This year's Budget once again reflects our values and our central purpose as a Government: equality and opportunity; prosperity for all; social justice; and economic success, at home and abroad. It is in difficult times, however, that values and principles are put to the test, and these are difficult times. There is slow growth all around the world. Profits, stock markets and investment are down all around the world. World trade is falling, which did not happen even in the recession of the early 1990s.
In the past, when the world economy slowed, Britain's economy crashed. We were first into recession and last out, but not now. Thanks to the tough decisions that we took in our first term, we are now enjoying the lowest inflation for 30 years, the lowest interest rates for 40 years, and faster growth than any other major European economy. We will do nothing to jeopardise those stable economic foundations that have now been tested in bad times as well as good. We will build on them as we face up to the long-term issues and challenges that will determine our competitiveness, the profitability of our businesses and the prosperity of our people.
The economic map of our world is being redrawn. China is joining the World Trade Organisation, India is producing a quarter of a million science and IT graduates every year, 10 more countries are joining the European Union next year, and others are queuing up behind them. There are new opportunities for our businesses, but new competition from lower-wage countries, too. On top of that, technology and consumer demands are changing so fast that one year's up-to-date skills or new products may be out of date just a few years later. We cannot hold back this technological change or the growth of the developing countries, and we should not try to. We cannot compete on the basis of low-cost, low-skill, low-margin goods, and we should not want to. Our response to even faster change and to even greater competition cannot be protectionism; it has to be innovation. What we need in Britain are the higher value-added products, the faster, cleaner production processes and the virtuous circle of higher investment, higher profits, better jobs and higher wages.
That is why we are supporting our science base. As we celebrate 50 years since the discovery of DNA and we welcome the publication of the latest findings from the human genome project, we should all be proud of British science. With just 1 per cent. of the world's population, we fund nearly 5 per cent. of the world's science and we produce 8 per cent. of all the world's scientific papers. Of course, that is not how the Conservative party saw it. When it was in government, it cut science spending and, with 20 per cent. cuts in public spending, it would cut science investment again. I am proud of the fact that this Government have increased investment in science from £1.3 billion in 1997 to about £2 billion this year and almost £3 billion by 2005–06—an average increase in real terms of 10 per cent. a year.
We are also supporting our universities to turn that great research into great commercial success. In recent years, we have seen more researchers filing patents, more universities licensing technologies to business and more spin-out companies, which were running at an average of fewer than 70 a year, but are now up to 248 in the latest year alone. Now the challenge that we face is to get more of our businesses investing in research and development, partnering with universities and applying new technologies.
The Secretary of State has referred to investment, which is important. Does she agree that the severe problems that businesses face with increased insurance premiums take away a lot of money that could be invested, particularly in manufacturing? Many people were disappointed that the insurance premium tax was not reduced in the Budget. When will the Department for Work and Pensions report back on the vastly increased insurance premiums for business?
We are extremely concerned about the impact on particularly smaller businesses of the very steep rises in employers liability insurance and other insurance premiums. I am sure that the hon. Gentleman will, like me, welcome the fact that, in the Budget, my right hon. Friend the Chancellor of the Exchequer froze insurance premium tax, which, in any case, can be offset against corporation tax, which we have also cut. My right hon. Friend the Secretary of State for Work and Pensions will report shortly and the Office of Fair Trading is also looking at whether there are problems specifically within the insurance market that need to be tackled from the competition point of view.
We are supporting businesses and giving them the right incentives to increase their rate of innovation. For example, the research and development tax credit already supports businesses to the tune of £400 million a year. Now we are increasing the scope and the value of the credit, and we will consult business on how to improve its operation even further.
We are also giving businesses the right support for innovation. My Department's smart awards for prototypes and technology development help 800 companies a year. The awards help companies such as Cooke Optics in Leicester, which received a grant of £140,000 to develop the high definition film lenses that were used to make the film "Chicago", and Nanomagnetics in Bristol, which has just set a world record for computer information storage. In six months, it expects to beat that record again. It was helped by a grant of £160,000.
That is not all that we are doing to help smaller businesses get the funding that they need. At the request of business, we have extended the small firms loan guarantee scheme. We have created regional venture capital funds—£80 million of public funding that is attracting another £250 million from private investors. All that is threatened by the Conservative party and its pledge to cut public spending by 20 per cent. It would do less; we will do more.
In the United States, small business investment companies are backed by the Government, and that has helped companies such as Apple Computers, Compaq, the Intel Corporation and AOL to move from being start-ups to world beaters. We want our smaller businesses to have the same opportunities, so we shall look at the scope for similar support in Britain.
The right hon. Lady is projecting herself as the champion of small businesses. Why did she reject the recommendations in the Federation of Small Businesses' Budget submission to rescind the increases to national insurance contributions and for a full review of the climate change levy? Does she not understand the damage that both those measures are doing to small businesses?
We have responded to representations from the small business community by cutting corporation tax for small businesses. I am sure that the hon. Gentleman is aware that the contributions required from small and large businesses in France, Germany and the United States to fund health coverage and health services for their workers are far higher than those that result from the 1 per cent. increase that we have introduced to fund the necessary investment to create a world-class national health service, which has been welcomed throughout the country.
I welcome the measures in the Budget to support small businesses. Lowestoft, in my constituency, also benefits from the fact that my right hon. Friend's Department designated it as a zone with assisted area status. However, the threshold for a business to apply for such assistance at level 2 is £500,000, which is rather a large investment to be required of small businesses in my constituency. Will she examine whether the threshold could be made more flexible?
Of course we shall examine that. I am sure that my hon. Friend will welcome the fact that the provisions in the Budget make it easier for small companies to apply for enhanced capital allowances and have extended the help that they may receive in enterprise areas.
Our constituents depend on small and medium-sized businesses for their prosperity. Such businesses create half our country's wealth. They employ some 12 million people and produce nine out of 10 of the new business ideas on which our future prosperity will depend. We need more such small firms.
Will my right hon. Friend acknowledge the enterprise shown by the Chancellor of the Exchequer in developing a partnership between the Massachusetts Institute of Technology and Cambridge university? Indeed, MIT graduates have created 4,000 firms and about $5 billion of capital. Surely we need to develop such joined-up partnerships through which we can learn from each other.
My hon. Friend is absolutely right. The partnership between MIT and Cambridge university will not only benefit Cambridge and the east of England; it is already benefiting entrepreneurs throughout the country by showing them the huge advantages of spin-outs from universities and tie-ups with new technology.
I hate to intervene straight after my hon. Friend the Chairman of the Select Committee on Science and Technology, but does my right hon. Friend agree that small businesses value participation with their local universities? It is all very well for Cambridge and Oxford universities and Imperial college to have even greater research capacity, but many smaller universities need the ability to transfer technology to work with small companies.
My hon. Friend is absolutely right, which is why my right hon. Friend the Secretary of State for Education and Skills and I put forward a strategy in the White Paper on higher education this year and the White Paper on innovation last year to ensure that every university in our country, whether or not it is engaged in world-class research, will have a role to support businesses in its regions and communities. The additional money that we are giving to the higher education innovation fund will enhance that important knowledge-transfer role. We need more such small firms, whether they are spin-outs from universities or directly created by entrepreneurs. Business leaders have welcomed the measures in the Budget to promote entrepreneurship.
Many small businesses are owned by sole traders or small partnerships, so any reduction in corporation tax passes them by. The major hurdle is often employing the first person because of all the administration that goes with running the pay-as-you-earn system. Could the Government do something to subsidise or help people who take the first step toward expansion?
The hon. Gentleman makes an important point. That is why we have simplified the process of taking on employees and why we are implementing the reforms recommended by Patrick Carter to simplify payroll administration. That is why the Small Business Service has just published a one-stop guide for entrepreneurs that covers employment issues. The simplification of the national insurance system that we introduced several years ago—something that the Conservative party never did when it was in government—has been a particular help to such small businesses.
Business leaders have welcomed the Budget's measures to promote entrepreneurship, such as extending enhanced capital allowances to more small firms, simplifying value added tax—200,000 more small firms will benefit from the simple flat-rate VAT scheme—and increasing the small and medium-sized enterprises thresholds in the Companies Acts to the maximum allowed by the European Union.
However, we need local and regional action in addition to national action. We cannot raise the business birth rate in the north-east, which is only half that of the south-east, by taking decisions in London. As the Budget recognises, the real experts on the strengths and needs of a city or region are those who live, work and run businesses there. Our regional development agencies, with strong business and trade union leadership, are now delivering on their regional economic strategies. Of course, Conservative Members would abolish the RDAs, which would once again centralise decisions here in Whitehall. They should look at the successes of the RDAs, such as the technology corridors in the west midlands that are linking the university and science base with businesses and attracting new entrepreneurs. The science partnership in the north-west is helping to create new biotechnology and advanced manufacturing businesses.
My right hon. Friend has drawn attention to the work of the RDAs. May I draw her attention—although I do not need to because she already knows about it—to the Daresbury science park, which will exploit the science that will come from the fourth generation light source? I congratulate her on her decision to site that at the Daresbury laboratory in my constituency because it is a wonderful example of the north-west coming together with a fantastic idea on which universities can build with the economic community in the north-west.
I am grateful to my hon. Friend for that comment. When I visited Daresbury, I saw at first hand the outstanding science and research that is conducted there. It is entirely due to the efforts of the RDA that we have been able to create such science and business partnerships in the north-west. We are backing the fourth generation light source in Daresbury and we recently announced the creation of a biotechnology incubator centre in Merseyside, with the support of the RDA and central Government.
On the subject of regional development, will the Secretary of State comment on regional pay and the Chancellor's ambition for regional price indices to determine pay in the regions of England, Scotland and Wales in comparison with the much higher pay for police officers, nurses and firefighters in London and the south-east? Will she explain exactly how lower pay for key public sector workers will benefit the regions of England, Scotland and Wales?
The hon. Gentleman is somewhat confused, as is so often the case. No one is proposing the abolition of national pay bargaining for the public services. The agreement in the Prison Service makes it amply clear that the necessary flexibility can exist in a nationally bargained pay framework to meet the problems of higher costs of living and specific skills shortages in different areas. Such local flexibility exists in the nationally bargained framework for the Prison Service and, of course, it is provided for in most of our public services through the London weighting. Indeed, I think that the hon. Gentleman wants Scottish weighting, so he should be supporting the greater flexibility to meet local needs, which we are proposing in the Budget.
My right hon. Friend is right to commend the Budget's positive aspects, but she is a euro-enthusiast in the Cabinet. Has she had any further information from the Chancellor about the Treasury report that was widely leaked in the newspapers this morning? Does she know whether a decision has been made on that matter?
My hon. Friend knows better than to believe everything that he reads in the newspapers. As the Chancellor said last week, we will make and announce our decision on the single currency in the first week of June.
There is more that we can do to build closer partnerships between science and business and to create the foundation for the new businesses and industries of the future. I have asked the chairman of the north-west science partnership, Sir Tom McKillop, to work with the other regional development agencies as they establish similar partnerships in every region.
As the Chancellor has said, the work on the five tests has been carried out in the Treasury. We will make our assessment and announce our decision by the first week of June.
I return to the issue of how we create strong foundations for regional and local economies. We need local businesses, trade unions, further education colleges and universities to work together far more effectively to respond to the need for employment and skills throughout our country. Thanks to our policies of steady economic growth, welfare reform and the new deal, we already have 1.5 million more people in work than six years ago; we have slashed long-term unemployment, and we have virtually eliminated it among young people.
There is more to do, however. Unemployment is far higher in the African-Caribbean community and in some of our Asian-British communities, and even graduates from those minority communities earn less than their white counterparts. Far too many people in their 50s and 60s with skills and experience to contribute to business and the economy are told that they are too old even to get an interview. Far too many women are still held back, undervalued, underpaid and unable in many cases to get the working hours that they need to give of their best at home and at work. Indeed, if women were starting businesses at the same rate as men, another 100,000 new businesses would be started every year.
We on this side of the House believe in equality as a matter of principle, but we also know that in a world of increasing competition, where companies and countries need every individual to contribute their abilities and skills, equality and economic success go hand in hand. That is not the Government telling business what to do; it is what business is telling the Government.
I recently visited one of our successful car plants in the west midlands. The managing director said, "Look around. This industry has always been dominated by white men, but the work force are not 90 per cent. white men and nor are the customers. If we in this company are going to be the best, we have to recruit and keep the best people, and that means attracting people from every part of the community." We will support and encourage that business and others like it to put policies for diversity and equality of opportunity at the heart of their strategy to create those high-performance workplaces that will make and keep them competitive in our increasingly competitive world.
I welcome my right hon. Friend's well-known commitment to equality. She has just made a case for simplifying equality and anti-discrimination laws by bringing them together in one new equality law that includes all the new definitions of discrimination. That would be easier for business to deal with. Is my right hon. Friend considering introducing such a Bill and a proactive duty to promote equality, like that in the Race Relations (Amendment) Act 2000?
As my hon. Friend will be aware, we are currently consulting on the creation not of a single equality law, but of a single equality body, which will bring together the existing anti-discrimination and equality commissions and possibly make it far easier for businesses and other organisations to get the information and advice that they need.
As we spread opportunity and prosperity here in Britain, so, too, we must create opportunity and prosperity abroad.
Before the Secretary of State moves on to the situation in the wider world, perhaps she could touch on one subject at home that she appears to have forgotten in her speech so far. If things are going so well in the British economy, why has business investment in this country collapsed further than it has in France, Germany, Italy, America and Japan? In fact, it is worse than in any other country in the Organisation for Economic Co-operation and Development with the exception of Iceland.
The hon. Gentleman is ignoring the fact that business investment in Britain remains higher than it was in 1997 and higher than it was when it plunged under the Conservatives. At a time of great uncertainty, when export markets around the world are collapsing, businesses face difficulty in investing. Thanks to decades of boom and bust, this country has a long history of under-investment. We are creating the economic stability, sustained economic growth and low interest rates that will give business the incentive to invest and prepare for the upturn that will come.
Does not the right hon. Lady understand that her Government have taken about £50 billion in corporate taxes from productive and enterprising corporations? If one does that, one is bound to cut the amount that goes into those companies for investment, and that is precisely what she has done.
We have cut the rate of corporation tax; it is lower than it has ever been in British history. Our reforms to capital gains tax give us a more favourable environment for entrepreneurial investment even than the United States. As I have explained, and as we set out in the Budget, we have put in place the incentives for investment and the low long-term interest rates that will help business to make the investment that is so badly needed in our country.
Will the Secretary of State spell out what steps she intends to take to ensure that British industry plays as prominent a role in the reconstruction of Iraq as our armed forces did in its liberation? She will recall that in the months prior to the liberation of Kuwait, I set up a task force, largely manned by business people, which operated in the Gulf and in Washington, lobbying to ensure that we obtained a fair share of the contracts. Mercifully, there was less destruction than we anticipated, but we obtained a larger share of contracts than we anticipated, not least in rebuilding the oil fields. We were able to publish a prospectus, setting out what Britain could do. Will the right hon. Lady spell out—
I have already ensured that in awarding contracts, USAID, whose policy, I regret, ties American aid to contracts for American companies, will properly consider as partners British companies with great expertise. Only last week, Baroness Symons, the Minister for Trade and Investment, met British businesses that are interested and have the expertise to offer. An official from British Trade International is already in the middle east working with the Office for Reconstruction and Humanitarian Assistance to ensure that the expertise and experience of British companies is placed at the disposal of the Iraqi people as they start to rebuild their economy following Saddam Hussein. We are making sure that British business gets the backing it needs, but I hope that the right hon. Gentleman agrees that, rather than revert to that old and discredited policy of tying British Government aid to British contracts, we should back British companies to win based on the expertise and experience that they offer the Iraqi people.
I had a meeting with 15 chief executives of major companies in my constituency. Fourteen were either expanding, investing or creating new jobs. On a separate issue, we have discussed new technology and small and medium-sized enterprises. Many such businesses are joiners, plumbers, electricians and so on. Can more be done in the field of modern apprenticeships?
I entirely agree with my hon. Friend. That is why we are expanding the modern apprenticeships programme. He will find in the skills strategy, which my right hon. Friend the Secretary of State for Education and Skills will publish later this year, clear proposals to ensure that local learning and skills councils and sector skills councils work to ensure that the skills system delivers the skills that businesses and individuals need to get on.
I am glad that my right hon. Friend has mentioned skills; may I add productivity? She will remember that last year the Government produced a manufacturing strategy. What measures in the Budget does she think will assist that strategy to increase productivity and skills in this country?
I have already referred to the various measures in the Budget that will support the manufacturing strategy—for example, the improvements in the research and development tax credit and support for science and innovation. Let me underline the fact that that industrial strategy—the first UK industrial strategy for 30 years—is already beginning to deliver results. As we look at the work of the Manufacturing Advisory Service around the country, we see significant productivity improvements in the manufacturing companies that take advantage of that service. I am sure that my hon. Friend and other hon. Members will work to draw the benefits offered by the MAS to the attention of manufacturers in their constituencies.
What do we need to do internationally to secure opportunity and prosperity? At the end of the second world war, Europe had been torn apart, having suffered the nightmare of concentration camps, millions of displaced refugees and the destruction of its industrial strength. In that crisis, Europe's leaders understood that peace and prosperity must go together. Six countries set out to bind their economies together with the great aim of ending war between their peoples. Those six countries, by choosing to integrate their economies, to remove barriers to trade and to work together on issues of common interest laid the foundations of half a century of peace and prosperity.
As my right hon. Friend the Prime Minister said earlier this afternoon, we must now rebuild international relationships that have been fragile in recent weeks. The United Nations must unite again to support the Iraqi people as they rebuild their country after the tyranny of Saddam Hussein. Through the World Trade Organisation, we have the opportunity to bind together the developed and the developing countries in a new framework of rules for trade that is fair as well as free. All of us in Europe and throughout the developed world must now redouble our efforts to deliver on the promises that we made when we launched the Doha development round 18 months ago. If we halved the protectionist barriers to world trade, we would boost the incomes of developing countries by £150 billion a year—three times the total of all aid budgets. We would cut the number of people living in poverty by more than 300 million by 2015. We would provide the boost to confidence and investment that the world desperately needs at this time of economic uncertainty and political division.
The Budget builds on the success that we achieved in our first term and faces up to the challenges ahead. It is a Budget for social justice and economic prosperity at home and abroad. I commend it to the House.
I draw the House's attention to my entry in the Register of Members' Interests.
Few of those working in small and medium-sized enterprises with whom I have spoken in the past eight months will recognise the picture that the Secretary of State for Trade and Industry has just painted, or the fantasy world that she appears to inhabit. Her self-congratulatory remarks and her complacent tone will cut little ice with someone running a business who is stuck in the office for an extra half hour each Friday evening filling in the forms that Government Departments have sent out, or perhaps reading the 200 pages of guidance that the Engineering Employers Federation has had to send to firms merely to explain how to comply with the right hon. Lady's latest employment policy changes.
Five days after the Budget was delivered, it looks no better than it did last Wednesday. Neither the Chancellor nor the Secretary of State for Trade and Industry shows any sign of understanding the challenges faced by British business, of recognising the burdens that they have placed on British employers, or of addressing the needs of the nation's wealth creators as they struggle to remain competitive. The truth is that, despite all the micro-initiatives with which the Chancellor tried to divert attention from the flaws in his overall policy and the gaps in his arithmetic, under the Labour Government Britain is becoming a worse place to do business.
After six years of Labour government, Britain's deficit in traded goods is the largest since records began, in 1697. The most recent trade figures were released on the morning of the Budget itself. The Office for National Statistics, whose independence thankfully allows it to escape the influence of Alastair Campbell's spin doctors, concluded baldly in its press release:
"The latest estimate of the trend suggests that the UK trade deficit is widening."
If the Government's policies are so bad for business, especially small businesses, how does the hon. Gentleman account for the 14 per cent. increase in small business creation that we witnessed last year despite the downturn in the global economy?
I recommend that the hon. Gentleman consult bodies representing small business, such as the Federation of Small Businesses, to find out what they think.
Matthew Taylor referred to business investment. The fall in business investment last year was the worst since 1991 and the second worst since that series of statistics was first collected in 1966. The Chancellor likes to compare the British economy's performance with that of our competitors abroad, but, as the hon. Gentleman pointed out, the fall in business investment in Britain in the past two years has been sharper than in America, Germany, Japan, France, Italy, Canada and Spain. Even the Chancellor himself now admits that business investment will fall again in 2003.
Last year, productivity in Britain rose at only half the rate at which it was rising when the Conservative Government left office. More days were lost through strikes last year than in any year since 1991. On average, more than 2,000 manufacturing jobs have been lost every week over the six years of Labour government—a total of more than 600,000 manufacturing jobs lost in the past six years. We did not hear much in last Wednesday's Budget statement or in the Secretary of State's speech this afternoon about deteriorating trade, falling investment, slower productivity growth, worsening industrial relations, or haemorrhaging manufacturing jobs. Is it not time the Chancellor and the Secretary of State put away their rose-tinted spectacles and started to admit what is really happening?
