustainable levels and below 40 per cent. of GDP and keep the current account balanced over the economic cycle, borrowing only for investment. We are benefiting from prudence in cutting the national debt, saving £4.5 billion in interest payments a year. We are also benefiting from the cut in unemployment. That is not a matter of chance; it was a deliberate act of policy that was assisted by the new deal, which was greatly maligned and attacked by Conservative Members. They would abolish the new deal.
It has been growing for more than a decade, but the last economic cycle ran from 1997 to 1999. The question is who is putting in place a foundation for sustainable and continuing growth in the economy, based on sound public finances, on more people in jobs and enabling us to act—
I cannot give way. I have to reply to other matters raised in the debate.
As my hon. Friends the Members for East Lothian (Mr. Home Robertson), for Halifax (Mrs. Mahon), for Watford (Ms Ward) and for Kilmarnock and Loudoun (Mr. Browne) said, this was a Budget for families and a Budget to tackle poverty.
I am grateful to the Minister for giving way again. He is vehement about the fact that the spectacular repayment of national debt was intended—it was a deliberate act of policy. It is extraordinary, a once-socialist Government are cheering that fantastic repayment of national debt. However, all the forecasts for taxation and expenditure were wrong. When did the Government predict that they would repay £35 billion of public debt as a policy target?
I found it revealing when the right hon. and learned Gentleman said in his speech that he saw merit in the way in which we acted to make the Bank of England operationally independent. The question that he must answer is why he did not do that when he had the chance, if that is what he believed.
This is a Budget for families and a Budget to tackle poverty. As a matter of choice, we increased child benefit to £15.50, which is a rise of 30 per cent. in real terms. We did it as a matter of choice, not chance or good fortune. We are introducing the children's tax credit at £10 a week—from next year it will be £20 a week for those with a child under the age of one. As a matter of choice, we are increasing maternity pay to £100 by 2003 and we will increase the payment period from 18 to 26 weeks, as well as introducing two weeks' paternity leave for new fathers.
The Budget also takes further steps to make work pay for hard-working families—25 million families will gain from the widening of the lower 10p tax rate. Now, more of their income will be taxed at that lower rate rather than at 22p. We have increased the working families tax credit by £5 and increased the minimum wage. That means that full-time work brings with it a guaranteed income of £225 a week. As my hon. Friend the Member for Halifax pointed out, together with the minimum wage, that makes an enormous difference to families on modest incomes.
Conservative Members, such as the hon. Member for Bury St. Edmunds (Mr. Ruffley), who attacked working families tax credit, would deny that money to hard-working families. They would deny it to those who need it most. Families are receiving on average £30 a week more than they were getting under the old family credit and many more of them are getting it.
Labour's Budgets mean that households will, on average, be £240 a year better off because of the measures we are introducing this year alone. Families with children will, on average, be £420 a year better off and 2 million of the poorest pensioners at least £800 a year better off. That is the measure of our commitment to building not only a strong economy but a strong society—one that is making everyone better off, with living standards having risen 10 per cent. since the general election, but giving particular help to the poorest and those who need it most. Of course, if we had not rejected unaffordable tax cuts, we should not have been able to offer a balanced approach in the Budget, nor could we have met the investment priorities of the people of Britain.
The hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) was good enough to acknowledge both that people had been helped into work through the new deal and the merits of the working families tax credit. However, on public expenditure, he should recall that the same balanced approach will enable Wales to gain £100 million from the Budget over three years. That is on top of the £2 billion uplift provided for Wales in the spending review, and the objective 1 funding of £270 million to help those areas about which he expressed concern and about which we, too, care deeply.
It is nonsense to claim that our policies are geared only towards the south-east of England. The Budget and the Government act for all the people of this country—giving extra help to those communities which need it most. There will be a strong partnership for action in Wales between the National Assembly, local authorities and Departments to ensure that those communities facing difficult times of transition and job losses receive the help that they need.
I am sorry I cannot give way.
That balanced approach, which puts stability first and makes targeted tax cuts that we can afford, is also one that allows us to invest for the long term in Britain's schools and hospitals. For decades, those services suffered from the wrong choices. We choose not to return to those days of short-termism; instead, we choose a path of sustainable growth, with investment in key front-line services and staff.
As my hon. Friends the Members for Harlow (Mr. Rammell) and for Watford pointed out, we are seeing the benefits in our constituencies—in the classrooms and in the hospitals—as we improve services and are able to recruit more staff. My right hon. Friend the Secretary of State for Health spoke today of how he will spend the additional £1 billion over three years on the national health service. Money will go directly to primary care services. Between £500,000 and £1 million a year will go to each acute hospital trust in communities throughout our country.