The hon. Gentleman mentioned economic growth, but may I draw his attention to "The World in 2003", published by The Economist, which is hardly known for being sympathetic to the Labour party? It states:
"In the decade to 2002, Britain enjoyed stronger real economic growth than any other G7 country apart from the United States. It beat even America's record in terms of GDP growth per head. More surprisingly still, Britain has managed to combine all this growth with a world-beating inflation performance and one of the world's strongest currencies."
Does the hon. Gentleman take that magazine?
I am grateful to the hon. Gentleman for drawing attention to the extraordinary success achieved by the last Conservative Government and the long-lasting foundations for economic success that we had laid when we left office in 1997.
I guess that we did not hear much from the Secretary of State about the trends to which I referred because they show that, while the Government have been in office, Britain has indeed become a worse place to do business. Even the successes that the Chancellor is fond of trumpeting are not always quite what they seem at first sight. The current low level of unemployment, for example, conceals the fact that jobs in the productive wealth-creating sector of the economy are now starting to fall. That fall is masked in the overall jobs figures by the increase in public sector jobs—a trend that in the long term is unsustainable. Lower Government borrowing is another of the Chancellor's favourite boasts, but the number of people who believe it is falling fast. Last year, the Chancellor told us that borrowing this year would be £13 billion. Last week, he said that it would be £27 billion. Two years ago, the Chancellor's five-year borrowing forecast was £30 billion—by last week it had shot up to £118 billion. On growth, last November the Chancellor had to downgrade his forecasts, and last week he had to downgrade his forecasts again.
To interrupt the hon. Gentleman's catalogue of doom and gloom for a moment, in the broad sweep of economic history of the 60s, 70s, 80s and 90s, can he tell me of another Government of any complexion who achieved low inflation and, simultaneously, low unemployment and continuous economic growth for six years?
It is precisely because the Government are enjoying, as other countries are, unprecedentedly benign inflationary conditions that the facts that I have just referred to are so alarming. If this country cannot take advantage of those extraordinarily favourable conditions and if, despite low inflation, investment and manufacturing jobs are falling, productivity growth is slowing down, trade is getting worse and all the other indicators point in the wrong direction, that suggests that something is very wrong at the heart of the Government's economic policies.
A Chancellor who has downgraded his forecasts twice in four and a half months is in the position of a finance director who has been forced to issue one profit warning in November and another one only four and a half months later—and we know what happens to finance directors with a record like that. Perhaps it is not only the shareholders who are getting restless—perhaps the chief executive himself is starting to have doubts as well. Even if the finance director does not get his cards from the boss next door, he may run into trouble with the Financial Reporting Council, because he is no slouch at massaging the accounts, either. His boasts about how he has cut the level of public debt conveniently ignore the huge off-balance-sheet liabilities that he is piling up—debt that he does not like to admit to but which taxpayers directly or indirectly will have to service sooner or later: debt that now amounts to tens of billions of pounds.
This Budget has been called a "hope for the best" Budget by the Institute for Fiscal Studies. The Chancellor looks more and more like Mr. Micawber. Business people might call it "a penny in the pound Budget" because the net effect of the Budget measures will be to reduce the tax burden on business by £55 million, compared with the £4.5 billion hit that employers and self-employed people suffered last year when national insurance contributions were raised. Far from being the Budget for business, as the Chancellor's spin doctors claim, the Budget's most obvious feature, from business's point of view, is its complete failure to reverse the damage done in his previous Budgets. There is no action on national insurance contribution increases, which, a British Chambers of Commerce survey warned, will lead one firm in five to cut jobs; one firm in six to cut investment; and one firm in seven to cut pay. There is no action on the climate change levy, rightly described by the Engineering Employers Federation as
"a levy which punishes competitiveness and initiative by world-class UK manufacturing companies... one of the most badly designed and ill-conceived economic instruments of recent times, a device for raising revenue rather than a serious attempt to encourage energy efficiency."
There is no action on the pensions tax, which is draining occupational pension funds of £5 billion a year, forcing companies to find an extra £4 billion a year in pension contributions—money that is no longer available for investment in the productivity-related job-creating improvements that would make Britain more competitive. That tax is now costing 12 million people an average £400 a year; has contributed to the collapse of the stock market; and is systematically destroying what was once the jewel in Britain's savings crown, our occupational pensions schemes. After the Chancellor has done his worst, a typical personal pensions saver would enjoy a pension, if he retired today, that is only half what he would have got five years ago.
From what the hon. Gentleman has just said, can we conclude that he is committing his party to reversing the 1p increase in national insurance, to abolishing the climate change levy, and to reversing what he calls the pensions tax?
"You are asking questions that no shadow Chancellor without seeing the books, without being in a position to know what the true state of the public finances is, without having all the information about the economic circumstances, should answer. I will only make promises that I can deliver—I will not make promises I am not in a position to deliver."
That was said not by the present shadow Chancellor, my right hon. and learned Friend Mr. Howard, but the last Labour shadow Chancellor, the present Chancellor of the Exchequer. He said that not three years before a possible general election, but three months before the 1997 election. I agree with him, especially because the clearest single message from the Budget is that we cannot trust the Government to get their sums right. We will need to see the books before we can be sure how and when we will deliver our commitment to be a lower tax party than Labour.
The problems that I referred to with national insurance contributions, the climate change levy and pensions stats were created by the Chancellor in previous Budgets. Those are the problems that he should have addressed in this Budget, as they are making Britain a worse place in which to do business. As Martin Temple, the director general of the Engineering Employers Federation, put it:
"Just because the Chancellor has stopped hitting us over the head, doesn't mean we should suddenly be grateful."
"This blend of rehashed announcements and tax freezes is not good enough."
Ernst and Young described the Budget as "utterly uninspiring" for companies with 250 employees. The tragedy is that this is happening after a decade and a half in the 1980s and early 1990s when our competitive position was transformed for the better under the previous Government. At a time when investment and hence jobs are more internationally mobile than ever, investment that might once have been made in Britain is now as likely to go abroad. Industries in which Britain led the world in the 20th century may now migrate to China in the 21st. Those are precisely the circumstances in which the Government should seek to lighten the burden of tax and regulation that they have placed on business.
So what message would the hon. Gentleman give a small business man in my constituency, a painter and decorator who recently told me that his business had never been so buoyant? However, he could remember struggling in the mid-80s and early 90s even to buy the petrol to put in the van to get to a job.
I would tell him to vote for a Member of Parliament who would truly reflect the concerns of small business, instead of one who spouts the line given them by the Government Whips.
"has just placed a large bet on a rapid rebound in the economy next year."
His sums are based on the assumption that economic growth will bounce back to an above-trend growth rate from 2004 onwards, but that view is not shared by many independent forecasters.
To balance the books, the Chancellor is relying on a combination of further unsustainable rises in consumer spending, despite the fact that personal debt has already soared and the savings ratio is only half what it was when Labour took office. He also expects a big rise in corporation tax receipts over the next two years. Even businesses do not expect a big rise in profits, and the Budget changes have done nothing to make such a possibility more likely.
The Secretary of State made much of the micro-measures in the Budget, and I suppose that we should be thankful for small mercies such as the modest simplification of VAT and the slightly more generous treatment of research and development expenditure, but those proposals are tiny in their impact compared with the extra £15 billion a year that the CBI estimates Labour's new tax and regulations are costing business. Stephen Alambritis of the Federation of Small Businesses said:
"What businesses were really looking for were targeted tax cuts on insurance premium tax. But instead there was a lot that was rehashed and had already been announced."
Indeed, there are, in addition, new burdens on business resulting from the Budget. Under a typical new Labour heading, "Modernising stamp duty", the Red Book unveils the Chancellor's proposal to raise stamp duty on leasehold commercial properties. As the CBI says:
"These proposals will seriously increase the cost of leased business properties for many companies. The increases could be devastating for high street businesses."
The Chancellor has also taken a gratuitous swipe at the beleaguered agriculture sector through a hike in the tax on red diesel, which between now and March 2005, the Treasury estimates, will raise revenue 38 times more than the value of the cut on bioethanol. If the Secretary of State were doing her job properly, she would be fighting the proposals coming out of the Treasury and elsewhere, which are making Britain a worse place to do business. Instead, she is busy endorsing the Higgs proposals lock, stock and barrel—proposals that threaten to impose a "one size fits all" approach to the corporate governance of every one of the huge and diverse range of quoted companies; an approach that ignores the estimated £200 million price tag and the concerns of many experienced business people over potentially divisive aspects.
My hon. Friend is making a powerful case. Given that, legitimate social policies apart, the sea of new regulation is deeper and more hazardous than any with which businesses in this country have had to contend, will his review of regulatory policy consider the merits of the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996? They have yielded real benefits to small and medium-sized companies in the United States.
It will indeed, and my hon. Friend makes an important point. We need a complete cultural change in Whitehall's attitude to regulation. We must get away from the assumption that every time something goes wrong it is the Government's job to prevent it from happening again by introducing a new regulation. The cost of that attitude over the years to customers, employees and shareholders has been enormous, although often hidden as well. That cost grows every day, not just in higher prices, but in lower wages, smaller profits and less investment. It is paid in jobs, which go abroad, and in capital investment, which goes to create jobs in countries other than Britain.
I hear the Chancellor say something about the need to lighten the regulatory burden in every Budget speech he makes. In the following 12 months, without exception, that burden increases. I have stopped paying much attention to the Chancellor's commitments on regulation, which are not credible.
At a conference last week, the Secretary of State boasted about the latest employment regulations, which will further complicate the running of thousands of small and medium-sized enterprises—another burden that the Government are gratuitously placing on business. I am sorry that she did not respond more positively to my right hon. Friend Mr. Lilley when he suggested that she might take action, now that hostilities in Iraq thankfully appear to be entering the concluding phase, to help to ensure that those British businesses with relevant expertise can offer it to assist the reconstruction process. As my right hon. Friend said, 12 years ago, the Conservative Government published "Reconstructing Kuwait". I hope that this Government will consider publishing a similar document to ensure that the Iraqi people are given every possible assistance in the speedy rebuilding of their communities.
This is a bitterly disappointing Budget. In the past year, taxes have risen for employers, employees, pensioners, savers, home owners, tenants, drinkers, smokers, drivers and businesses. Despite all those huge tax rises, the Chancellor still cannot make his sums add up, so he is having to borrow more and more and more. After six years of new Labour government, the Chancellor, who inherited a better economic legacy than any of his predecessors for half a century, is taxing more, borrowing more, spending more, wasting more and failing more. His forecasts were wrong last April and wrong last November. British businesses and British taxpayers worry that they were wrong again last week. The price of his mistakes is being paid by the British people—mistakes for which, one day, those same people will surely hold him and his colleagues to account.
Order. Before I call the next speaker, I remind the House that Mr. Speaker has placed an eight-minute limit on Back-Bench speeches, which applies from now on.
Budgets, no doubt, are never easy, and this year's presented a number of difficulties caused by the decline, or slowdown, in the global economy and, obviously, the war in Iraq.
Wars cost money. The Roman emperors, I seem to have read at one time, used to complain bitterly about wars in Mesopotamia, which cost more than wars in other places. Apparently, one of the largest costs was the replacement of siege engines, and the replacement of the modern siege engines will have to be paid for. I do not know how the Roman emperors did that, but Governments traditionally and usually pay for wars by borrowing money or, indeed, by printing it. That creates growth in the short term, which may be what happens this time, but the global economy was slowing down before the war broke out.
Prices of many goods have been falling, and the new global capitalism operates in a world with almost unrestrained freedom of movement of goods, capital and technology and in which multinational companies can invest almost anywhere that costs are at their lowest. Arguably, that new global capitalism—it is certainly new over the past 100 years—is inherently deflationary, especially for western industrialised countries. There is enormous pressure on prices, which have to be driven down all the time. Costs then have to be reduced, but there comes a point, of course, at which businesses often cannot reduce their costs further. The net effect is that companies and businesses cannot make profits. Inflation may fall close to zero or to it, but so do interest rates and growth.
One country that has been there or thereabouts, and is still there or thereabouts, is Japan. I well remember that, in the 1970s, shock and awe were aroused by the power of Japan's industrial companies, which produced high-value goods of excellent quality at competitive prices. It turned out, however, that most of those companies never made any profits. They were financed not by profits but by borrowing from Japanese industrial banks, which lent money to those companies, partly, it seems, for patriotic reasons. By not making any profits, those companies drove away investors, who instead turned their attention more to capital assets. As a result, Japan had its asset boom and its asset bust, from which it is still trying to recover. Apparently the Japanese Government's latest proposal to solve the problem is to nationalise the banks. I am not sure whether that will work.
I will not say that Germany might going the same way as Japan, but, as my right hon. Friend the Chancellor of the Exchequer told us in his Budget statement, its growth is about 0.5 per cent. I suspect that its inflation rate is about the same. That is not far from zero growth and zero inflation. Germany does not have the economic levers to try to solve the problem. It cannot even print money because it does not have any money of its own to print. Germany may well be going in the same direction as Japan.
One would have thought that the most capitalistic country in the world would benefit enormously from the new global capitalism. It is ironic, however, that the United States is having problems, too. Its growth this year is likely to be lower than 2 per cent. The prices of most manufactured goods in the United States have been falling over the past year. To try to stimulate growth, the Federal Reserve—an excellent institution—has had to reduce interest rates 12 times over the past three years. The present federal funds rate is 1.25 per cent., so there is not much room for reducing interest rates. Again, that is getting close to zero interest rates, as in Japan.
To its credit, I believe that the Federal Reserve recognises the dangers of a slide into general deflation. I have read newspaper reports—I suspect that they are accurate—of various attempts by Alan Greenspan to draw up plans if interest rates and their reduction do not create growth in the American economy. There are plans A and B.
Plan B is much more drastic—certainly for the United States. It is that the Federal Reserve would print money to buy shares in the leading Wall street companies. I doubt whether that will happen. However, printing money seems to be the only solution at present, or attempted solution, for global deflation.
War, and its aftermath, may put some inflation back into the system, which we need, and it may also put growth back into the United States economy. In the short term, the global economy may pick up some growth as a result of the war. That is a result of having to replace all the siege engines that have been lost in Iraq. I suspect that after the short-term consequences have worked through the system, the enormous deflationary pressures caused by global capitalism will revive and, even in the United States, will drive prices and growth closer to zero.
As we have heard, Britain is in much better shape, thanks to the excellent stewardship of the economy of my right hon. Friend the Chancellor. I remain confident that we shall be able to resist enormous global pressures and maintain the shape of our economy.
Many in the financial community, including many central bankers, many economists and practitioners and, indeed, some politicians, are still fighting the old war against inflation. I suppose that central bankers cannot do anything else. Once there is deflation they become redundant. Anybody can print money. No one needs to pay a central banker a lot of money to print money. Once inflation goes, we do not need central bankers.
Apart from the Federal Reserve, there does not seem to be much recognition, at least in public—perhaps there is, but no one wants to admit it—that the danger is deflation. The war against inflation has gone. However, the war against deflation will be more difficult to fight. The weapons that are needed to fight it are obviously quite different from the weapons needed to fight inflation. It is—
This year's Budget has been more predictable than most in many ways. The Chancellor was constrained by his financial difficulties from making some of the grand gestures that he sought to make in the past. However, the predictable aspects of the Budget are worth examining, although one aspect was far from predictable.
The first and most predictable feature of the Budget was that the Chancellor would recite all the economic successes, as he sees them, and not touch on any of the gathering clouds around the economy. Above all, it was predictable that he would contrast growth figures in the British economy with figures for some of the major economies in the European Union. It is true that growth here has been higher, although we have had high levels of consumption. As a result, in the service sectors—especially the sectors related to the high levels of consumption—we see employment not only high but rising.
The problem with the argument that the Chancellor advances—full of confidence—that all is well in the economy is, as the right hon. Gentleman used to say when he was in opposition, that the best measure of the future strength of an economy is not consumption but investment. If we are not making the investment today, we cannot earn the money for future consumption.
It is not only that the growth in consumption has been built on past success; the situation is worse than that. Current growth in consumption and the growth in the economy is built not on past success in investment but on borrowing. Above all, it is built on private sector borrowing that has been fuelled by the growth in the value of house prices and massive levels of equity withdrawal. That consumption has been running at levels far beyond the growth in the underlying economy.
Nobody—not the Bank of England, not independent financial experts and not even the Chancellor—believes that such consumption fed by growth in house prices and more borrowing at rates above the underlying growth in the economy can continue for ever. We all know that there is a limit to how high house prices can go relative to incomes. We all know also that there is only so much that people can afford to borrow before the cost of borrowing exceeds the ability to pay for it.
We can all guess when that will happen. A fall in growth in the housing market has been predicted almost continuously over the past couple of years. That has been assumed by the Bank of England, mortgage lenders and the Government. However, without that growth the Chancellor would not be presenting good growth figures for the economy overall in his Budget. The underlying investment figures are worse than those of any of our major economic competitors. They are worse even than those of the economies of France and Germany, with which the Chancellor likes to contrast his record. They are not slightly worse but far worse than the economies of France, Germany, Italy, Japan and America. That raises the question of how far the economy is successful. It tells us one thing clearly: the Chancellor has failed on the measure of success that he set himself when in opposition—the measure of investment. He has failed not because the overall economic circumstances are bad—inflation is low, unemployment is low—but for other reasons. We must look at his policies: the red tape, the tax complications, the grinding down, the difficulties added and the layers of bureaucracy in the business system.
The record is not only that the Chancellor has failed so far, that the investment has not happened to pay for future consumption and, perhaps most important, the taxes that the Chancellor depends on to make the welcome investment in health and education, but that he makes his figures add up only by assuming that the growth in borrowing, the withdrawal of equity, will continue. Everyone else is predicting that the housing market will at best flatten and may dip—we are already seeing signs of a dip in central London, which most people believe may spread. In the Red Book, the Chancellor is pinning his assumptions in respect of tax revenues to pay for his spending plans and of the growth in the economy on continued growth in equity withdrawal. He may be right, but it is extraordinary, if predictable, optimism.
There is a second predictable element to the Budget. The Budget is not neutral on the issue of red tape and tax complication—far from it, it adds to tax complication and to red tape. It was predictable because the Chancellor sincerely believes that that is the best way to manage the economy. One does not have to read many of his Budget statements to realise that that is a fundamental theme—stable macro policy but targeted micro policy, and by targeted he means the Government trying to guess the winners. There is a tax credit here, a tax break there, a bit of scope here, a bit of spending here, there and everywhere.
It is typified by the tax break to promote the British film industry, which was supposedly targeted on encouraging the production of more films in the UK. That lasted only a couple of years, because it did not encourage the production of great movies in this country. It encouraged the production of movies deliberately designed to lose money. They were never released for the British public to see. Worse than that, it was yet another tax loophole. Small businesses, the directors and the producers who have great ideas for new British movies, did not make use of it. The people who made use of it were the big production companies and big TV companies. Suddenly, we saw the reclassification of soap operas as films. Film production went through the roof. Nothing changed in the real world. The Government spent a lot of money. It was entirely wasted and then they withdrew the tax break.
In every single Budget so far, the Chancellor has added to the red tape and those tax complications and to the employment of tax accountants but done nothing to help businesses at the small end: people who cannot afford to pay for expensive tax advice, who work every hour of every day to try to make their businesses a success and who find themselves having to wade through ever more tax documents, complications, credit forms, allowances and all the rest of the paraphernalia of a Chancellor who believes in such micro-management. I do not believe that it works and, looking at the investment figures, the evidence is that it does not work.
The third predictable element of the Budget was a lack of action on fairness in the tax system. We know what the reason is. We know why it is that, on the latest figures released on Friday—official Government figures—the poorest fifth of households pay 41.7 per cent. of their incomes in tax whereas the richest fifth of households pay 34.2 per cent. of their incomes in tax. It is not a progressive tax system but a regressive tax system. Tax breaks are given to those who can afford to employ tax accountants to find them, but those on lower incomes are hit by a tax system that has been wound up to their cost.
Why is that? I am sure that it is not what the Chancellor intended. He did not come into politics to achieve a tax system of that sort, with less tax for those who are wealthy and more tax for those who are poor. It comes down to the promise made in 1997 that there would be no changes in income tax, although there was one change, of course, which made it worse: he cut income tax by 1 per cent. before the general election. He increased it indirectly by increasing national insurance afterwards. He forgot to mention that in the general election campaign. Instead, he used indirect taxes, the so-called stealth taxes—every little way that he could to add some money that would not hit the income tax headlines.
All those little changes, each and every one, little by little across the tax system, the breaks here, the additions there, the indirect tax increases, the cuts and new allowances for those wealthy enough to find their way through the system, added to the injustice of the tax system. They made it worse and meant that the poor paid even more while the rich paid even less.
The Chancellor did not mention at all the biggest and most regressive tax change, but we all know that it is happening. It is strange that he missed it because I am sure that his constituents are writing about it as much as those anywhere else in the country. It is the stealth tax rise taking place in every council chamber across the country, the council tax increases forced on councils by the Chancellor's decision, while increasing the burdens on councils—nationally agreed pay rises, pension requirements, new requirements on services, all of which are perfectly valid in their own right—not to fund adequately through the Government grant system the amounts needed to meet those Government-decided requirements. Why did the Chancellor do that? He did so because it meant that he did not need to announce the £2 billion increase in council tax this year. He could transfer the blame to councils.