Yesterday, my right hon. Friend the Secretary of State for Education and Employment set out his plans to spend £1 billion over the next three years on extra resources for our schools. He confirmed that direct payments will go to schools, with as much as £63,000 for the largest primary schools and as much as £115,000 for the largest secondary schools. Because we want more teachers and more nurses, we have set up special recruitment funds of £135 million for key health service staff and £200 million for education staff.
The hon. Member for Truro and St. Austell (Mr. Taylor) made some extraordinary claims about how much less he thought was going into health and education under the Labour Government. I checked the figures for NHS spending as a proportion of gross domestic product. The amount was 5.7 per cent. in 1996–97; by the current year, it had risen to 6.2 per cent. of a larger GDP. It will, of course, rise further. The extra spending in the Budget will come on top of the additional funding we have made available in the spending review. Spending as a whole will grow not at 3.4 per cent. but at 3.7 per cent.
Our choice is more investment—not less. Those who suggest a spending increase of 2.25 per cent. would see a shortfall over the next three years of more than £16 billion—resources taken away from schools and hospitals in every part of the country. As my hon. Friend the Member for Luton, South pointed out, Opposition Members must answer the question: on which schools and hospitals would their £16 billion axe fall?
In the brief time left for my speech, I will consider the remarks of Opposition Members. I am pleased to see the right hon. Member for East Devon (Sir P. Emery) in his place. He followed admirably his three-point rule, speaking with understandable feeling about the severity of the problems affecting agriculture, and the rural communities in particular, in his constituency as a consequence of foot and mouth disease. Of course that is a very sombre backdrop to our debate. It is a very serious situation indeed, and I believe that we are all agreed that every effort must be made, and no effort spared, to eradicate this terrible disease, which is inflicting such damage.
The right hon. Gentleman made the case for compensation for consequential loss, while acknowledging that no Government had provided such compensation. I believe that he can appreciate the difficulties of deciding who would benefit and by what amount, and where to draw the line. My hon. Friend the Member for Kilmarnock and Loudoun reminded us of the communities that have been devastated by pit closures and other industrial restructuring. I can tell the right hon. Member for East Devon that the Government do act to help communities that are facing critical challenges such as this disease, which is why we will be acting not only to eradicate it but, as soon as we have been able to do so, to consider what measures can be taken to regenerate the rural economies, including the tourism sector, which in turn is being so badly affected. As we draw up those plans, we shall be pleased to listen to the right hon. Gentleman and other hon. Members whose constituents are affected.
I shall comment all too briefly on the remarks of the Opposition Front-Bench team. This evening we received further confirmation in the debate that their sums do not add up, that they have no fiscal rules and that they have no basis for stability or sustainability in their approach. They say that public spending could only grow within their definition of trend growth of 2.25 per cent. If that is the claim that they make, even if we allow for what they say about honouring our spending commitments for their first year, it still leaves them with a spending gap not of the £8 billion that they claim, and which they cannot cover with spending savings because they have not been able to identify any that stand up, but of £11 billion. That gap shows that no one could believe what they say on tax, spending, the economy or anything else. That spending gap wields an axe over the investment that the present Government are making in schools, in hospitals and in combating crime.
The Budget debates in the past few days have made clear the choices that the Government have made. We have rejected short-termism and underinvestment. We have rejected unaffordable tax cuts that would put at risk investment in our public services, and we have decided to invest for the long term. Our choice is to seize the opportunity that Britain has, not through some golden inheritance, not through chance, but through the choices that we have made and through the action that we have carried forward, in partnership with the British people. The choice is to invest in our schools, hospitals and disadvantaged communities, and the choice is to build on the new deal, which has got over a quarter of a million young people into work and cut youth unemployment by over three quarters, instead of cutting the new deal as the official Opposition would.
Our choice is to reward hard-working families with affordable tax cuts and measures to make work pay. Our choice is to make stability our foundation, rejecting the boom and bust of the past and the damage that that inflicted on our country in the past. A return to that policy is held as the threat from a Conservative party, a shadow Chancellor and a Leader of the Opposition who cannot be trusted by the people of this country, because their sums do not add up. We have made the right choices for the people of Britain: choices that will build a Britain of opportunity and prosperity for all.
(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) Subject to paragraphs (3) to (6) below, this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(3) Paragraph (2) above does not exclude the making of amendments with respect to value added tax—
(4) The refunds mentioned in paragraph (3)(a) above are refunds of value added tax where—
(5) The supplies mentioned in paragraph (3)(b) above are—
(6) The provision authorised by this paragraph is provision re-enacting, without altering any person's liability to value added tax or the amount of any such liability, provisions providing for that tax to be charged at a reduced rate of 5 per cent. on certain supplies, acquisitions and importations.