The Chancellor does not mind if they are Labour councils. The truth is that Conservative, Liberal Democrat and Labour councils are all sharing the burden and the pain. One can find examples across the country. The average increase in council tax this year is four times inflation.
People ask, "Where is this money going? How is it that council tax is rising? Where is the improvement?" In many cases, there are no improvements. In fact, many councils are having to cut services at the same time as increasing council tax. That has been forced on those councils by the grant.
I am not saying that councils are perfect. I am sure that there are examples across the board of councils perhaps making wrong decisions. I could easily list some Labour and Conservative councils that have done so. I am sure that some Liberal Democrat councils would be fired back at me but—we all know this because we represent areas run by our own parties; it is happening across the board—the Chancellor has taken a £2 billion stealth tax grab through the council tax and hoped that someone else would get the blame.
I will resist the temptation to cite Aberdeenshire to the hon. Gentleman, but are we not reaching a position where the council tax, because it is being asked to bear a burden that it was never designed to bear, is becoming almost as regressive as the poll tax that it replaced?
The hon. Gentleman is right. The criticism that I make is not restricted to this Government. The problem is particularly bad this year because the Government were particularly short of money, so they had to hit councils, but both Conservative and Labour Governments have performed the trick since the council tax was introduced. Council tax replaced the poll tax. As we all remember, VAT went up in order to increase the grant and keep council tax down to a level that would not lead to public protest but, ever since, year by year, Governments have been unburdening themselves of the costs of those services, pushing them on to the councils and pushing up the council tax.
There is a fundamental problem with the council tax: it is not related to ability to pay. It may be easy for a Chancellor on £140,000 a year to pay his council tax bill but it is very hard for people in areas such as the one that I represent—average income is £15,000 or £16,000 a year for a full-time male employee in my constituency—to find about £1,000 to pay the council tax bill, and it gets worse year by year. We know just how hefty the burden is, because the new figures that the Government released on Friday show us the result of this process. On average, after benefits the poorest fifth of households pay 7.1 per cent. of income in local taxes, compared with the richest fifth, who pay just 1.8 per cent.
That is why Liberal Democrats have argued that something has to be done nationally. We argued that we should have a 50 per cent. rate of tax on those lucky enough to earn more than £100,000 a year, which is in line with European levels, and even with New York levels, for top-rate taxpayers. That would provide sufficient funding to cut the council tax immediately by £100, and to get rid of the iniquitous tuition and top-up fees that are hitting the many ordinary families supporting students through university. Moreover, at a stroke it would to some degree rebalance the tax system, making it a little less regressive for the poor by asking the rich to pay just a little more.
Will the hon. Gentleman clarify the effects of this policy? In addition to higher earners paying 50 per cent. tax, would not everyone else pay extra income tax, given that the Liberal Democrat policy is to get rid of the council tax and replace it with a local income tax? Would not the burden be increased, therefore, far beyond just 50 per cent.?
In the first instance, we would ask not current top-rate earners but only those on more than £100,000 a year to make that contribution. That measure could be introduced very quickly; indeed, the Chancellor could have introduced it this week. In the longer run, what the hon. Gentleman says is right. We believe that the council tax is not a sustainable way to fund local government expenditure for the very reason that I have given. Yes, we would replace it with a system based on ability to pay: a local income tax that is collected through the existing Inland Revenue structure, involving less than 3 per cent. on income tax, in order to get rid of the council tax. I should remind the hon. Gentleman of the figures. The poorest 20 per cent. of the population currently pay 7.1 per cent. of income in local taxes—there would be a huge tax cut for them—yet the richest fifth pay 1.8 per cent.
Such rebalancing of the tax system would be right and fair. [Interruption.] I do not expect the Conservatives to believe me, because they do not believe in progressive taxation. I urge Labour Members to think hard about this issue. The alternative is further squeezes on council expenditure and services, and, worst of all, the probability of further yearly above-inflation increases in council tax. This Government have simply followed the previous one down this path. It is always easier for Governments to get councils to take the blame for council tax increases. People on low incomes—pensioners on fixed incomes and many others—are finding it impossible to pay these bills, at more than £1,000 per household, on average, for a band D property. This has gone from a protest of hurt to a real cry of pain, and the policy should not continue.
Some years ago, before the poll tax, the abolition of the old rating system—in Coventry, for example—resulted in the loss of some £600 million over a number of years. What are the hon. Gentleman's views on that, and would local government be funded solely through his proposed local taxation, or would he retain a measure of Government grant—he has not touched on that so far—for social services, education and so on? How would he compensate for that?
The replacement system for the council tax would require only a fairly low level of income tax—on all income, incidentally, right across the bands—but the question of Government grant must be addressed in two respects. It is obviously necessary to maintain a system of Government grant to equalise differing income levels in different districts. The principle should be a similar level of income tax to pay for a similar level of service, so there is no getting away from generating fairness and equality across the country through Government grant. But the key difference between council tax and local income tax is that one could, if one wished, increase the proportion raised locally simply by reducing national income tax and increasing local income tax, penny for penny. However, there is no getting away from the fact that an equalisation system would be necessary, and no one in his right mind would argue otherwise.
Will the hon. Gentleman confirm that he would need 6p on income tax to compensate for the money that he would otherwise take through the council tax? On his short-term proposal, will he confirm that, since Liberal Democrat councils already charge, on average, £100 more in council tax than Conservative ones, the only effect of his introducing a 50 per cent. rate on income tax would be to bring Liberal Democrat councils' taxes to roughly the existing levels of Conservative ones?
The right hon. and learned Gentleman is wrong, and he should check the Government figures. First, in fact, on average Liberal Democrat councils charge less than Conservative ones—[Interruption.] Oh, yes. The general public can rely on the official figures; they do not have to rely on the Conservatives' figures. His second point is also wrong. I am aware that the Conservatives have been peddling this figure. They assume that it applies only to the basic rate, which is wrong; worst of all, they forgot to take off the council tax benefit. So the proposal would cost nothing like the figure that he mentions. Perhaps he needs to get a new economic researcher, as this is a fairly basic matter to check on.
Of course, we know two things about the right hon. and learned Gentleman and tax for councils. He and I participated in a Committee some time ago, in which I argued for exactly the proposition that I have just advanced; however, he argued for the poll tax. He was representing the then Government and proposing the poll tax, so we know that he is not in favour of a fair system of local tax. He thinks that, regardless of how much people earn, they should pay exactly the same. He wants a big cut in his bill to pay for the council—a cut paid for by all of those on low incomes. An apology might be the right thing for him to intervene with now; perhaps he would like to apologise for introducing the poll tax, having arguing for it in Committee.
If the right hon. and learned Gentleman does not feel like doing that, perhaps he could tell us what he would do about the council tax. When asked last week by The Daily Telegraph what he would do about rising council tax bills, what did he have to say? Did he speak of a programme of change, of a new policy, of an initiative? No. All that he could say was, "I don't know." The full and thought-through Conservative party policy on the council tax, as expressed by the shadow Chancellor in the paper of that party, was, "I don't know." Well, Liberal Democrats do know. We have had a thought-through policy for some time, and the right hon. and learned Gentleman should surely have been able to catch up with us by now.
The final point that I want to touch on—
Thank you. The Budget contained one unpredictable element that I was really surprised by: the Chancellor's decision, having thrown out prudence and dallied with lady bountiful, to hit the casinos—the gambler Chancellor. Underlying all of these policies are two assumptions that simply cannot be justified, but which underpin his spending programme for future years. He had a choice. His Budget need not have frozen some of the allowances, and he could have brought in a little extra in the way of finances. Most of all, he could have been honest and said not only that borrowing will be higher than he predicted for next year, but that it is likely to continue to rise for some time. We could then have argued about that.
Had the Chancellor taken that approach, his growth forecasts could have matched those of independent forecasters; instead, he chose to take a flyer. He chose to base his entire economic plan for the next few years on the assumption that growth in 2004 will bounce back way beyond the consensus of independent forecasters. He forecasts not the average 2.4 per cent. growth for 2004 predicted by independent forecasters; nor is he just a little on the high side of that figure at 2.5 to 3 per cent. He forecasts growth of a full 3 to 3.5 per cent. in just a year's time, despite the fact that forecasters predict that business investment will drop again next year.
We are talking about a bounce back coming from nowhere, funded by nothing, with no investment to pay for it. The Chancellor believes in that, and he may be right: perhaps the response to the war in Iraq will be a huge runaway success in the American economy, driving worldwide success and driving up the British economy, despite the fall in business investment in the United Kingdom. To describe that as prudent, however—well, not even the Chancellor could bring himself to do it.
The fact is that the Chancellor has taken a flyer. He has taken a gamble, and I do not think it was predictable. I think it was extraordinary. The chances are that he will have to come back in the autumn, or at the time of next year's Budget, and admit that he has got it wrong again and must downgrade his figures yet another time. Why did he do this? It is almost impossible to understand.
I am not talking only about the growth figures. In a couple of years, corporation tax receipts will be at record levels. They will not be at their present 2.3 per cent. level, or at the 2.9 per cent. historic average. A rate of 3.3 per cent. from the economy as a whole will be paid in corporation tax. How often has that been achieved? It happened in only one year, in the late 1990s, at the top of the stock market boom. For some reason, however, the Chancellor believes in low business investment along with record corporation tax levels.
If the Chancellor does not achieve his aim, he will have to cut spending or else—more likely—come back in a year or two and ask for more tax. This time it will not be to fund investment in education and health, but to fund a gap caused by his mistakes, which have led to low investment in business. That has meant an economy that has not earned the money to pay for the Chancellor's plans for health and education.
We welcomed those plans. We stood by them, and argued for the necessary increases. Next time, however, it will be not a tax for health and education, but a tax for Brown's error. Why did he do that unpredictable thing? Why did he take a gamble? I do not know. Perhaps we shall never find out; or perhaps the Chancellor has no intention of being in office when the time comes to pay his bills.
Because of the two important and encouraging statements and the ten-minute Bill that preceded this debate, according to my calculations only 11 Labour Members will be able to speak. I am extremely grateful for my chance to do so.
I congratulate the Chancellor. As in earlier years, he has produced an excellent Budget. Year after year we have heard the same complaints from businesses, well expounded by their handmaidens on the Opposition Front Bench. Year after year they have been wrong, and I am sure that they will be wrong this time.
I am pleased that there has been no reduction in public expenditure. Again, time after time the Opposition have criticised all our services and the way in which things are run; but whenever efforts are made to improve the situation, the same people object to the provision of money for the purpose. I am sure that the public are beginning to realise that, because they are becoming extremely stale.
In the early years of the Chancellor's reign, he brought about a significant reduction in the national debt, which allowed more public expenditure without the need for increased taxes. Probably his greatest asset is his talent for obtaining revenue. If I needed to raise money quickly, as I hope I never shall, the first person I would go to would be the Chancellor. He has performed miraculously in obtaining money and making it available for investment in infrastructure, and in making a better life for people.
Many Opposition Members are grinning. The public will tell them that the last six years have been the best in the past 25 for the vast majority of people: there is no denying that.
I hope no one will assume that because I am sometimes a little critical of what business organisations say, I am against business. I am not. I understand enough about economics to realise that the only way in which wealth can be produced is through various types of business—large, medium-sized and small. When I talk to those running small and, often, larger businesses, they are not as critical of the Chancellor or the Government as Opposition Members. I say that in all sincerity, and I meet quite a few businessmen.
What does concern me is the possibility that my right hon. Friend is rapidly running out of options for what are sometimes called stealth taxes. I think that stealth taxes have been marvellous. They are one of the best things that have ever happened in this country, and they have led to much better lives for the citizens whom we are supposed to represent. Let me point out to the Opposition that we are supposed to represent everyone, not just businesses.
Although it emanated from my own party, one of the most rubbishy sayings I ever heard was "If it is good for business, it must be good for Britain". That is not necessarily true. It is true to a large extent, but sometimes things that are good for business are bad for the rest of society. It must never be forgotten that businesses are only a small part of society, albeit an important part. I make that point because I do not want to be accused of being anti-business just because I have spoken the truth.
If we want to go on improving life in this country, we must eventually revisit the whole issue of personal taxation. My view, and that of the Government, is that the fairest form of taxation always has been, and always will be, progressive personal taxation. Those who make the most from society must be required to put the most back into it. It is an old-fashioned concept: it is called socialism. I believe in it, I do not believe that it is out of date, and I believe that its time will come again.
In the future, my party may well have to revisit that issue. We shall have to explain to the public that whatever they want must be paid for—and, in the long term, the only way of paying for a decent infrastructure and decent services is obtaining the necessary revenue through tax. We do not need to be John Maynard Keynes to realise that—a fairly elementary knowledge of economics makes it obvious—yet time after time there is opposition to any increase in public expenditure from the same people who demand better services.
I am sorry, but I am not giving way to anyone. I mean no disrespect. I have only eight minutes in which to speak.
Although the NHS, for instance, has received a tremendous amount of extra resources, it is felt that nothing is being received as a result. France, I believe, provides a slightly better health service than ours with approximately half the number of staff serving a similar population. It is not a simple matter: the United States, which spends almost twice as much GDP as us on health, does not provide a better service.
Earlier, an Opposition Member mentioned pensions. Some Opposition Members should be ashamed. The architecture of the current problems in private pensions was Conservative party legislation that tried to denude good occupational pension schemes and put them into the insurance sector. We have never recovered from that. As a consequence, various companies decided to take contributions holidays. When I hear of so-called raids on pension funds, I wonder how much has been lost from those funds by employers and companies giving themselves such holidays. Yes, there is a shortfall, but it would have been a lot less if so much had not been taken from pension schemes—immorally in my view, although, unfortunately, legally.
I happened to be reading The Daily Telegraph on the way here today. I am sure that the Opposition appreciate that it is not a paper that generally goes out of its way to praise Labour—indeed, I think no one would deny that—and it was interesting to find on page 33, along with the usual bellyaching and moaning from business about the Budget, a little article tucked away with the headline "British venture capital tops EU league". It reports
"The European Venture Capital Association . . . has produced a league table on where it thinks the venture capital environment is most favourable. Britain emerges as the best".
So I do not know why we need all the doom and gloom. It continues:
"Britain emerges well on tax because capital gains tax is scored at 10 per cent. against the EU average of 18.6 per cent . . . The UK also has a small business corporation tax rate"—
Nobody has mentioned that tonight. It goes on:
"Britain scores well for its entrepreneurial environment because it is cheap and easy to set up a company".
From what we have heard from Conservative Members tonight, it would seem as if it were almost impossible to set up a company in this country. It is about time that we heard rather more forthrightness and honesty from the Conservative Benches.
Mr. Etherington could never be accused of not being straightforward. It is a delight to follow him and his straightforward expression of the ideas of old Labour. I would also like to congratulate my hon. Friend Mr. Yeo, who opened the debate for the Conservatives, on his successful exposure of this hope-for-the-best Budget, not to mention the Panglossian statements of the Secretary of State for Trade and Industry.
I wish to devote my remarks to one particular, and particularly disappointing, aspect of the Budget. If the Chancellor had chosen, as he could have done, to make a convincing reduction in duty on biofuels—instead of re-announcing his pre-Budget report figure of 20p per litre as if it were new—he could have moved closer to his own Government's environmental targets. He could have tackled the issue of fuel security, which he has himself described as of increasing concern. He could have given a much-needed boost to the decline in manufacturing, about which we have heard much from the Secretary of State this afternoon. Most importantly of all for my constituents, he could have given real hope to the future of the agriculture sector, which has endured a 50 per cent. reduction in its incomes over the past year alone under the present Government.
Ministers will know from early-day motions, from speeches in the House, from meetings with hon. Members and from the fact that the Select Committee on the Environment, Food and Rural Affairs is to examine the future of biofuels, about the strength of the all-party support for a further reduction in biofuel duty. Indeed, I see some supporters on the Government Benches. Sadly, it is not clear that any one Department is crusading for that cause—certainly not the Treasury. That is strange, given the obvious contribution that a reduction in biofuel duty would make to the Government's oft-repeated commitment to the reduction of greenhouse gas emissions and carbon dioxide emissions. A reduction would also contribute to meeting the target for renewables by 2020. Given that road fuel emissions constitute 25 per cent. of the total requirement, I wonder how the Government think that they will realise their objectives without including biofuel measures. I do not believe that they can.
The rest of us are aware of the many other advantages of biofuels, even if the Treasury is not. The public want access to environmentally friendly fuels without the expense of having to switch to hybrid vehicles or those that have to be adapted. Biofuel duty reduction is supported not only by Members of all parties, but by organisations as diverse as Friends of the Earth, the National Farmers Union, the Country Land and Business Association and several major industries.
Independent research by Sheffield Hallam university demonstrated that CO2 emission reductions from conventionally produced bioethanol would be more than 60 per cent., whereas British Sugar believes that, with the efficient generators in its factories, the figure could be increased to more than 70 per cent. Whatever the precise level of emission reduction, it is clear that a 20p duty reduction is not enough to encourage investment in biofuel production without the security of knowing that there will be a sustainable market for bioethanol. Without that, there will be no investment by British Sugar or any other manufacturer to produce the fuel. Meanwhile, other countries have got the message. Brazil has a minimum mandatory 25 per cent. bioethanol blend in all gasoline fuels and in the US 12 per cent. of cars are powered by biofuel blends. The Government also have to face the demands of the EU biofuels directives.
Encouragement for greater use of biofuels would help manufacturing, especially in rural areas, about which the Secretary of State seemed so enthusiastic this afternoon. It would help the Government to achieve their environmental targets and would contribute to fuel security, but for rural economies it could make a life-or-death difference. As the Government's policy commission on the future of food and farming states,
"England needs a long-term strategy for creating and exploiting opportunities in non-food crops including starch and oils. This area should be a high priority for the research and technology transfers we have outlined. We recommend that the Government should reduce duty on bio-fuels to that charged on other clean fuels. We believe that this will help processors to drive the market forward."
What a carbon copy of the examples provided by the Secretary of State this afternoon: the only difference is that this one is real and the Government are doing nothing about it.
The House will need no reminding of the current plight of agriculture. In East Anglia, the staple crop of sugar beet faces becoming, in effect, a non-food crop by 2006. In Norfolk alone, 10,000 jobs depend on sugar beet. If farming is to continue, the Government must provide more adequate encouragement for the alternative use of food crops. It is worth noting that production of sugar beet or cereals for bioethanol would fall completely outside the current common agricultural policy support system. Sugar beet production has an excellent environmental record and the majority of cereal feedstock would be drawn from the current UK surplus. Both crops would be grown extensively, not intensively. British Sugar has said that it would take only 22 months to convert its existing plants to produce biofuels from cereal and sugar beet, but it will not contemplate doing so without an assured market. That can only be brought about by a more realistic duty reduction.
The Treasury has to balance its books, as we will be told later, by setting an increased biofuel duty reduction against the benefits to the economy that would result. In this Budget it may have had to do that because of its own forecasting and economic mistakes, but what is being done across government to establish the case? What is DEFRA doing to press the case? How is it that the only research being conducted across government is being undertaken by the East of England Development Agency and how does that vacuum of research, evidence and Government resolve square with the boasts of the Secretary of State earlier?
I submit that if the Government had been serious about meeting their environmental commitments, about fuel security and, above all, about the future of manufacturing, agriculture and the countryside, they would not have left that vital work to a development agency but done it themselves—across Departments and in time for this Budget, not the next. Members of all parties must ensure that next time the Government heed their own words, work toward meeting their commitments and give some assurance about the future to people in agriculture and rural communities, which they sorely need.
Most people outside the Chamber think well of us when they hear such excellent speeches as those of Mrs. Shephard, my right hon. Friend Denzil Davies and my hon. Friend Mr. Etherington, in only eight minutes each. The usual political guff from the Front Bench of the Liberal Democrats took three times that time, but will doubtless be widely reported in Focus up and down the country.
The fact remains that it is difficult to say much in eight minutes and there is a temptation to take things for granted in Budget debates. We certainly need a reality check when we hear some of the critics of the present Budget proposals. I have been a Member of Parliament for some time and I cannot remember experiencing six consecutive good years, in which the economy got better year after year. On all dimensions and in respect of all the criteria, we now have a good economy, but I recall our dire economic experiences under the Thatcher and Major Governments.
Of course, what was interesting about those days was that by the time we had got used to one disaster under one Chancellor, he had moved on. There was no consistency. At least we have had the same Chancellor from the beginning, and we know his record. He is still there, and he is still defending policies that work.
That was the party political bit of my speech; now, I want to pick a few holes. First, I agree with the right hon. Member for South-West Norfolk about environmental taxation. She was absolutely right in what she said about biofuels, in which she and I are interested. Anyone who reads the recent report of the Environmental Audit Committee will see the absolute mess that environmental taxation is in under the present Government. They got rid of the landfill tax credit scheme, making a pretence of consulting after the pre-Budget report. After listening to all the leading-edge people in the environmental sector, they still stuck to the crazy proposal to abolish the landfill tax credit scheme, which was such a good piece of environmental taxation. The Government rightly stand condemned for showing no consistency in their environmental tax proposals. That is true across the piece—for biofuels and landfill tax. The landfill tax will go up too slowly to make any difference to the enormous problems of waste in our country.
I make that point briefly because I mean to speak mainly on productivity, making two strong points. If we track the past six Budgets forensically, we see that the Chancellor's interest, for which he deserves credit, has continued to be focused on the worrying failure of our economy to increase productivity sufficiently in comparison with our competitors. The Chancellor referred last week to an improved position vis-à-vis Germany and Japan, but we remain behind Germany and substantially behind France. We are appallingly far behind the Americans—20 to 30 per cent. behind. What is strange is that when American companies invest in the UK, they bring their productivity rates with them. Being behind has to do not only with the nature of our country and the economic and tax environment. It is not even to do only with the skills in our society. Something strange is going on when an American company can bring such productivity levels in with it.
There are serious worries about private sector productivity. The Government have produced a range of measures to tackle those concerns. Some of them must be recognised and applauded, but so many seem to be littered across the economic landscape that there is little focus on grasping the productivity problem. The Secretary of State referred when she opened the debate to good liaison between the Treasury and the Department of Trade and Industry and between those two Departments and the Department for Education and Skills. As Chairman of the Select Committee on Education and Skills, I believe that problems with productivity are often linked to the skills base of our country. Many countries resemble ours; we have pretty good educational skills training for about two thirds of the population, but we have a long tail of underachievement, and we have not tackled that problem sufficiently.
There is a real problem when it comes to tackling productivity in the private sector, but the problem is even greater in the public sector. Some of my colleagues will not like what I am about to say, but I believe that the Prime Minister has always been spot on in saying that investment in public services—in health, education, the criminal justice system, and transport—must be paid for by reform, improvement and change. There are not enough signs at present that we are obtaining enough change in the public sector to justify our massive investment of taxpayers' money.
I know that that will not be popular with some of my colleagues, but we cannot continue to spend large sums of our national treasure on health, education, transport and criminal justice year on year without a guarantee of radical reform and higher productivity. It is not easy to obtain productivity increases in those sectors, and it is not comfortable.
Sometimes the Government have to introduce policies such as foundation hospitals because one way to tackle productivity issues is to give people in hospitals that can achieve improvements a lead that will let them make productivity work. My hon. Friend Dr. Kumar may disagree from a sedentary position: I have only eight minutes, so we cannot have a debate on the point. The fact is that when we invest in education and skills or any other public sector area, we have to find a method of driving up productivity so that taxpayers receive a real return on their investment.
That point hangs over the Budget, but it is not the dominant point. As Chairman of the Education and Skills Committee, I believe that the real attention paid to the fundamental skills base of this country has begun to work, but there is a long way to go.
It is a pleasure to follow Mr. Sheerman, who made a bold and outspoken speech in which he referred to the bewildering array of measures that, to use his word, litter the Chancellor's Budgets. It is always hard to tell the significance of those measures until afterwards, when most of them turn out to have been far less significant than one had thought.
I shall focus on one strand of policy that has flowed through several of the Chancellor's Budgets, including the current one. I believe that it has had the major impact on the real economy, on our society and on social justice. It is far more significant than people realise. It is the policy that the Government have pursued of encouraging substantial net immigration into this country to boost our labour force. That is of enormous importance, but it brings far less economic benefit than the Chancellor argues, and it has social consequences that he has not taken into account, including the impact on the housing market, which is another area dealt with in the Budget, and on the fate of the developing countries, to which I shall refer if time permits.
We have seen the Government boost the flow of net immigration into this country by the order of 200,000 people each year. They have done that not just, as people imagine, through the growth in asylum seeking, or through the family reunion programme, which they have boosted. Above all, they have done it through the increase in work permits from 47,000 a year to 140,000 a year. Prior to the Budget, they announced plans to boost that figure to 200,000 a year. In the Budget, the Chancellor emphasised further measures, saying that they were geared towards highly skilled immigrants. He referred to the highly skilled migrants' scheme, but that affects something of the order of 1,300 people a year. It is small beer in comparison with the major changes announced by the Chancellor that affect lower-skilled workers. He referred to two programmes—not in his speech, but in the Budget document—bringing 10,000 extra workers each for the hospitality sector and the food processing sector. Another 5,000 workers will be on seasonal work programmes, although, paradoxically, the seasonal work programme will happen all year round. The Chancellor proposes to promote the holiday workers scheme, which allowed 40,000 people a year to come primarily from the old dominions in the rest of the Commonwealth—in India, Africa and so on. He is also to promote a similar scheme for the new European countries that will in due course become members of the European Union. Substantial numbers will be added to the net inflow as a result of the measures that were announced in the Budget.
I am not against all migration; I believe that it can have benefits. Still less am I against all immigrants—even those who come here as economic migrants pretending to be asylum seekers are, in my view, decent, honourable people who are exploiting an opportunity that we have opened to them and who want to better their lot and that of their families. We should spurn those who try to denigrate them as individuals. However, the country should surely seek balanced migration, with the flows into the country roughly equal to the flows out of the country. Roughly 400,000 people a year leave for temporary assignments overseas; a similar number coming in would do us much good.
It is generally acknowledged that net immigration has been one of the driving forces behind the growth of the American economy, especially through the second generation of immigrants. Why should it be any different for the UK economy?
I want to talk about precisely that point because the Chancellor raised it too. The Chancellor claimed that net immigration has economic and social benefits that have been important to the success of the US economy and are now important to ours. Is that true? It is certainly true that, if one has extra workers, one has extra output. However, there is no evidence that those extra workers increase the productivity or the rate of growth of the pre-existing workers. Adair Turner recently analysed the difference in productivity growth and economic growth in Europe and America. At first sight, American growth over the past 20-odd years is half as great again as European growth. However, when the figures are broken down, they show that per-head growth in the States has been almost identical to that in Europe. In other words, all that migration has achieved in America has been to add to the size of the economy but not to the average wealth per head.
What of the social benefits to which the Chancellor referred? Clearly, cheap labour benefits the rich. Many people whom I have met around London say that they enjoy employing cheap workers who have come from eastern Europe or elsewhere. However, by definition, it benefits them by holding down the pay of lower and less skilled working groups. I am not the only one who says that. The Government's adviser on labour matters, the noble Lord Layard, wrote to the Financial Times to say that, according to the newspaper, we needed "immigrants, skilled and unskilled".
However, his letter continued:
"This may now be the conventional wisdom, but it glosses over the conflicts of interest between different groups" of people.
"For . . . employers and skilled workers, unskilled immigration brings real advantages. It provides labour for their restaurants, building sites and car parks and helps to keep these services cheap by keeping down the wages of those who work there.
But for unskilled" people
"it is a mixed blessing. It depresses their wages and may affect their job opportunities. Already unskilled workers are four times more likely to be unemployed than skilled workers, and it is not surprising that they worry.
Although the total size of the labour force has no effect on the unemployment rate, its structure does; and a rise in the proportion of workers who are unskilled does raise overall unemployment."
The social benefits of unlimited immigration—or, not unlimited, but boosted net immigration—are not so visible to those at the lower end of the pay spectrum. The reason why nurses in this country are paid relatively little, and less than secretaries, is that we recruit nearly 30,000 nurses from abroad every year, enabling us to hold down their pay. That is why a third of all those who train as nurses leave the profession. That is why there are 100,000 people in this country with nursing skills who do not take up nursing jobs. The story is similar in a number of other professions.
The major social cost of this immigration policy is surely in the housing market. In an empty country, it is sensible to promote net immigration to exploit natural resources. However, England is the most overcrowded country in Europe; it is more densely populated even than Belgium and three times more densely populated than France. Net immigration into this country imposes social costs and leads to competition for scarce resources, especially in housing and land. The Chancellor deplores that. In his Budget, he deplores high prices and the scarcity of supply of housing. He proposes to relax the planning laws. However, he does not say how many extra houses that will create. I would ask the Chancellor to tell us, when he sums up, whether the measures that he announced in the Budget for extra houses will be sufficient to cope with and house even the extra flow of labour into this country, which he is encouraging, let alone the net immigration of 200,000 people a year into this country. That was the predicted figure before this Budget. It is equivalent to two whole constituencies' worth of houses having to be built every year—two thirds of them in the south-east. That target cannot easily be met. We have made a problem for ourselves by promoting excessive net immigration to this country. I hope that the Government will think again about the wisdom of that policy.
It is a privilege to speak after Mr. Lilley. I congratulate him on his studied approach to the Budget proposals. However, if there were a problem of overcrowding in England, I would welcome proposals from the Chancellor to move civil servants out of London and into my area of Scotland. We have plenty of space and we would welcome the economic benefits.
When this Government came to power in 1997, their arrival was heralded by the anthem, "Things can only get better". That is exactly what has happened. The Conservative party may not like it, but in every subsequent year—incrementally, bit by bit—things have got better. Over the six years, the Government's economic policies have created stability and built a fiscal framework that has allowed Britain, and Scotland within it, to get as close as they have been to full employment since 1974. There are more people in work now than there have been for the past 30 years. The Government's policies have promoted growth year in, year out. Mr. Salmond may want to pick me up on that comment, and say that, technically, Scotland was in recession for two months last year. However, there have been heartening increases in the growth in services, house prices and tourism. I am happy to give way on that prompt.
Since Labour's most recent First Minister took office in Scotland 18 months ago, the Scottish economy has contracted to the extent of £260 million in gross domestic product. Not everything in the Scottish garden is rosy, not even in Dundee.
I accept that point and will address it later in my speech. However, the hon. Gentleman's party's policy would create even further chaos. He believes in divorce from the United Kingdom. That would lead ultimately to job losses and an outward flow of investment.
The nature of this Budget is to consolidate the progress that we have made so far and to continue to foster, throughout Britain, economic strength and social justice. I welcome the Chancellor's commitment to encourage and help to harness the distinctive strengths of the nations and regions of this country, assisting them to rise to the challenge of making their skills, innovations and enterprise world class. There is a series of structural problems that Parliament will have to address, in conjunction with the Scottish Executive, to ensure that Scotland enjoys and shares in that wealth. One issue that the Chancellor should take up with his opposite number in the Scottish Parliament is that of doing away with Scottish Enterprise, and putting in place a much better and more interventive means of implementing Government policy—such as we had in the days of the old Scottish Development Agency, which could take an issue in its hands and resolve it. We also have to create cross-border institutions between this Parliament and the Holyrood Parliament, so that we can discuss structural issues and find ways to resolve them.
Hon. Members should rest assured that Scotland and Dundee are ready to play their part in creating a world-class innovative economy in the UK. As I have said, in Scotland things are getting better. However, I fully accept that things have yet to be done to ensure that Scotland, Dundee and all parts of the UK share in the general prosperity that is enjoyed in other, more affluent, areas of the country.
There has been much comment to the effect that this Budget introduces a series of standstill measures. Nothing could be further from the truth. In this Budget, the money to finance innovations in education, science and enterprise is measured to ensure that we are spending enough to ensure that the growth that we have created so far is maintained and improved on. It will expand our skills base and, as a result, increase our productivity and competitiveness. In that context, I welcome both the extra £3 billion being invested in the sciences and activity to aid research and the pioneering of new technology. Allowing Britain to lead the world in new discoveries means that we create new industries and new jobs.
It is also right that we should do much more to encourage universities to assist in that process—a cause that is close to the heart of my right hon. Friend the Secretary of State for Trade and Industry, and one of which I am well aware, given the crucial roles in the regeneration of Dundee and Tayside played by the two universities in my city.The university of Dundee leads the way in medical biotechnological research, an area referred to by my right hon. Friend in her introduction, and is tipped as the university most likely to discover the underlying causes of cancer. It is already a world beater in promoting cures and treatments to counter that illness.
The university of Abertay, Dundee, has also played a significant role in the regeneration of my city's economy by attracting so many students to its unique IT-based courses. The university is an acknowledged leader in the field of computer games technology and has played a prominent role in several DTI-sponsored visits to the far east and Japan.
Those two universities are a microcosm of the UK academic scene and show what can be done, and what potential there is, when academic research can be linked to the creation of new products, the promotion of industrial development and aiding urban and economic regeneration. As a Government, we need to ensure that all UK higher education establishments committed to research are funded fully and fairly. We should do away with the golden triangle of selective and prestigious universities that dominate research—a point made earlier in the debate and also by the principal of Abertay university when I spoke to him on Friday. Every academic institution should be committed to research and to the promotion of that research for the benefit of all.
Research into oil and gas extraction techniques would be of enormous benefit to Britain, and to Scotland, especially in the technically difficult and demanding North sea oilfields. Recently, Professor Kemp delivered a talk in the Palace on the extent of the life of North sea oil and gas. In response to a question from me, he openly admitted that not enough was being spent on promoting innovation to tackle the problems. He made the point, which was fully accepted by all who attended the meeting, that, as well as changing the price ratios, the life of those North sea fuels could be extended by ensuring that more was spent on innovation. I hope that the DTI Minister with responsibility for those matters will attend a meeting of the United Kingdom Offshore Operators Association all-party group to talk about the Government's proposals on such matters.
We need to do more for small businesses. I am a member of the all-party group on small businesses and recently initiated a debate on the contribution of UK small businesses to our economy. The Opposition show a lack of knowledge of the situation for small businesses, as we saw when Mr. Yeo, who opened the debate for the Opposition, skirted and avoided my question to him.
Last year, despite the downturn in the global economy, there was an increase of 14 per cent. in the number of small businesses created. That growth was shared north of the border, although not to the same extent. It is easier to create a small business in the UK than in Europe, and takes less time, because there is less regulation.
I liaise closely with the Federation of Small Businesses in Scotland. Last year, the federation conducted a survey in which concern was expressed that small businesses could not achieve and sustain real growth. They lacked easy access to investment capital, so I welcome the measures announced in the Budget that will pave the way for the creation of small business investment companies. Some people claim that those measures will not do very much, but I believe that, by making funds available up-front, they will take us some way along the road towards the creation of an environment in which small and medium-sized enterprises can achieve their full growth and potential, thus creating more jobs for the British economy.
The Budget and its merits have been talked down by the press. However, it is a milestone; it is a measurement of the progress that we are making in achieving a better Britain where social justice is firmly established through economic strength. Our success will lead to a further term in office for the Labour Government after the next general election. The British people, in their heart of hearts—whether those hearts be Conservative, Labour or Liberal, Scottish, Welsh, Irish or English—know and accept that this is the only way forward. It is the Labour way forward and the right way forward for Britain.
I am delighted to have the chance to speak in the debate, and I shall be brief.
Will the Chief Secretary to the Treasury explain why, in the particularly dismal and Alice in Wonderland speech made by the Secretary of State for Trade and Industry, the right hon. Lady seemed to be living in a completely different world to the one inhabited by the rest of us? It is certainly different from the world in which British business men and our citizens have to make their way.
First, I shall explain to the Chief Secretary why the economy is not in the good shape that he will describe in his speech. Last year, Government consumption grew at its highest rate for 25 years; it rose by 3.75 per cent. Government capital spending rose by 9 per cent., but business investment declined and ended the year 5.5 per cent. below the figure at the end of 2001. Business fixed capital investment was down 9 per cent. in 2002, the fastest decline since the 1960s. Manufacturing output fell by 4 per cent. in that year.
I should like the Chief Secretary to try to explain to the Secretary of State for Trade and Industry that if the spending and public service part of our economy is the only part that is growing, and is the main sustaining force behind our growth, the wealth-creating private sector—business, commerce and enterprise—will decline. If business investment and productivity are weak, the long-term outlook for the economy is not healthy. I thus have no confidence in the Chancellor's mystical forecasts. The iron Chancellor has become the tax-and-spend Chancellor.
I give the Chancellor credit for two announcements in the Budget. The first was about the reserve fund of £3 billion for the Ministry of Defence. However, I have a question about that for the Chief Secretary; he will know the answer. As so often with the Chancellor, it is impossible to tell whether that is new money. I know that it is not all new money and the Chief Secretary knows that it is not, but will he tell us what proportion of the reserve fund is new money? How much of it will go towards the deficit in the strategic defence review that has not been made up to the MOD, and how much will be from the additional moneys recently made available to the MOD? The Government promised that the SDR would be fully funded, but it has not been.
Secondly, I welcome the belated injection of £330 million for additional domestic counter-terrorism measures. The House should be aware that that money is long overdue; indeed, it may not be enough to be truly effective for the home defence of the nation, but I hope that, even at this late stage, the Government will respond to a proven and real danger.
Even with taxes raised 53 times since 1997, and with the tax take rising by 50 per cent., public services are obviously floundering—even in my constituency. I take no pleasure in saying that. We had hoped that public services would improve dramatically, but the old tax-and-spend routine simply does not work, as we all know. That matter has been well dealt with in the previous debates. However, I have one important issue to raise and I should like the Chief Secretary, who is extremely gracious, to listen with care and to transmit my views to the Secretary of State for Trade and Industry.
Every year, I undertake a pre-Budget survey in my constituency. It goes to every business man in my constituency. I do not claim that the results are scientific, but they give a broad indication of the way that people are thinking. The results are always fascinating and three vital points emerged this year. I am confident that the same three points would emerge in pretty much any seat in the land. First, 74 per cent. of those who responded believe that Britain is less competitive than it was in 1997, and they are absolutely right in that persistent belief. Secondly, 81 per cent. of them felt that Government regulation presented a significant handicap to running businesses, both small and large. Thirdly, when asked what the Chancellor could focus on to help their businesses, the reduction of red tape was ahead of all other issues.
Certainly, no rocket science is employed in this, but burdens on business have led to productivity growth being almost halved in this country, as money and effort have flowed out of productive and enterprising companies. Mike James, who is the managing director of a company called Bio-Productions in Burgess Hill in my constituency, wrote a letter to me in which he said:
"Like most people who start and run their own business, I started out with a desire to make something. Now I spend ¾ of my time looking after staff problems and complying with" worthless
"legislation. If I could get out and meet customers more, and those could get out and pay more attention to their customers just imagine how much more business could be done".
Hon. Members will find such views in any seat in the land.
The Government must now show the will and effort to deal with those matters; otherwise our economy will become as sclerotic as Germany's, and what my constituents in business and commerce—frankly, they are already reeling from the burden of tax rises—most want to know is when the Chancellor will finally deliver on his promise to reduce the burdens on business, or whether he will continue to take back with one hand what he gives with the other. If he does not deal with that, the country's competitiveness will continue to fall.
I wish to make a point to the Chief Secretary. The Treasury has produced a consultation paper, together with the Inland Revenue, to review the residence and domicile rules as they affect the taxation of individuals. I am well aware of why they should have done that—the Revenue persistently lobbied the Chancellor to do the same thing when my own party was in government—but I should like to make a very important point: a very large number of people come to London who are not residents here and who have special taxation arrangements. Many of those people greatly enrich our economy. They use the services of the City of London and they bring a great deal of money into this country, and I urge the Chief Secretary to be extremely cautious when dealing with that matter because that is a long-term ambition of the Revenue, which successive Chancellors have always seen off.
Despite the downbeat backdrop to the Budget, with increased uncertainties and the dangers of deflation, which my right hon. Friend Denzil Davies pointed out in his speech earlier, the UK is doing better than our major competitors and the underlying indicators are sound. It is a mantra worth repeating that we have the lowest inflation rate for 30 years, the lowest interest rates for 40 years, the lowest debt:GDP ratio of any other G7 country and the highest ever employment levels.
I welcome the fact that the Budget connects economic stability with social justice, and I particularly welcome the anti-poverty measures for children and pensioners, including the child trust bond and the abolition of hospital fees for pensioners. I also welcome the continuing extension of the tax credit scheme, which is progressive and is making work and savings pay.
I wish to concentrate the rest of my remarks on the funding and reform of the public services, which clearly feature strongly in the Budget. I welcome wholeheartedly the fact that the Chancellor has ignored the many siren voices, not least on the Conservative Benches, calling for him to slash his planned expenditure on public services as a response to the world economic slowdown. He has made the right choice in persisting with that expenditure. Our task now is to maintain that investment, while getting value for money from it.
While maintaining his fiscal rules, my right hon. Friend the Chancellor has provided huge new resources, targeted at front-line services—£61 billion extra over the current comprehensive spending review period and more thereafter for transport and the NHS. That funding comes after 25 years of neglect and underinvestment in capital and current spending in the public services. In 1997, public sector investment stood at a mere 0.6 per cent. of GDP, and its history has been one of huge and ongoing decline, so this is the largest sustained increase in public sector investment for 25 years.
The Labour Government face a once-in-a-generation opportunity to make the case for the benefits of public provision and to renew our public infrastructure. If successful, we will live in a more just and fair society that offers opportunities and fair access to all. If we fail, the future for the public services will be bleak. Vital funding has been provided, so we now have to concentrate on the nature of reform; but what shape should that reform take? In effect, there are two models: the first I would describe as the marketising model, which introduces competitive price mechanisms and internal markets; the second I would call the empowerment model, which preserves public sector commitment, but empowers front-line staff within national standards and introduces accountability to the user as well as the producer.
The Government's reforms currently fall into both categories. I wish to make the case for moving away from the marketisation model to the empowerment model. We can see that current confusion in the NHS reforms. I would characterise most of the NHS plan as the empowerment model, but foundation hospitals are firmly rooted in the marketising model, so we have standardised treatments in national frameworks that guarantee equity and allow a loosening of centralised management structures—all very welcome.
We have devolved 75 per cent. of NHS budgets to primary care trusts—very welcome—but foundation hospitals will reintroduce competition for still scarce resources, abandoning the equity requirement by institutionalising advantage for one hospital over another and exacerbating the inefficiencies of the purchaser-provider split, with no guarantee on the value added. Raising local bonds, which has also been suggested, would totally destroy funding equity and ought to be resisted.
Likewise in education, variable top-up fees marketise the choice of higher education establishments by introducing differential price mechanisms where none previously existed. That will inevitably make it harder for those of modest means to study at the elite and therefore more expensive institutions. That approach entrenches privilege in an already unfair system. Any attempt to mitigate that by increasing maintenance grants or introducing zero-interest loans is welcome, but it does not alter the detrimental effect that introducing the price mechanism and competition has on the prospects for fair access for all in the first place.
Thus the marketising model undermines and weakens public services by introducing wasteful competition in the price mechanism. The empowerment model, however, strengthens public service by trusting the initiative and judgment of front-line workers and management and by increasing the transparency of results and the accountability to the user. We should aim for standardisation in our public service to improve equity and ensure that it is achieved, but when we have achieved standardisation, we should abolish centralised control, or loosen it at least. It is about time that micro-management of public services in Whitehall was abandoned for good. Thus the changes on flexibility and job-centred provision are very welcome. However, it is also important that that loosening of centralised control should not be replaced with excessive auditing, which can stifle initiative and creativity.
Finally, I welcome the Treasury's publication of a discussion paper on the public services, as we need to debate the most effective models for reform. I particularly welcome the admission on page 12 of that document about the limitations of markets—they fail because of monopoly, lack of information, externalities and the provision of public goods.
It is in the public interest to aspire to more than the market will provide when left to its own devices. It is necessary, in pursuit of equity, sometimes to address market failure by direct public provision, particularly in areas in which people's opportunities or quality of life could be affected by lack of access, such as education or medical treatment. Without public provision in those cases, our society tends to the survival of the richest, and an increasing polarisation between the privileged few at the top and the extremely poor at the bottom. Such income distributions can be seen in Latin America, and, arguably, can now be seen emerging in the USA. In such societies, fairness and opportunity are replaced by the laws of the jungle. That is not a future to which we should aspire in the UK, and we will not see it if the Government's modernisation of the public services is successfully delivered and it avoids the marketising model. Let us get on with reform and improvement, let us achieve good value for money and political support for public services—
I draw the attention of the House at the outset to my declaration in the Register of Members' Interests.
From the point of view of business and enterprise, this Budget will probably be memorable for being the least memorable that the Chancellor has made to date. It is no criticism from the point of view of business people to say that it is largely devoid of substance. The fear for the business community is that it sits between the last tax-raising Budget that the Chancellor produced and the next tax-raising Budget that he will be obliged to produce, because, as my hon. Friend Mr. Soames outlined, the speeches of the Chancellor and the Secretary of State were both redolent of a total detachment from the reality of the business world. At the very least, there is a huge divorce in perception between what the business world and business leaders expect to happen to the economy and what the Chancellor expects.
Business leaders will generally not be impressed by an approach that is simply glossily optimistic in outlook. The Chancellor said that he expects—it is all in the Red Book—a step up in ICT expenditure in the course of the next year. Business people do not expect that to happen, and none of the chairmen and chief executives to whom I have spoken in the last few months is planning an increase in ICT expenditure. He said that he expects a dramatic turnaround in investment and 5 per cent. growth in investment next year, but it is getting very late in the day for companies to be planning that. The Red Book says that a recovery is expected in the financial markets, and predicts a dramatic recovery in our export markets, which depend not least on a recovery in the European economies that is not currently anticipated by any independent forecasters.
That all adds up to a view of the world that is simply not shared by practitioners. I make that point not in a partisan way. The extent to which the Government appear detached from the view on the ground in the business and enterprise community is alarming. As was pointed out in the opening address, the Secretary of State came across as being simply out of touch with business realities, which is worrying for both sides of the House.
There is nothing wrong with optimistic forecasts; what is wrong is to depend on them. Business has learned to its cost that the Marconi approach to budgeting leads to an early demise. We hope that the Chancellor is right in his forecasts, but I fear that few believe that he will be right.
Against that background, the test of this Budget, which is broadly tax neutral, is whether it will do anything for the supply side of the private sector at a time when it is in comparative recession. My hon. Friend made an important point: what we have today is public sector boom and private sector recession. Were it not for the growth in public spending and the growth in private consumption, which is now faltering, the reality is that most of the private sector would be flat or declining. It is the public sector in Britain that is in growth, and that will continue next year. It is therefore important to recognise that while the Chancellor talks about the productivity gap, productivity growth in the public sector is much slower than in the private sector. He is doing nothing, and the Budget contains nothing, to boost productivity growth in the public sector.
Mr. Sheerman, who is no longer in his place, made a powerful point about the absence of measures to drive better management and quality performance in the public sector. I shall give the House one example: in the last two years, expenditure in the NHS has increased by 22 per cent. but there has been only a 1.6 per cent. increase in treatments. That kind of result would be simply a recipe for disaster in the private sector, yet nothing is being done to change it. The Red Book talks about an incremental addition of 70,000 employees a year in the public sector. As things stand, those employees will go into some of the worst managed institutions in Britain, with anachronistic, old-fashioned, highly unionised work practices, and the Budget contains no measures to address that problem. That is a recipe for widening the productivity gap in Britain.
When the Red Book talks about the productivity gap, it refers entirely to the private sector, as if productivity is something that happens in the private sector, not the public sector. Nothing is being done to improve the almost delinquent quality of management in large parts of the public sector, or the absence of quality management in the NHS, local authorities and elsewhere. We have no institute of public sector management in this country, and nothing is being done to address that problem, even though the public sector is growing fast. Amazingly, all we have in the Red Book is a reference to Professor Porter's study and a completely baffling proposal to ask the European Coal and Steel Community to spend some £17 million on further researching the skills gap. It seems that not much skill is evident in closing the skills gap.
That brings me to the question of deregulation. The Budget represents a huge failure to address the problem of deregulation. As my hon. Friend the Shadow Secretary of State said at the outset, what is required is not picking away at bits of regulation, or removing 500 regulations, which were identified last year—only a quarter of them have been removed—but a change of culture in Whitehall and in Government Departments. Overall, in the last year, we have had 3,839 new regulations, not 500, and we have had 19,000 regulations in the last five years. That is not a trickle but an avalanche, and a step change in attitudes and processes is required. We need a fundamental approach to address the Government's propensity to introduce more and more taxation and regulation.
I want, for example, to draw attention to one particularly pernicious small element of the Budget that is exactly the kind of tax that the Chancellor and the Secretary of State said they had set their minds against: the proposal to increase the stamp duty on leaseholds. That is a tax on mobility, on transactions and on business flexibility. Although the Government say that they are consulting on the tax, I notice in the Red Book that the Chancellor has already taken account in his forecast of some £210 million in receipts from the change in tax. For many businesses, that will be a fourfold increase in the stamp duty that they currently pay on leaseholds. That is exactly the kind of anti-enterprise stealth tax that should not exist, and I hope that the Government will think again about it.
In summary, this Budget represented an opportunity to address the problems of the supply side of the economy and the question of public sector reform. It has completely failed to do that, and it is, sadly, a missed opportunity. I hope that the Government will listen to the points expressed in the powerful speeches made on both sides of the House, and that they will address those problems in the months ahead.
I want to begin by offering my right hon. Friend the Chancellor congratulations on the Budget, built as it is on the strength of an economy that has been consistently well managed since 1997. The widespread predictions of a difficult Budget have been made to look foolish, but I want to pick up one point concerning the future of fuel duty.
There are unpleasant examples from the past of Governments not taking the best opportunities to reduce avoidable deaths in the population. We know from Cabinet papers that the dangers from smoking—I speak now as a non-smoker—were understood in the 1950s, but Governments covered it up. Governments knew of the dangers of London smogs decades before the Clean Air Act 1956, with its attendance costs of implementation, was enacted. The truth is that what Government do by commission or omission bears a cost in human life and health, and that cost is often avoidable.
Let us consider the case of diesel emissions, which are now avoidable by the use of new technology or alternative fuels. I shall cite American figures, because they are more dramatic. The American Lung Association points out that diesel exhaust is a complex mixture of thousands of chemicals, including more than 40 contaminants recognised as toxicants, carcinogens, reproductive and developmental hazards and endocrine disruptors. In 2001, it estimated that expected lifetime cancers in the US population would be conservatively estimated at 125,000 as a result of diesel exhaust.
One of the many hazardous constituents of diesel exhaust is particulates. The health gains in the UK from reducing particle levels are greater than for those of any other pollutant. High PM10s levels—PM10s are the larger particulates—cause congestive heart failure, heart disease and asthmatic attacks. PM10s are estimated to advance 8,100 deaths a year in Great Britain and to cause an additional 10,500 admissions to hospital. Diesel exhaust and particulates are just part of a range of pollutants that emerge from conventionally powered vehicles and that have not yet been tackled effectively by Government policy and by shifting the burden of taxes from environmental "goods" to environmental "bads".
We in the Environmental Audit Select Committee issued a pre-Budget report last week that questioned whether the Treasury had a clear long-term strategy on fuel duty that reflected environmental benefits. Let us consider liquefied petroleum gas, for example. It emits 99 to 99.8 per cent. fewer ultra-fine particles even than ultra-low sulphur diesel. Governments—and particularly my right hon. Friend the Chancellor—have taken incremental steps towards tax breaks to the extent that the market is now showing promise, with some 90,000 LPG vehicles on the road from a start of virtually zero only a few years ago. That means that LPG fuels about 0.3 per cent. of the UK vehicle parc, but its potential is largely untapped. "Fuelling Road Transport", a joint report of November 2002 by the Energy Saving Trust, the Institute for European Environmental Policy and the National Society for Clean Air estimated that the
"feasible penetration of the total vehicle fleet" was as high as 10 per cent. and that the possible LPG vehicle parc was more than 30 times as great as it currently stands. That would deliver 30 times as much benefit to the environment and human health. That would surely be a valuable achievement for Government, the environment and society.
The freeze on duty on LPG has encouraged car buyers and fleet managers to invest in cleaner cars. I note that my right hon. Friend the Chancellor intends to consult on the future fuel duty on LPG. I suggest that it is not the right time to reduce the incentive on the ground that it has begun to work. I say that for a number of reasons. First, as "Fuelling Road Transport" suggests, the market still has a long way to develop. Secondly, reducing the incentive would give the wrong signal to people thinking of investing in LPG cars. Where have previous commitments gone to giving motorists clear signals well in advance? Thirdly, what message does indecision, the uncertain nature of tax breaks and the potential removal of the incentives when the market is barely at a thirtieth of its potential give to those companies or people thinking of investing in a new, cleaner car fleet? Fourth, is it not the intention that the shift of taxation from environmental "goods" to "bads" should be permanent rather than temporary?
Our Select Committee also made positive recommendations about the potential for biofuels. The European Union wishes to set targets for the consumption of biofuels so that their proportion of the total is 2 per cent. by 2005. Targets are a very good thing, because they are a test of the strength of the policy measures designed to achieve them. Perhaps if the Government had set a target figure for the LPG vehicle parc, we would be better able to judge where we were on the arc to success and to evaluate the justification of continuing the fuel duty concession. It is not too late to set such a target for LPG, and neither is it too late for biofuels. Why should officials fight shy of such targets? Far be it from me to suggest that benchmarking success might also result in the embarrassment of identifying failure.
Let me return to my opening theme. People are dying because we have not cleaned up our conventional vehicle parc. The technology to do so is available now and not at a hazy and uncertain future date. The more we fudge and mudge in not setting targets and sticking with the environmental tax balance to achieve them, the more time is wasted in improving health and lifespans. I ask my right hon. Friend the Chancellor to throw these considerations into the balance when he considers the future balance of taxation on fuel and not to concentrate simply on measuring the relatively small scale of revenues forgone.
Last year, I broke the parliamentary habits of a lifetime by voting for the amendment of the law resolution. I had never done that before, but I did so last year even though I received no gratitude. I voted for the resolution because I agreed with the central tenet of the Budget, which was to increase direct taxation to fund public services. The increase was to national insurance and not to income tax as it should have been, and the increase took place some years late after public services had been starved of funds. I even ignored the fact that the Labour party attacked me vigorously when I tried to reverse its 1p cut in income tax four years ago. However, I thought it is better that one sinner repenteth and that we had to forgive and forget. I therefore supported last year's Budget because its central tenet was correct.
I will do so in two seconds after I have come to the climax of my point. I would have loved to support the amendment of the law resolution again this year if I had been able to find a central tenet to support, but this Budget is totally directionless. It is complacent to the point of ignoring a whole series of key economic problems, with the Chancellor relying on growth forecasts that have declined again. He suggests that they will miraculously go up in a year or two, but, as key aspects of the economy move into reverse, he says, "It is better than it is elsewhere". The Budget is without a central focus and direction that would take the country forward.
Has my hon. Friend calculated the impact on Scotland of the increase of national insurance contributions in April? Every independent business commentator, including those from chambers of commerce, the CBI and the Institute of Directors, has said that it will lead to major job losses throughout the United Kingdom. How many jobs will be lost in Scotland?
Exactly. That is why I would have preferred a 1p increase on direct income tax, rather than on national insurance contributions. However, I still think that direct taxation is the best way to fund public services. If public services were not funded and if they continued to decline as they did during the Conservative years—unfortunately that was supported by the Ulster Unionist party—and the early years of the Labour Administration, tens of thousands of jobs would continue to be lost in key public services.
That is precisely because the Labour party has moved on to the ground on which we so bravely stepped out four years ago. We fought the election in 1999 on the programme of a penny for Scotland and we were vigorously attacked by the Chancellor of the Exchequer. He said that that was a reckless move, but some three years later he pursued a similar policy, yet he expects to take all the credit. I am prepared to concede that the Chancellor has moved on to our ground, and of course Mr. Lazarowicz was dragged along with him, but the hon. Gentleman cannot expect us not to claim victory when the Labour party ends up in the position that it should have adopted a considerable time ago.
We come to the complacent bits of the Budget. Mr. Luke, for whom I have the highest regard, made a speech that I can describe only as the "it hasn't happened to the same extent in Scotland" speech. He listed a range of good things that he thought were happening, but said that they had not happened to the same extent in Scotland—too right. Scotland, under the Labour party, has the lowest rate of growth in the European Union. Our economy has contracted during the past year and manufacturing and exports have collapsed by 25 per cent. in a single year. We have the lowest rate of business survival in the United Kingdom. He cannot say that things have not happened to the same extent in Scotland because they have not happened at all. That is the reality of the Labour party's control of the Scottish economy.
What does the Budget have as a surprise? It is differential pay for the public sector in the regions. We all know that the Chancellor wants to use the "flexibility" that has replaced "prudence" to reduce the pay of nurses, policemen and firefighters in the English regions, Scotland and Wales while increasing the relative pay of those in London and the south-east of England. How on earth will it benefit the regions of England and the nations of Scotland, Wales and Northern Ireland to reduce further public sector pay and demand in those economies?
The Government have started to retreat from that policy, now that they have announced it. That is probably because I was on the radio with Jack Dromey on Thursday morning and he said that there would be a national strike if the Chancellor pursued the policy. We do not need a national strike in Scotland because all we have to do is to kick the Labour party out two weeks on Thursday, and that is exactly what we intend to do.
I liked certain aspects of last year's Budget's central direction, although I was severely critical of individual measures. I cannot find the central direction of this year's Budget, but I do welcome one key measure for which I argued last year. Once again, Ministers have moved on to SNP ground because they have acknowledged that pipeline taxation for the North sea was differential and costing jobs. The Chancellor's move to end this discrimination will stimulate £1 billion of investment in the medium term, which is the equivalent of having three or four major finds in the North sea because of the incremental investment that will take place. That is the welcome development in the Budget.
However, more is needed because after last year's tax hike, the number of exploration wells in the North sea has collapsed to 16. That represents a crisis situation. The Chancellor's Budget documents show that the Treasury is examining the matter. The time is right for that; it is urgent to do that quickly. We need further tax incentives for exploration and development. That is needed not to influence North sea production and revenue this year, or in five or 10 years, but because of what will—or will not—happen to production in 15 or 20 years without additional exploration development.
I am worried about the rural economy. In a Budget speech that was padded out with this, that and the next thing, I am surprised that the Chancellor did not find time even to mention the crisis of incomes in our rural farming economy, the crisis in the fishing economy or the range of pressures that our rural areas face.
The Budget's complacency is suffocating. Its specifics often relate to trivial matters, while central key questions relating to the rural economy and other issues are ignored. I welcome bits and pieces in the Budget, such as the oil tax and the freeze again on whisky tax, but its measures will do nothing to address the low growth record of the Scottish economy under Labour or to give the Scottish Parliament and Executive the economic levers that are required to do the job. Incidentally, an opinion poll that was published today shows that 75 per cent. of the Scottish population would support that. As usual, the people are ahead of the politicians. In this case, they are dramatically ahead of the Labour Government. The time is close—it is a matter of days and hours—when their record and stewardship of the Scottish economy will be held to considerable account at the ballot box north of the border.
I received a pager message just five minutes ago that said, "Don't worry, baby, your turn's coming up." I assume, Mr. Deputy Speaker, that that is not a new system of warning Members that they are about to be called to speak.
A recurring criticism of the Government's record—we heard it from Mr. Norman—is that too many jobs are being created in the public sector, and that growth and employment over the past six years has largely been the result of an expansion in public sector jobs. My friend Mr. O'Brien—I use that phrase carefully—regaled the Government last week on television because, according to figures that he quoted, there are 9,000 fewer jobs in the private sector today than there were in 1997. That exposes an interesting agenda.
The Conservative party are in a difficult position, as any Opposition are when the Government have a large majority. They want to give the electorate the confidence that public services would improve under a future Conservative Government, but are understandably reluctant to give spending commitments, and they want to restore their reputation as a tax-cutting party. So they end up in the ridiculous position of claiming that less investment in public services will produce better public services provided that they are reformed. Of course that is absurd.
I agree with my hon. Friend Mr. Sheerman that public sector reform is essential. There has to be a balanced ticket. There is no point in saying that investment on its own will produce the better services that all our constituents require. Similarly, there is no sense to the argument that only an increase in public investment will produce those improvements. I would go at least as far as my hon. Friend and say that if we were not reforming public services, I would actively oppose any major increases in investment because my constituents and constituents throughout the country are not convinced that extra money alone is what is needed. We need radical reform of the public sector. Yet the Conservatives persist in a fantasy that they can dispense with that balance because only reform is needed.
The last thing an official Opposition want is to acknowledge that the Government's economic record is impressive. Conservative Members have gone through contortions to convince themselves that Labour's economic record has been poor despite the fact that we have the lowest inflation for 30 years, the highest employment levels in our history—neither of which they mentioned—the longest period of sustained economic growth in living standards for half a century, a UK economy that has grown uninterrupted, free of recession in every quarter of the past six years, and historically low interest rates.
"Britain's public finances are likely to remain rock-solid, given a debt-to-GDP ratio of only 30 per cent. at the end of 2002 and a public deficit of less than 1 per cent. of GDP in 2003."
It goes on to say:
"the current-account deficit in 2002 was a very moderate 1.9 per cent. of GDP. Given that Britain was in the midst of a consumer boom, while its European trading partners were experiencing recession, this modest deficit confirms that there is nothing uncompetitive about Britain's present cost structure—and that the recent exchange rate has been about as close to a long-term equilibrium as could be imagined. How dull this all is for economists and hedge funds. But how lucky for the people of Britain."
I would find it difficult to improve on that.
The Conservatives face some difficulty in opposing our economic agenda. Listening to Mr. Yeo at the Dispatch Box earlier, I was almost reminded of watching television last week, when the Iraqi Information Minister was insisting that the American troops had been driven back from the gates of Baghdad just as an American tank came into view behind him. The Conservatives have been saying tonight that all is doom and gloom: unemployment will go up, and investment and productivity are on the way down. They completely ignore the economic reality outside this place.
That has left the Conservatives in a very difficult position. What can they do? How do they attack the Government's record? They cannot attack the number of jobs in the economy because it is at an all-time high. They cannot attack the quality of jobs because we are all supporters of the national minimum wage now—except, perhaps, for the Liberal Democrats. The Conservatives can only attack the sectors in which those jobs are being created.
My right hon. Friend the Chancellor pointed out in his Budget statement last week that investment procured by this Government means that, by 2008, there will be an extra 80,000 nurses and 25,000 doctors in the NHS. Is that the public sector employment that the Conservatives are so unhappy about? What would be their solution? Would they cut the number of NHS nurses? Will that be a manifesto commitment? I hope so, but I suspect that they are too clever for that. They seem, however, to be on a difficult wicket.
It is not particularly surprising that public sector employment has grown along with public investment. The public sector is, after all, the one area with which the Government have a direct relationship—money spent by the Government goes directly into the public services. The Government do not have that relationship with the private sector, so clearly they cannot directly create jobs in the private sector, but they can create the right economic conditions for the sector to flourish; indeed, they have a duty to do so.
Given that the massive increase in public expenditure on health and on the staffing levels in the NHS has not been matched by a commensurate increase in clinical activity, but that the hon. Gentleman is optimistic about reform, what reforms has he seen that will transform the picture?
The hon. Gentleman makes a valid point. The Conservatives say that for all the investment there has been only a 1.7 per cent. increase in output, and I accept that. It would be ridiculous to say that a 100 per cent. increase in investment in health would result in a 100 per cent. improvement. No one would expect that; there is no correlation between percentage increases in investment and percentage increases in outcome. However, I am absolutely convinced that the reforms led by the Secretary of State for Health coupled with the investment made by the Chancellor in the last few Budgets will result in massive improvements in our health service by 2008.
I hope that the people listening to this debate—who must number dozens throughout the country—understand that their choice is between a Labour Government, who support the NHS and will bring 80,000 new nurses into the service by 2008, and a Conservative party that has yet to say whether it supports the NHS in its current form. The Conservatives' claim that reform on its own will be enough to produce an increase in outcome is not convincing to anybody inside or outside this House. The Conservatives would rather level down public sector employment than significantly increase the number of public sector workers. The Conservative party has never been a friend of the public sector or the people who work in it.
Rather than saying that an increase in public sector employment per se is a bad thing, surely it is better to produce the right economic conditions so that firms feel confident and can afford the investment needed to increase employment in the private sector, bringing it up to a level commensurate with the increases in the public sector. It seems to me that the Conservatives are ideologically opposed to the public sector and all who work in it.
Looking at the Budget, it appears that the Chancellor has exchanged prudence for rosy—a rosy scenario. The figures are clearly overoptimistic. I do not want to second guess the Chancellor's GDP forecasts—they might by some miracle turn out to be right—but looking at the Red Book, I know two things: first, that tax will be remorselessly ratcheted upward in each of the next five years; and, secondly, that the Chancellor is not committed to the real reform of public services that was promised in exchange for more resources going into the public services.
New Labour's high-tax policy is admirably summarised by tables C9 and C25 of the Red Book. They tell an interesting story. My right hon. and learned and very prudent Friend Mr. Clarke bequeathed a tax burden of 34.9 per cent. of GDP in 1996–97. In each year of the last Parliament, the Chancellor of the Exchequer presided over a tax burden higher than the one that he inherited. The tax burden this year is 36.3 per cent. of GDP; next year, it is 37.1 per cent., rising to 37.6 per cent., then 37.9 per cent., and finally, in the fiscal year 2007–08, it rises to 38.2 per cent. of GDP.
Those are very large increases in tax made merely to fund existing public spending commitments—before the tax consequences emerge of the comprehensive spending review that the Chancellor is to announce next summer for the start of the following fiscal year. A couple of elections will be looming—the Labour party leadership election and the general election—so we might expect the right hon. Gentleman to increase spending.
Much more important is the evidence relating to the forecasts that I unearthed this morning in the Treasury Committee with expert witnesses. Alarmingly, the Committee was told by the National Institute of Economic and Social Research and the Institute for Fiscal Studies that even if the Chancellor's GDP growth forecasts were hit—3 per cent. next year and more than 3 per cent. the year after—he would still be staring at tax increases of £10 billion a year at the end of this economic cycle. There is one reason for that: he seriously overestimates the tax take that he will receive from corporation tax. Last year, that source accounted for 2.5 per cent. of GDP. The Chancellor believes that it will reach 3.4 per cent. of GDP by 2007-08. In other words, he invites us to believe that the tax take will rival that experienced in the booms of the late 1980s and late 1990s. No serious, responsible analyst believes that for a second.
The second thing we know about the Budget from looking at the Red Book is that the Chancellor is stress testing to destruction the proposition that more money will magically improve public services. For the first time in our history, one in four of the work force is employed in the public sector. To see where some of our money is going, look at the jobs pages in The Guardian, where one finds such jobs as
"an adopt a river officer", or
"a Pennines bridleway national trail assistant co-ordinator", or a food and health co-ordinator
"to reduce barriers to the consumption of fruit and vegetables in Sandwell."
The Prime Minister made promises about more spending being conditional on reform, but we can see that that is simply not happening. Take the NHS, in which there are now more bureaucrats than beds and five times more managers per nurse than in the private sector. A 20 per cent. funding increase since 1999–2000 has been accompanied by a 1.6 per cent. increase in hospital activity. Of the extra £5 billion spent after 2000–01, 80 per cent. went into higher drugs prescribing and higher salaries. Less than 10 per cent. went into expanding capacity—capacity that is the prerequisite of choice. Choice is something that the Chancellor of the Exchequer simply does not like. We know that because in chapter 6 of the Red Book he makes deeply disobliging comments about choice in the NHS. Borrowing powers will be severely circumscribed by his regulator putting a cap on the ability of successful foundation hospitals to expand capacity. The Chancellor is afraid that extra money will be used to buy private sector capacity—he is biased and prejudiced.
Finally, we were told in the Budget that another report would be produced by dear old Derek Wanless, the man who produced the first 388-page Treasury report on NHS funding. He mentioned in one and a half sentences the impact that those huge increases in public spending would have on GDP as a result of the higher tax take associated with that high spending. That was a disgrace and a negligent carrying out of duty that ignored the effect on economic growth. Before Labour Members seek to intervene and talk about cuts, let me give them a fact to chew on. The Government's combined spending on health and education is equivalent to about £5,000 per household. If just some, if not all, of that was spent by putting it in the hands of individuals, and if the state monopoly was opened up, there would be more providers providing more effective and efficient services. There would be more services for any given level of Government expenditure, and they would be of a better quality as well.
Conservatives are not suggesting that they want tax cuts tomorrow. We agree with Alan Greenspan that all taxes are a drag on economic growth, it is just a question of degree, which is something that the Chancellor of the Exchequer has not understood. He may wander around Cape Cod playing tennis with American economic enterprise gurus, but he has not discovered the key message. We cannot tax first and then ask questions about public service reform, and we cannot get the good-quality frontline public services that we want by trying to tax our way to success. It is not working, this Budget proves it is not working, and it will not work in future.
I, too, congratulate my right hon. Friend the Chancellor on a Budget that I believe, in these difficult times, to be a visionary one. Much has been said this evening about a message, or the lack of one, but the Budget is visionary for reasons that I shall outline—briefly, as I know that other hon. Members wish to contribute.
I should like to sound a note of caution about road fuel duty. According to the figures in the Red Book, the freeze on road fuel duty can be expected to cause a small but significant increase in CO2 emissions if everything else remains the same. I very much hope in these turbulent times that everything does not remain the same, and that it will be possible to lift the freeze on road fuel duty for the benefit of the environment.
I should like to highlight the question of regional pay, which was mentioned by my right hon. Friend the Chancellor in his Budget statement and referred to by Mr. Salmond, who is no longer in the Chamber. I welcome the Chancellor's assertion that there is an opportunity to look seriously at regional pay and deal with the very real problems for our public services caused by the high cost of living in the south-east and the Thames valley, where my constituency is, and the fact that our public services are creaking at the seams despite tremendous investment—people simply cannot afford to live in that part of the country on the relatively low salaries that most public servants still endure.
I should like to highlight in particular the plight of constituents who staff the BBC monitoring service, located in my constituency, which has provided an invaluable and unique service to the nation in recent turbulent weeks and months. People who work there have to be fluent in two languages other than English and to have research and editorial skills. They start on £14,000 a year. Mr. Rendel, who is not in his place, has secured a debate on that very matter. It will take place in the near future, and I look forward to it with interest, as will other Members.
I must emphasise the plight of those at BBC Monitoring and other public sector workers in my constituency and in the affluent, high-cost south-east of England. Also, I thank my right hon. Friend the Chancellor for providing an opportunity to put that situation right. That will not result in a national strike. My right hon. Friend the Paymaster General said earlier that national pay bargaining will continue. It is not going to be abolished and there will be national pay, but regional differences will be respected, acknowledged and taken care of. I look forward to that very much.
I finish this brief contribution by saying that I know that the assessment of the economic tests for the single currency has been done. I look forward to the first week of June, and I hope that we shall see that the time is right for us to be economically at the heart of Europe as we are, politically, in every other way.
I refer to my declaration in the Register of Members' Interests. I want to comment on the Budget in the context of the past eight years. All I see since 1997 is an annual £8 billion increase in taxation on the British economy, and I see 74 per cent. of it being carried by the private sector and by business, which create the wealth that we spend on the public sector. I see a 1 per cent. increase in national insurance contributions, which will have a serious impact, as Opposition Front Benchers have said. It is a dishonest tax, not a straight tax, and it will hit jobs.
In Northern Ireland, we have lost 11,000 manufacturing jobs since 1998. Only 95,000 remain, which is the lowest figure since 1920. Manufacturing output is falling, and output in computer and related industries has fallen in the past five quarters. The House should consider the fact that manufacturing and the private sector, which are wealth creating, are in recession. National insurance contributions should be directly related to benefits. They should not be used as a tool for increasing taxation.
Like other Members, I surveyed business in my constituency—South Antrim—before the election. What were the major concerns? They were increased taxation and more regulation, and not just because business people always say that. More regulation is not some generality, because in Northern Ireland and, to a large extent, nationally, we are getting more and more regulations on environmental content, waste disposal, new maternity and paternity rights, new flexible working as well as single equality legislation. Regulation, regulation, regulation—it is a cost and a burden to business.
I welcome the Chancellor's announcement on the relocation to the regions taskforce. I hope that the attractiveness of Northern Ireland, its work force, our education system, wages and capital grants will be considered, and that we benefit in that relocation to the regions.
I am disappointed, however, that there is nothing to help the farming industry—nothing at all.
We should consider the end product of increased taxation—delivery in the NHS and in the education service. When I look at Antrim hospital, I see a need for two new wards and about 40 extra beds because there are waiting lists. I think about my constituent in Ballyclare who recently went twice to the Royal Victoria hospital in Belfast, but came back, not because there were no consultants or nurses to carry out the operation, but because there was no bed.
I consider the state of education and I hear the promises of increased spending. I look at the end product as well as the spending imbalance between primary and secondary education in Northern Ireland, where primary education spending is the lowest in the UK.
Does my hon. Friend agree that schools throughout Great Britain are suffering problems similar to those being experienced in Northern Ireland, in that the funding allocated does not permit them to retain experienced, well-qualified teachers. Schools are having to pay off experienced teachers to replace them with less qualified teachers. Does my hon. Friend agree that the Chancellor must allocate adequate funding to our schools?
I agree with my hon. Friend completely. The delivery of public sector spending is not coming through. The economy can be managed only by the Government and by those who run the public sector, and they are not delivering the money to the end user, who we in business used to call the customer. The customer is not seeing an improvement and a benefit in the product.
I am not a cat person, but I have a cat at home. She is about eight years old and we called her Prudence. She is a yard cat but sometimes some members of my family allow her to come into the house through the back door. I do not. I think that a yard cat should stay in the yard. The cat comes in fast and goes out quite fast. She is lean, mean and cunning. When I see Prudence the Chancellor, I do not see anything lean or mean, although I do see a little cunningness. What I see most of in the Chancellor is more tax and a greater burden on the wealth-creating sector of the economy—the sector that funds the health and the education service. The Chancellor is indulging in a little bit of spin in styling himself as Prudence, because Prudence is not slim, lean or competitive. I wish the Chancellor would be more like my cat.
It is a pleasure to follow David Burnside, although I do not share entirely some of his criticisms of the Budget. Yes, we have an increase in national insurance contributions—it was announced last year and it will be implemented this month. Yes, additional borrowing is included in the Budget statement, but this borrowing is certainly prudent when compared with the borrowing that took place in the early 1990s. It is well within the rules that my right hon. Friend has already set out. Given the military action in Iraq and the difficult global economic downturn, I think that any fair analyst would say that the Budget is a fair one that was announced at a difficult time.
I shall concentrate on three particular areas. First, there is a skills gap in our economy. It is quite breathtaking that in the United Kingdom, which is the fourth largest economy in the world, one in three adults lacks basic skills or NVQ level 2. It is estimated by some that a third of the productivity gap between the United Kingdom and the United States and some of our leading European partners can be attributed to this skills deficit—yet we know that high skills represent the future for our economy.
I warmly welcome the announcement of a £130 million extension of employer training pilots. The pilots were announced last year, and about half a dozen are already under way in various locations, including Greater Manchester, which includes my constituency. The pilots mean that employees who lack basic qualifications are paid to receive basic or level 2 training, while employers are provided with a level of compensation. For small businesses, that is about one and a half times the wage costs, to make up for the loss that they incur when workers go into training.
In Manchester, where we started the pilot in September 2002, the target for the first year was to get about 2,200 people on to level 2 training. That target was exceeded after only about eight months. We already have 2,500 people into level 2 training, and 500 employers are involved. This is reinforcing the sense of partnership between training providers, businesses and business links, which is so important. In view of the Chancellor's announcements last Wednesday, we are able to revise those targets. By August 2004, we expect to have 5,000 people engaged in level 2 training, 1,000 in basic skills training and some 660 companies actively engaged in the programme. The programme will increase not only productivity and competitiveness, not least in the north-west, but the prospects and earning potential of the individuals involved. Typically, those with NVQ level 5 can expect to earn three times more in wages than those with no qualification at all.
The measure will sit alongside greater flexibility in the way in which advice and benefits will be delivered, greater access to capital, particularly for small businesses that depend on the knowledge economy, and, I am pleased to say, the review of the minimum wage requirements as they apply to 16 and 17-year-olds. It will extend the legal routes for people who want to come to this country not only to earn but to contribute to the economy. All those measures are welcome.
The child trust fund has not been mentioned in today's debate, but is important. We know that the Government have already done a lot to reduce poverty, to provide greater opportunity through work and to redirect cash to the least well off in society. Many families, as a result of the working tax credit and other measures, will be substantially better off, but tackling poverty is about not just income distribution and redistribution, but building the asset base and the capacity of individuals and the wider community, particularly those people who have been excluded from society and the wider economy.
We are told that there will be a £250 injection of cash into the fund when a child is born. The amount will be £500 where the family is entitled to the full amount of child tax credit. The state will, at certain key points, perhaps at the age of five, 11, 16 or whenever, add to the fund. Family and friends can make additional payments up to a maximum of £1,000 a year.
The Chancellor said on Wednesday that he would announce further details in the summer, but I was pleased that, in a recent survey, 83 per cent. of parents said that they would consider making additional payments into the child trust fund. They thought that it was worth while. I have looked at reports from Virgin Money and PricewaterhouseCoopers. It is interesting that they say that the fund could produce massive benefits for children in the long term. Virgin Money says that if an additional £10 a month were paid during the 18 years of the fund following the initial £500 outlay to a child in a family entitled to full child tax credit, it would be worth more than £5,000 when the young person became 18. PricewaterhouseCoopers has estimated that, if every year the maximum £1,000 were contributed, that fund could be worth £26,000 by the time the young person became 18.
We all know that wealth is concentrated far too much in the hands of the very rich. Meantime, one in 10 households in our country have no assets whatever. I believe that the child trust fund could begin to change that, promote saving as a good thing—a necessary thing—for people, provide something that young people moving into adulthood can draw on, and reinforce personal responsibility.
There is a balance to be struck between personal responsibility and collective responsibility. Perhaps in the 1960s and 1970s, we tended to veer too much towards the collective approach. Certainly in the 1980s and 1990s, we veered far too much towards the individual approach and failed to give people the resources that they needed to find a way through. I believe that the measure will be a significant development in providing opportunity for self-help and self-reliance, which is a good thing and vital to healthy communities.
I want to make one final point about international development, which my right hon. Friend the Secretary of State for Trade and Industry mentioned. It is interesting to note that international development was once barely a footnote in Budget speeches, yet now it is a central feature as we strive—
I understand that I have five minutes, so I shall confine myself to two very brief points, the first of which relates to what is probably the Government's strong point: their record of economic stability and the so-called ending of boom and bust. In part, this reputation is justified. Probably the best thing that the Chancellor ever did—and ever will do—was making the Bank of England independent. We have seen some of the benefits of that, but the problem is that it has not been fully matched through fiscal policy. True, there is a fiscal policy framework and fiscal targets, but the problem in terms of stability and long-term credibility is that the Chancellor measures his own performance. That differs markedly from the Bank of England, which has a very sound structure, real transparency and real independence. No comparable organisation exists on the fiscal policy side.
Let me give one or two examples. Absolutely critical to the credibility of the Government's fiscal policy is balancing the budget over the cycle. However, who defines the cycle; who decides when it begins and ends? The answer is, the Chancellor. What is missing—in a sense, the Chancellor himself can remedy this—is some form of independent mechanism of assessment, such as the United States Council of Economic Advisers or our own National Audit Office, to create an independent base for establishing the credibility of forecasts. If such a mechanism is not established, the problem will be not merely the Government looking a little foolish in a year or two's time, but a loss of confidence in the markets.
The Government have gained enormous advantage from lower short-term interest rates than would exist without an independent monetary policy. However, once credibility in the forecast is lost, the sacrifice in terms of fiscal policy is much higher long-term market interest rates than would otherwise exist. The effect of that will be felt in the long-term cost of capital, and in further damage to investment. So there is a real problem with the fiscal policy system's lack of independence and credibility, for which a price will ultimately be paid.
The second failure relating to the abolition of boom and bust is in the housing market. In my adult life, I have lived through three major upswings in the housing market, two of which were followed by very serious crashes, and I fear that that may well happen again. We do not know exactly when the tipping point—to use the current jargon—will occur, but when the housing market does turn the consequences will be very severe for those who are heavily mortgaged. They will move, as they did during the previous two housing crashes, into negative equity. That will also be very serious for the reason that Mervyn King, the Governor-elect of the Bank of England, has warned. It will bring to a premature end the boom in consumption fuelled by equity release, which will go rapidly into reverse and have a major effect on consumption.
It is fair to say that the Chancellor's Budget did address issues associated with the housing market. Rightly, there has been an entire series of studies, although they are probably somewhat late, given that the current boom has been going on for several years. However, certain housing issues have not been addressed and I hope that the Government will address them. For example, it is fine to look at the planning system, but who is examining the size of the land banks held by many developers? Has an inventory ever been attempted? Has the Chancellor considered fiscal measures that could bring some of that surplus land into production? For example, have the Government looked at the operation of the regulatory system in the financial services sector as it affects the housing market?
A system exists, operated by the Financial Services Authority, through which the Government, for prudential reasons, examine loan-to-income ratios across the banking sector. However, they do not follow the example of Hong Kong and use that system to try to manage the housing market. Of course, the old days of special deposits and the regulation of banks are completely inappropriate and would not work. However, the Government have made no attempt whatever to examine mechanisms used in other market-friendly economies, to try to manage the housing market in such a way as to prevent the recurrence of boom and bust. I fear that within the next 12 months a serious deterioration in the housing market may well occur that will bring all the optimistic forecasts and assumptions about revenue and growth to a premature end.
Let me start by drawing attention to my declaration in the Register of Members' Interests.
I congratulate the Chancellor on the personal good news that he announced 10 days ago. I also congratulate those who have spoken today in what I thought was a particularly interesting debate, featuring many distinguished contributions. I especially enjoyed the speech of Denzil Davies. I always say that, because the right hon. Gentleman represents my home town, but this was, I think, one of the few occasions on which the House genuinely regretted the falling of the guillotine, which prevented us from hearing the end of his interesting dissertation.
While I am in the business of offering congratulations, let me also congratulate the Chancellor on the timing of the Budget. It was a masterpiece of foresight. As the Chancellor delivered his speech, the television screens of the nation were dominated by attempts to topple the statue of Saddam Hussein in Baghdad. The Prime Minister was right to tell the Chancellor, "You don't need to announce the results of the euro tests to divert attention from the Budget". Events in Baghdad were doing that for him, and what a relief that must have been, for this was the Budget that he did not really want anyone to notice.
This was a bad news Budget. This was a Budget that required the Chancellor to come to the House yet again and admit that he had got all his figures wrong. This was his Micawber Budget, based on the premise that something would turn up. Economists at HSBC talk of the Chancellor's "wishful thinking". At Citigroup they say:
"The Chancellor... has chosen to cross his fingers and hope this problem vanishes".
The business editor of The Independent says that the Chancellor is
"entering the realms of fantasy".
The Economist says:
"The Chancellor's most worrying deficit is his growing credibility gap."
For once, even the BBC got it right. On BBC2, the Chancellor's Budget broadcast was sandwiched between "The Weakest Link" and "The Simpsons", and on Radio 4, it was slotted in somewhere between "Getting Nowhere Fast" and "Prayer for the Day". Indeed, "Prayer for the Day" would be a suitable title for the Chancellor's Red Book.
The truth is that although the Chancellor was brilliantly successful in timing his Budget, his ability to get his economic forecasts right has vanished into the fantasy world that he now occupies. For the second time in barely four months, he was obliged to come to the House and tell us that he had got it all wrong. At the end of November he was forced to admit that his forecasts on growth were wrong, his forecasts on revenue were wrong, his forecasts on borrowing were wrong and his forecasts on his deficit were wrong. Last Wednesday he was back at the Dispatch Box to admit that his forecasts on growth—delivered barely four months ago—were wrong again, that his forecasts on revenue were wrong again, that his forecasts on borrowing were wrong again, and that his forecasts on his deficit were wrong again.
Of course he produced his usual litany of excuses. He blamed the Germans, he blamed the eurozone, he blamed the world. He told the Cabinet that the world economy had faced the most rapid slowdown for 30 years. That is simply not true. On the very day the Chancellor delivered his Budget, the European Commission told us that the world economy had grown by 2.9 per cent. last year and was forecast to grow by 3.2 per cent. this year. In the early 1990s the world went through three years of growth averaging just 1 per cent. Does the Chancellor not realise how degrading it is to his office and to himself to violate the facts in this way?
The Chancellor told the House that we were doing better than other countries. That will be news to the United States, Canada, Australia, New Zealand, Spain, Sweden and Ireland, all of which grew more quickly than we did last year and most of which are expected to grow more quickly than we will this year. Does the Chancellor not realise how degrading it is to his office and to himself to make such misleading claims? And does he not realise that the lie is given to all his excuses by the fact that independent forecasters—those whose forecasts he publishes in his own documents—were telling him all the time that he was getting it wrong, that he was being too optimistic, and that he was likely to have to eat humble pie?
Will the right hon. and learned Gentleman enlighten the House as to why, if the Chancellor has got so much wrong, the World Bank, the International Monetary Fund and the Organisation for Economic Co-operation and Development all say that Britain's economy is the best placed to weather the economic downturn that the world is facing?
I am afraid that that is not what they say at all. I have already cited the economies that were growing faster than ours last year and are likely to grow faster this year, too.
The independent forecasters are saying the same thing again about the forecast that the Chancellor gave the House last Wednesday. On the very day of the Budget, the IMF—to which Mr. Gardiner gives so much credence—published its forecasts, predicting lower growth for our economy next year than did the Chancellor. Other independent forecasters also believe that the Chancellor is being too optimistic. Robert Chote of the Institute for Fiscal Studies says:
"Hope in the Treasury clearly springs eternal."
"continued the tradition of ignoring the biggest risks to his fiscal projections."
The economists at Lehman Brothers say:
"There is now practically no-one in the same ball park as him".
The right hon. and learned Gentleman talks about forecasts, so can he enlighten the House about some others? Mr. Gray has said:
Mr. Flight said that
"the figure of 20 per cent. referred to the scope to cut waste in government".—[Hansard, 9 April 2003; Vol. 403, c. 324.]
And Mr. Redwood said that
"20 per cent. off the overhead is not enough." —[Hansard, 9 April 2003; Vol. 403, c. 306.]
Will the right hon. and learned Gentleman tell the House how much his side would cut?
Is anyone in doubt that huge sums of taxpayers' money are being wasted on bureaucracy? We are seeking ways to save that money because taxpayers expect nothing less, and we make no apology for saying so.
I shall return to the Chancellor and his forecasts. This is a Chancellor who used to boast about his caution and preen himself on his prudence. His chief economic adviser and permanent secretary spent six pages of their book warning that policy makers should err on the side of caution in making their forecasts. The Chancellor has long abandoned that approach, and the country will pay the price.
Let us look at the Chancellor's figures on borrowing. At the last election, this Chancellor said that it was by cutting debt interest payments that he was able to fund health and education, and that
"any policies that would raise debt interest payments . . . would put that at risk."
But look at him now! Two years ago in the 2001 Budget, the Chancellor forecast borrowing over five years at £30 billion. Last year, the forecast went up to £72 billion, and last week up to £118 billion—a fourfold increase in two years. Independent forecasters are queuing up to say that that is yet another underestimate. How can anyone have confidence in his figures after that? If the Chancellor had not put so many of his liabilities off balance sheet—Enron-style—public sector debt would be higher still and he might well have already reached the 40 per cent. limit in his sustainable investment rule. So much for reducing debt, for prudence and for all those broken promises.
What about the Chancellor's promises to business? This is the Chancellor who promised:
"We will not impose burdensome regulations on business because we understand that successful businesses must keep costs down."
This is the Chancellor who tells us every year that he has delivered a Budget for enterprise. Now, however, he is being judged by his performance, not his promises. That performance has added costs to business in tax and red tape, estimated by the CBI at up to £15 billion a year. That performance has led to an average 15 new regulations every working day, a figure that is 50 per cent. up on 1997. His performance has led to Britain falling out of the top 10 in the world competitiveness league.
The hon. Gentleman has asked me that before, and I have answered it before. I suggest that he have a look at the regulation I mentioned then, under which will be set up an extraordinary scheme called—believe it or not—the fenestration self-assessment scheme, or Fensa for short. People will have to apply on forms in triplicate if they want to change the windows in their houses. The hon. Gentleman should read the answer I gave him when last he asked me that question.
The Chancellor said last week that business investment has fallen around the world. CBI research shows that the fall in business investment was much sharper here in the UK than it was in the United States, in Canada, in Spain, in Italy, in France, in the Netherlands and in Belgium. It was sharper here than it was even in Germany and Japan. Does the Chancellor not realise how degrading it is to his office and to himself to violate the facts in that way?
The Chancellor said last week that progress had been made on productivity, but productivity growth has almost halved since he became Chancellor. An editorial writer on the Financial Times described the Chancellor's claim on productivity as
"a classic in its selective use of statistics, its use of inconsistent time periods and its exploitation of irrelevant data revisions. It was thoroughly misleading".
Does the Chancellor not realise how degrading it is to his office and to himself to make such misleading claims? Is it any wonder that what he says about business and enterprise is no longer believed?
The Chancellor promised last week to tackle red tape, yet seven out of 10 companies surveyed by PricewaterhouseCoopers did not think that his promises would make any difference. The business editor of The Independent said:
"As for being a Budget for business that . . . is so much poppycock".
In the light of all that, how does the Chancellor think business feels when people read that Treasury officials were "directing" journalists to a recent piece by Polly Toynbee in The Guardian headed "British Business is not Burdened but Pampered"? That piece concluded that
"the business world is . . . ignorant and ungrateful for its low tax status".
Is that what the Chancellor thinks? Is it any wonder that only 1.9 per cent. of business leaders believe that the Government have a thorough understanding of their needs?
This is the Chancellor who said, hand on heart:
"I want tax cuts for business not tax rises."
Now he is being judged by his performance, not his promises.
Last April, the Chancellor was warned that his rise in national insurance contributions was a tax on jobs. He was warned that it would cause companies to move jobs abroad. When I raised those concerns in the House a year ago, he described them, from a sedentary position, as "nonsense". Now there are reports of companies doing exactly what the Chancellor then described as "nonsense". The British Chambers of Commerce says that one firm in five is thinking about laying people off as a result of the rise in national insurance contributions. Does the Chancellor not realise how degrading it is to his office and to himself to disregard the facts of economic life in such a cavalier way?
What about the Chancellor's promises on pensions? In 1993, he told the Labour party conference:
"I want the next Labour Government to achieve . . . the end of the means test for our elderly people."
Now he is being judged by his performance, not his promises. Almost six in 10 pensioners will soon be subject to the means test as a direct result of the changes that the Chancellor has introduced. In all, up to 25 million people could be in households on means-tested benefits from 2003–04. The Chancellor is determined to make us a means-tested nation, to create a dependency culture in which, all the way up the income scale to £66,000 a year, people become dependent on the Chancellor's largesse. Does not the rise in means-testing send out loud and clear the signal, "The more you save, the less you get"? Is it any wonder that the savings ratio has halved since Labour came to power, as last week's Budget shows?
What of the damage to savings caused by the Chancellor's pensions tax—a tax that has cost 12 million people an average of £400 a year? A typical pension saver now retires on just half what he or she would have received five years ago. That is partly because of the effect of the pensions tax on British stock markets, which, since
Help the Aged says:
"With pensions and savings in freefall this Budget was the Chancellor's opportunity to take decisive action . . . but it appears that the Government's approach to financial security for pensioners is to cross its fingers."
Last week, the Chancellor spoke of there being "a case in principle" for adopting a new inflation index—the harmonised index of consumer prices, or HICP, pronounced "hiccup" for short. What he did not say was whether it would apply also to the upratings of pensions and benefits. Will the Chancellor confirm that, on the basis of his own inflation forecast, pensioners would find themselves almost £1 a week worse off in 2006–07 if he were to make such a change? Will he rule out that change now? Will he instruct the Chief Secretary to rule out that change when he replies to this debate in a few minutes' time?
What of the other tax rises? The Labour manifesto in 1997 said:
"New Labour is not about high taxes on ordinary families."
The Prime Minister said:
"We've no plans to increase tax at all."
I must say that, as my hon. Friend Mr. Tyrie pointed out this afternoon, it must have been cold comfort to the Syrians to hear the Prime Minister use exactly the same formulation this afternoon when he said that there were no plans to invade Syria.
The Chancellor said:
"My approach is not to tax and spend."
However, the Government are now being judged on their performance, not their promises. Before the Budget, there had been 53 tax rises under Labour. Last week, seven more were added to the list. They included a 38 per cent. rise in red diesel duty for farmers and an extension of the Chancellor's IR35 stealth tax. There was also confirmation that council tax revenues are up 12 per cent. this year. There have therefore now been 60 tax rises under Labour.
The Government will be taking £405 billion in tax this year. That is 50 per cent. up on 1997 and the equivalent of £44 a week more in tax for every man, woman and child in the country. This month alone, the Institute for Fiscal Studies estimates that well over 4 million householders will lose more than £10 a week from the Chancellor's tax rises. When council tax rises are included, a typical family in a band D house will be £568 a year worse off. And there are more tax rises to come.
The Red Book shows taxes rising as a share of national income until almost the end of the decade. No longer is there any pretence of jam tomorrow. We are now on the road to higher taxes for the duration of this Government—however long or short a period that may be. By 2007–08, the Chancellor intends that 38.2 per cent. of national income will be taken in tax, compared with 34.9 per cent. in 1996–97. He plans to raise an extra £251 billion in taxes in 2007–08 compared with 1996–97. That is an extra £4,272 a year for every man, woman and child in the country. As my right hon. Friend the Leader of the Opposition said in his response on Wednesday, with this Chancellor and this Government it is pain today and pain tomorrow. How does the Chancellor ever expect people to trust him on tax again?
What of the right hon. Gentleman's promises to link spending with reform of the public services to ensure that those services improve? We have heard a lot about that from many contributors to the debate. In 1997, the Labour manifesto stated:
"The level of public spending is no longer the best measure of the effectiveness of government action."
In fact, from this month the Government will be spending more than £50 million an hour. The Chancellor promised that not a penny more would be spent on the health service until the Government had introduced the changes that would
"let us make reforms and carry out the modernisation the Health Service needs".
The Chancellor said that 18 months ago. What has happened since? As my hon. Friend Mr. Norman said, over two years we have seen a 20 per cent. rise in spending on the NHS matched by an increase of only 1.6 per cent. in the number of hospital treatments in the same period.
Last year, 300,000 people without insurance paid for their own treatments because they could not rely on the NHS—three times as many as when Labour came to office. Last year, 30,000 of our children left school without a single GCSE. There was a 20 per cent. increase in violent crime.
Who is to blame for the millions of pounds of taxpayers' money simply wasted by the Government? Who is to blame for the £350 million-plus spent on refurbishing Departments in the four years to February 2002; for the increase of £3.5 billion, or more than 25 per cent., in the cost of running Departments; and for the fact that there are more bureaucrats than beds in the NHS?
When we last debated those issues, in February, the Chancellor endeared himself to some of my constituents—[Interruption.] The right hon. Gentleman will want to listen to this. He revealed himself to be an avid reader of the Folkestone Herald, and especially of the weekly column that I write in that august publication, but he also revealed more than he meant to about his approach to the problems our country faces. In one of those articles, I had criticised the fact that my constituency—alas, like many other constituencies—has fewer GPs than it should have. The Chancellor said that I was asking for yet more money. He did not seem to know that he had already provided the money, as the local primary care trust confirmed. The problem is not the money but the difficulty in recruiting and retaining GPs.
In another article, I had called for more social housing. The Chancellor castigated me for that, too. Yet again, he said that I was asking for more money. He did not seem to know that he had provided the extra money—money that, in July 1998 the Deputy Prime Minister described as a
"significant additional investment in housing".
Since 1997, however, the number of newly built social houses has fallen by a third, despite the extra money, while the number of homeless households having to live in bed and breakfast accommodation has trebled.
What hope is there for our country when we have a Chancellor who does not even know that he has provided the money for those programmes, and who assumes that if there has been a lack of delivery the only answer is yet more money? What hope is there for our country when we have a Chancellor whose only remedy for all the problems that we face is to tax and spend and fail?
Is it any wonder that the Secretary of State for Health, who was not allowed to take part in the debate, has warned of
"one hell of a lather about taxes rising"?
He said that many people would conclude that the Government have already tried that approach,
"but actually it isn't working".
People want a different approach, a different way. They want a Government who trust the good nature and commonsense instincts of the British people to get on with their own lives without being tied up in red tape and regulations. They want a Government who reward hard work instead of penalising it, and who encourage saving instead of punishing it. They want a Government who will spend their money wisely. They want a Government who will introduce real reform to our public services. They will never get that from this Government who know only how to tax, how to spend and how to fail.
The Budget is yet another futile chapter in that litany of failure. That is why we shall vote against it tonight.
Over-egged, over-long and vaguely unpleasant; the only truth that was missing was the fact that the British economy has grown, is growing and will continue to grow—something that Mr. Howard strangely failed to mention. The reality is that, in the main, this has been a very good debate in which right hon. and hon. Members on both sides of the House have made some important and worthwhile contributions, and I will just refer to a number of them.
My hon. Friends the Members for Sunderland, North (Mr. Etherington), for Huddersfield (Mr. Sheerman) and for Wythenshawe and Sale, East (Paul Goggins) stressed the importance of the enterprise culture and our work to promote innovation and science, which is absolutely essential if we are to address the productivity issues that have concerned all hon. Members.
My hon. Friends the Members for Reading, East (Jane Griffiths), for Glasgow, Cathcart (Mr. Harris) and for Peterborough (Mrs. Clark) stressed the importance of ensuring that we build on the growth that is occurring in the private and the public sectors, that we recognise the importance of productivity in the public and the private sectors and that the challenges of both those sectors need to be addressed. The Government would be the first to admit that we still have a way to go, but the Budget lays out the challenge, establishes very clearly the basis of macro-economic stability on which we have proceeded and stresses the importance of working together to bridge the productivity gap and to narrow the gap that undoubtedly exists between ourselves and the United States.
Two important contributions were made by Opposition Members. Mrs. Shephard talked importantly about the need to ensure that we maintain the course that we have started on in relation to environmental taxation and do not miss the opportunities that exist. That is undoubtedly the case, and, with bioethanol, we have begun the process of recognising what alternative fuels can produce for the agricultural economy and the environment generally.
Mr. Soames said that we must address the needs of the armed forces. We have done that, and I am sure that he will recognise the fact that the last settlement for the armed forces was, as the chiefs of staff have recognised, perhaps the most generous for 20 years. In relation to the contingency reserve that my right hon. Friend the Chancellor has made to ensure that we meet the challenges of the conflict in Iraq, I can give the hon. Gentleman the assurance that he seeks: that £3 billion is new money, over and above the allocations that have been made already.
I wish to end my review of the speeches that have been made with reference to the contribution made by my right hon. Friend Denzil Davies, because I wholeheartedly agree with the shadow Chancellor that he made an important contribution, in which he very rightly focused on the changes of managing globalisation. Indeed, the backdrop to the Budget has been a global economic slowdown and a hesitant global recovery.
Hon. Members on both sides of the House will recognise the picture that my right hon. Friend painted of a complex and challenging global economy, and the Budget seeks to address precisely that. The world economy has been stalled by continuing uncertainties about the conflict in Iraq. That has affected the world economy, world trade growth having slowed to zero and our oldest and strongest competitors—the USA, Germany and Japan—having been in recession in the past two years.
The Budget confirmed that no country can remain immune to the effects of that global uncertainty, but as a result of the economic framework that the Government have put in place over the past six years Britain is better placed than many of our competitors and better placed than in the past to withstand the difficulties and to ensure that we are not diverted from our priorities. Our priorities are investing in our public services, encouraging enterprises, achieving full employment and tackling child and pensioner poverty to build a Britain of economic strength and social justice. Unlike Opposition Members, we do not believe that the two are inconsistent. We believe that the two can be achieved by working together.
In due course.
What we know, however, is that we have had a range of opinions from the Opposition recently on the economy. I want to tease out a number of those before allowing Mr. Bercow, who is so keen to contribute, to have his say. He represents one opinion that has been dismissed from the Front Bench, so we ought to give him an opportunity to make the point that he was denied the opportunity to make from the Front Bench.
Before we do so, however, it is our duty to draw the attention of the wider world to a particular absence from the Front Bench debate throughout our discussions on the Budget—the absence of Mr. Flight—[Hon. Members: "He's there!"] I know that he is there; I gave him a wave as he came in, because I feel that we need to make him more welcome. He is not so much the shadow Chief Secretary as the phantom Chief Secretary or the spectral Chief Secretary, as he is not allowed to say anything. It was his economic judgment that Britain's economy today is akin to that during the depression of the 1930s. That was what he shared with us when he was last allowed to speak. So embarrassed was Conservative central office by that contribution that it described it as the contribution of a City expert rather than that of a Conservative Front-Bench spokesperson.
That does not bode well for his future on that Front Bench, because he was the shadow Chief Secretary who promised 20 per cent. cuts across the board. That is what the Conservatives told us they were studying—[Hon. Members: "Never."] That is what they have in store for us should they ever be given the opportunity again to govern. They say, "Never", but that is not what the Leader of the Opposition, Mr. Duncan Smith said. He confirmed that the cuts were "across the board." The hon. Member for Arundel and South Downs said:
"I am digging through current spending, finding opportunities for cuts. It's too early to say how much but it could be up to 20 per cent."
They went on to confirm that it was indeed 20 per cent. that was to be cut, with the right hon. Member for Chingford and Woodford Green referring to
"extra staff that don't deliver in the NHS and...wasted consultants".
How many consultants are they going to sack? How many nurses would they not employ if they were allowed to introduce their 20 per cent. cuts? I shall give way to the hon. Member for Arundel and South Downs. I hear not a word. The reality—
I am very grateful, because I think that the words "down market" were invented to describe the Chief Secretary. Given that the big rise in expenditure on and employment in the national health service has not yet been matched by a commensurate increase in clinical activity, thereby necessitating structural reforms, can he identify among all the reforms that the Government are introducing just three?
That is simply not true. There have been 730,000 additional admissions to hospitals and more than 200,000 additional treatments. All that has been achieved in the modern NHS; all that has been achieved by primary care trusts; all that has been achieved by new methods of inspection and regulation; and all that has been achieved by a new focus and a new emphasis.
We still have not heard—we are still waiting to hear—from those on the Opposition Front Bench as to how many nurses and consultants would be cut? What is it that they have in store for the NHS by virtue of charges? What is it that they have in store for the NHS in terms of private insurance? All those things were promised by the hon. Member for Arundel and South Downs.
Let us move on. The truth of the matter is that today, when 20 other countries have been in recession, Britain has experienced the longest period—
Do not worry. You will have your chance. The right hon. and learned Gentleman gave way only once to Labour Members, so why should I give way? [Hon. Members: "Twice."] All right—twice. I will give way.
Will the Chief Secretary withdraw that complete inaccuracy about the number of times that I gave way? He was completely wrong.
The Chief Secretary has made a great deal, as have other Labour Members, about the number of extra people employed in the public services. Can he tell the House how many teachers are being served with redundancy notices today?
What I can tell the House is that, next year, spending for schools is increasing by 11.6 per cent. What I can tell the House is that we have provided £3,100 funding on average for 11 to 15-year-old pupils and that this year the figure was £3,750. We are continuing to invest in education, and standards are up. Children are being taught, in the main, in smaller classes. How many teachers will the Conservatives sack to meet the 20 per cent. across-the-board cut that they have promised? Answer comes there none.
The truth of the matter is that, while 20 other countries have been in recession, we have experienced the longest period of continued growth for half a century. In the early 1990s, inflation reached almost 10 per cent. under the Conservatives. A decade on, we have seen inflation at its lowest level for 30 years. Under the Conservatives' economic policy, interest rates hit 15 per cent. Today, at 3.75 per cent., interest rates are at their lowest levels for more than 40 years. Today, we have more people in work than ever before. Some 250,000 jobs have been created in the past year and approaching half of them were in the private sector. So much for the suggestion that the growth was all in the public sector and that we are ignoring the private sector. The fact is that Labour is promoting, encouraging and supporting growth across the economy.
We also know—[Interruption.] It is no use Opposition Members getting so agitated about that analysis because under the Conservatives businesses went to the wall, pledges on tax were broken, there was negative equity in homes and the public felt hurt and lectured at by a Government who seemed arrogant—not my words, but those of the right hon. Member for Chingford and Woodford Green. Will he deny that that is how he described his Government's economic record? The fact of the matter is that the Conservatives opposed the independence of the Bank of England, the fiscal rules and the new deal funded from the windfall levy, as did the Liberal Democrats. They opposed a national minimum wage, more help for families through tax credits and help for the poorest pensioners. Yet they have the nerve to come to the House and claim to be the friends of pensioners.
It was under the Conservative party that pensioners suffered to the extent that they did. It now wants to cut spending by 20 per cent. across the board.
On enterprises, small businesses employ almost 400,000 people more than they did in 1997. Some 1.5 million more people are in work.
I do not want to give way.
Some 70 per cent. of those people are in full-time jobs and 70 per cent. are in the private sector. As the Organisation for Economic Co-operation and Development made clear, the UK is the best place to start out and to succeed in business. That is the result of the steps taken by my right hon. Friend the Chancellor.
We are doing more. We are improving the research and development tax credits as a result of talking to the CBI and the TUC. Industry is working together, management and workers alike. As Digby Jones recognised, in a difficult business climate with little room for manoeuvre, the Chancellor has remained focused on improving the overall performance of the economy. That is our intention: to continue to improve access to finance for small businesses and to cut red tape and the costs of entering the VAT system.
International comparisons consistently show that the regulatory cost of starting a business in the UK is one of the lowest—it is 30 times less than that of our European competitors. The former right hon. Member for Huntingdon told the Tory party conference in 1992:
"You need 28 separate licences, certificates and registrations just to start a business."
It now takes a day to set up a business and it costs £85. No more 28 licences under Labour. In the EU it takes an average of 11 weeks to set up a new business and costs more than £1,000. We have cut form filling and red tape for 700,000 small businesses with our new flat-rate VAT scheme. We have saved 150,000 small businesses up to £180 million a year by raising the statutory audit requirement to a turnover of £1 million. And it gets better. I commend this Budget to the House.
Question accordingly agreed to.
(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) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation;
(b) for refunding an amount of tax;
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.
Mr. Speaker then, pursuant to
1. Rates of tobacco products duty
(1) For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 there shall be substituted—
|1. Cigarettes||An amount equal to 22 per cent of the retail price plus £96.88 per thousand cigarettes.|
|2. Cigars||£141.10 per kilogram.|
|3. Hand-rolling tobacco||£101.42 per kilogram.|
|4. Other smoking tobacco and chewing tobacco||£62.03 per kilogram.|
(2) This Resolution shall have effect as from 6 o'clock in the evening of 9th April 2003.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
2. Rate of duty on beer
(1) In section 36(1AA)(a) of the Alcoholic Liquor Duties Act 1979, for "£11.89" there shall be substituted "£12.22".
(2) This Resolution shall have effect as from midnight on 13th April 2003.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
3. Rates of duty on wine and made-wine
(1) For Part 1 of the Table of rates of duty in Schedule 1 to the Alcoholic Liquor Duties Act 1979 there shall be substituted—
Part 1Wine and made-wine of a strength not exceeding22 per cent
|Description of wine or made-wine||Rates of duty per hectolitre|
|Wine or made-wine of a strength not exceeding 4 per cent||48.91|
|Wine or made-wine of a strength exceeding 4 per cent but not exceeding 5.5 per cent||67.25|
|Wine or made-wine of a strength exceeding 5.5 per cent but not exceeding 15 per cent and not sparkling||158.69|
|Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent but less than 8.5 per cent||166.70|
|Sparkling wine or sparkling made-wine of a strength of 8.5 per cent or of a strength exceeding 8.5 per cent but not exceeding 15 per cent||220.54|
|Wine or made-wine of a strength exceeding 15 per cent but not exceeding 22 per cent||211.58|
(2) This Resolution shall have effect as from midnight on 13th April 2003.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
4. Hydrocarbon oil duties (rates)
That provision may be made altering rates of excise duty under the Hydrocarbon Oil Duties Act 1979.
5. Hydrocarbon oil duties (rates)
That provision may be made altering rates of excise duty under the Hydrocarbon Oil Duties Act 1979.
6. Hydrocarbon oil duties (rebates)
Motion made, and Question put,
(1) In section 11(1) of the Hydrocarbon Oil Duties Act 1979—
(a) in paragraph (a), for "£0.0274" there shall be substituted "£0.0382",
(b)in paragraph (b), for "£0.0313" there shall be substituted "£0.0422", and
(c) in paragraph (ba), for "£0.0313" there shall be substituted "£0.0422".
(2) In section 14(1) of that Act, for "£0.0274" there shall be substituted "£0.0382".
(3) This Resolution shall have effect as from 6 o'clock in the evening of 9th April 2003.
The House divided: Ayes 318, Noes 184.
Question accordingly agreed to.
7. Liability to general betting duty of betting exchanges
(1) Immediately before section 5B of the Betting and Gaming Duties Act 1981 there shall be inserted—
"5A Betting exchanges
(1) This section applies where—
(a) one person makes a bet with another person using facilities provided by a third person in the course of a business, and
(b) that business is one that does not involve the provision of premises for use by persons making or taking bets.
(2) General betting duty shall be charged on the amounts ("commission charges") that the parties to the bet are charged, whether by deduction from winnings or otherwise, for using those facilities.
(3) No deductions shall be allowed from commission charges.
(4) The amount of duty charged under this section in respect of bets determined in an accounting period shall be 15 per cent of the commission charges relating to those bets.
(5) For the purposes of this section, and section 5B(4) so far as relating to this section, a person who arranges for facilities relating to a bet to be provided by another person shall be treated as providing them himself (and the other person shall not).".
(2) In section 5B—
(a) for subsection (1) there shall be substituted—
"(1) All general betting duty chargeable in respect of—
(a) bets made in an accounting period, or
(b) in the case of duty chargeable under section 5AB, bets determined in an accounting period,
shall become due at the end of that period.";
(b) in subsection (4), after "section 4(1) to (3)" there shall be inserted "or 5AB".
(3) In section 5C—
(a) in subsection (1), after "in the course of a business" there shall be inserted ", other than a betting-exchange business,";
(b) at the end of that subsection there shall be inserted—
"In paragraph (a) "betting-exchange business" means a business such as is mentioned in section 5AB(1).";
(c) subsections (2) and (3) and, in subsection (4), the words "In the case of a bet which is excluded from subsection (2) by virtue of subsection (3)," shall be omitted.
(4) The amendments made by this Resolution apply in relation to any accounting period beginning on or after 1st June 2003.
(5) Those amendments shall not apply in relation to a bet (a "straddling bet") that is—
(a) made, using facilities provided by a person ("the broker"), in an accounting period of the broker beginning before 1st June 2003, but
(b) not determined until an accounting period of the broker beginning on or after that date.
(6) Any winnings paid in respect of a straddling bet to which section 5AB of the Betting and Gaming Duties Act 1981 would apply but for paragraph (5) above shall be treated for the purposes of that Act as paid in the broker's accounting period in which the bet was made ("the earlier accounting period").
(7) Paragraph (6) above shall not have effect to reduce the general betting duty payable by the broker for the earlier accounting period; but the amount of the reduction that would (but for this paragraph) have been made for that period shall be set against any liability of the broker to general betting duty for accounting periods in the following three years, taking earlier periods before later ones until the amount is exhausted.
8. General betting duty (on-course bets)
That provision may be made restricting the definition of "on-course bet" in Part 1 of the Betting and Gaming Duties Act 1981.
9. Bingo duty
That provision may be made about bingo duty.
10. Amusement machines not operated by coins or tokens
That provision may be made—
(a) extending the definition of "amusement machine" for the purposes of the Betting and Gaming Duties Act 1981;
(b) extending the definition of "gaming machine" for the purposes of section 23 of the Value Added Tax Act 1994.
11. Vehicle excise duty (rates)
Motion made, and Question put,
(1) In paragraph 1 of Schedule 1 to the Vehicle Excise and Registration Act 1994—
(a) in sub-paragraph (2) for "£160" there shall be substituted "£165";
(b) in sub-paragraph (2A) for "£105" there shall be substituted "£110".
(2) For the Table in paragraph 1B of that Schedule there shall be substituted—
|CO2 emissions figure||Rate|
|Exceeding||Not exceeding||Reduced rate||Standard Rate||Premium rate|
(3) In paragraph 1J of that Schedule—
(a) in paragraph (a) for "£160" there shall be substituted "£165";
(b) in paragraph (b) for "£105" there shall be substituted "£110".
(4) This Resolution shall apply to any licence taken out on or after 17th April 2003 for a period beginning on or after 1st May 2003.
The House divided: Ayes 369, Noes 134.
Question accordingly agreed to.
12. Vehicle excise duty (tractive units)
(1) After section 15 of the Vehicle Excise and Registration Act 1994 there shall be inserted—
"15A Exception for tractive units from charge at higher rate
(a) a vehicle licence has been taken out for a tractive unit, and
(b) the licence was taken out at a rate of vehicle excise duty applicable to a tractive unit which is to be used with semi-trailers with a minimum number of axles,
duty at a higher rate does not become chargeable under section 15 by reason only that while the licence is in force the tractive unit is used with a semi-trailer with fewer axles than that minimum number, if the condition in subsection (2) is satisfied.
(2) The condition is that the rate of duty at which the licence was taken out is equal to or exceeds the rate which would have been applicable if the revenue weight of the tractive unit had been a weight equal to the actual laden weight, at the time of the use, of the articulated vehicle consisting of the tractive unit and the semi-trailer.".
(2) Section 16 of that Act shall cease to have effect.
(3) This Resolution has effect in relation to the use of a tractive unit on or after 9th April 2003.
13. Value added tax (requirement of evidence or security)
(1) The Value Added Tax Act 1994 shall be amended in accordance with paragraphs (2) to (7) below.
(2) In section 24(6)(a), after "documents" there shall be inserted "or other information".
(3) In paragraph 4 of Schedule 11, for sub-paragraph (1) there shall be substituted—
"(1) The Commissioners may, as a condition of allowing or repaying input tax to any person, require the production of such evidence relating to VAT as they may specify.
(1A) If they think it necessary for the protection of the revenue, the Commissioners may require, as a condition of making any VAT credit, the giving of such security for the amount of the payment as appears to them appropriate.".
(4) For sub-paragraph (2) of that paragraph there shall be substituted—
"(2) If they think it necessary for the protection of the revenue, the Commissioners may require a taxable person, as a condition of his supplying or being supplied with goods or services under a taxable supply, to give security, or further security, for the payment of any VAT that is or may become due from—
(a) the taxable person, or
(b) any person by or to whom relevant goods or services are supplied.
(3) In sub-paragraph (2) above "relevant goods or services" means goods or services supplied by or to the taxable person.
(4) Security under sub-paragraph (2) above shall be of such amount, and shall be given in such manner, as the Commissioners may determine.
(5) The powers conferred on the Commissioners by sub-paragraph (2) above are without prejudice to their powers under section 48(7).".
(5) In section 72(11) after "supplies" there shall be inserted "or is supplied with".
(6) In section 83(l) for "paragraph 4(2)" there shall be substituted "paragraph 4(1A), (2) or (3)".
(7) In section 84, after subsection (4D) there shall be inserted—
"(4E) Where an appeal is brought against a requirement imposed under paragraph 4(2)(b) of Schedule 11 that a person give security, the tribunal shall allow the appeal unless the Commissioners satisfy the tribunal that—
(a) there has been an evasion of, or an attempt to evade, VAT in relation to goods or services supplied to or by that person, or
(b) it is likely, or without the requirement for security it is likely, that VAT in relation to such goods or services will be evaded.
(4F) A reference in subsection (4E) above to evading VAT includes a reference to obtaining a VAT credit that is not due or a VAT credit in excess of what is due.".
(8) This Resolution shall come into force on 10th April 2003.
14. Joint and several liability for unpaid VAT of another trader
(1) After section 77 of the Value Added Tax Act 1994 there shall be inserted—
"Liability for unpaid VAT of another
77A Joint and several liability of traders in supply chain where tax unpaid
(1) This section applies to goods of any of the following descriptions—
(a) telephones and any other equipment, including parts and accessories, made or adapted for use in connection with telephones or telecommunication;
(b) computers and any other equipment, including parts, accessories and software, made or adapted for use in connection with computers or computer systems.
(a) a taxable supply of goods to which this section applies has been made to a taxable person, and
(b) at the time of the supply the person knew or had reasonable grounds to suspect that some or all of the VAT payable in respect of that supply, or on any previous or subsequent supply of those goods, would go unpaid,
the Commissioners may serve on him a notice specifying the amount of the VAT so payable that is unpaid, and stating the effect of the notice.
(3) The effect of a notice under this section is that—
(a) the person served with the notice, and
(b) the person liable, apart from this section, for the amount specified in the notice,
are jointly and severally liable to the Commissioners for that amount.
(4) For the purposes of subsection (2) above the amount of VAT that is payable in respect of a supply is the lesser of—
(a) the amount chargeable on the supply, and
(b) the amount shown as due on the supplier's return for the prescribed accounting period in question (if he has made one) together with any amount assessed as due from him for that period (subject to any appeal by him).
(5) The reference in subsection (4)(b) above to assessing an amount as due from a person includes a reference to the case where, because it is impracticable to do so, the amount is not notified to him.
(6) For the purposes of subsection (2) above, a person shall be presumed to have reasonable grounds for suspecting matters to be as mentioned in paragraph (b) of that subsection if the price payable by him for the goods in question—
(a) was less than the lowest price that might reasonably be expected to be payable for them on the open market, or
(b) was less than the price payable on any previous supply of those goods.
(7) The presumption provided for by subsection (6) above is rebuttable on proof that the low price payable for the goods was due to circumstances unconnected with failure to pay VAT.
(8) Subsection (6) above is without prejudice to any other way of establishing reasonable grounds for suspicion.
(9) The Treasury may by order amend subsection (1) above; and any such order may make such incidental, supplemental, consequential or transitional provision as the Treasury think fit.
(10) For the purposes of this section—
(a) "goods" includes services;
(b) an amount of VAT counts as unpaid only to the extent that it exceeds the amount of any refund due.".
(2) After paragraph (r) of section 83 of that Act there shall be inserted—
"(ra) any liability arising by virtue of section 77A;".
(3) This Resolution shall come into force on 10th April 2003.
15. Value added tax (face-value vouchers)
(1) After section 51A of the Value Added Tax Act 1994 there shall be inserted—
"51B Face-value vouchers
Schedule 10A shall have effect with respect to face-value vouchers.".
(2) After Schedule 10 to that Act there shall be inserted—
Meaning of "face-value voucher" etc
1 (1) In this Schedule "face-value voucher" means a token, stamp or voucher (whether in physical or electronic form) that represents a right to receive goods or services to the value of an amount stated on it or recorded in it.
(2) References in this Schedule to the "face value" of a voucher are to the amount referred to in sub-paragraph (1) above.
Nature of supply
2 The issue of a face-value voucher, or any subsequent supply of it, is a supply of services for the purposes of this Act.
Treatment of credit vouchers
3 (1) This paragraph applies to a face-value voucher issued by a person who—
(a) is not a person from whom goods or services may be obtained by the use of the voucher, and
(b) undertakes to give complete or partial reimbursement to any such person from whom goods or services are so obtained.
Such a voucher is referred to in this Schedule as a "credit voucher".
(2) The consideration for any supply of a credit voucher shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the voucher.
(3) Sub-paragraph (2) above does not apply if any of the persons from whom goods or services are obtained by the use of the voucher fails to account for any of the VAT due on the supply of those goods or services to the person using the voucher to obtain them.
Treatment of retailer vouchers
4 (1) This paragraph applies to a face-value voucher issued by a person who—
(a) is a person from whom goods or services may be obtained by the use of the voucher, and
(b) if there are other such persons, undertakes to give complete or partial reimbursement to those from whom goods or services are so obtained.
Such a voucher is referred to in this Schedule as a "retailer voucher".
(2) The consideration for the issue of a retailer voucher shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the voucher.
(3) Sub-paragraph (2) above does not apply if—
(a) the voucher is used to obtain goods or services from a person other than the issuer, and
(b) that person fails to account for any of the VAT due on the supply of those goods or services to the person using the voucher to obtain them.
(4) Any supply of a retailer voucher subsequent to the issue of it shall be treated in the same way as the supply of a voucher to which paragraph 6 applies.
Treatment of postage stamps
5 The consideration for the supply of a face-value voucher that is a postage stamp shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds the face value of the stamp.
Treatment of other kinds of face-value voucher
6 (1) This paragraph applies to a face-value voucher that is not a credit voucher, a retailer voucher or a postage stamp.
(2) A supply of such a voucher is chargeable at the rate in force under section 2(1) (standard rate) except where sub-paragraph (3), (4) or (5) below applies.
(3) Where the voucher is one that can only be used to obtain goods or services in one particular non-standard rate category, the supply of the voucher falls in that category.
(4) Where the voucher is used to obtain goods or services all of which fall in one particular non-standard rate category, the supply of the voucher falls in that category.
(5) Where the voucher is used to obtain goods or services in a number of different rate categories—
(a) the supply of the voucher shall be treated as that many different supplies, each falling in the category in question, and
(b) the value of each of those supplies shall be determined on a just and reasonable basis.
Vouchers supplied free with other goods or services
(a) a face-value voucher (other than a postage stamp) and other goods or services are supplied to the same person in a composite transaction, and
(b) the total consideration for the supplies is no different, or not significantly different, from what it would be if the voucher were not supplied,
the supply of the voucher shall be treated as being made for no consideration.
8 (1) In this Schedule—
"credit voucher" has the meaning given by paragraph 3(1) above;
"face value" has the meaning given by paragraph 1(2) above;
"face value voucher" has the meaning given by paragraph 1 (1) above;
"retailer voucher" has the meaning given by paragraph 4(1) above.
(2) For the purposes of this Schedule—
(a) the "rate categories" of supplies are—
(i) supplies chargeable at the rate in force under section 2(1) (standard rate),
(ii) supplies chargeable at the rate in force under section 29A (reduced rate),
(iii) zero-rated supplies, and
(iv) exempt supplies;
(b) the "non-standard rate categories" of supplies are those in sub-paragraphs (ii), (iii) and (iv) of paragraph (a) above;
(c) goods or services are in a particular rate category if a supply of those goods or services falls in that category.
(3) A reference in this Schedule to a voucher being used to obtain goods or services includes a reference to the case where it is used as part-payment for those goods or services.".
(3) Paragraph 5 of Schedule 6 to that Act shall be omitted.
(4) The amendments made by this Resolution shall apply to supplies of tokens, stamps or vouchers issued on or after 9th April 2003.
16. Value added tax (supplies arising from prior grant of fee simple)
(1) After section 96(10A) of the Value Added Tax Act 1994 there shall be inserted—
"(10B) Notwithstanding subsection (10A) above—
(a) item 1 of Group 1 of Schedule 9 does not make exempt any supply that arises for the purposes of this Act from the prior grant of a fee simple falling within paragraph (a) of that item; and
(b) that paragraph does not prevent the exemption of a supply that arises for the purposes of this Act from the prior grant of a fee simple not falling within that paragraph.".
(2) This Resolution shall apply in relation to any supply that arises for the purposes of the Value Added Tax Act 1994 from the prior grant of a fee simple made on or after 9th April 2003.
17. Value added tax (business gifts)
That provision may be made amending paragraph 5 of Schedule 4 to the Value Added Tax Act 1994 so far as relating to business gifts.
18. Value added tax (non-business use of business property)
(1) After sub-paragraph (4) of paragraph 5 of Schedule 4 to the Value Added Tax Act 1994 there shall be inserted—
"(4A) Notwithstanding paragraph 9(1) below, sub-paragraph (4) above does not apply to—
(a) any interest in land,
(b) any building or part of a building,
(c) any civil engineering work or part of such a work, or
(d) any goods incorporated or to be incorporated in a building or civil engineering work (whether by being installed as fixtures or fittings or otherwise).".
(2) This Resolution shall have effect on and after 9th April 2003.
(3) This Resolution shall not apply in relation to any asset in respect of which the person in question or any of his predecessors became entitled before that date to a credit or repayment as mentioned in paragraph 5(5)(a) or 5(5)(b) of Schedule 4 to the Value Added Tax Act 1994.
(4) In paragraph (3) above—
(a) "the person in question" means the person carrying on the business referred to in sub-paragraph (4) of paragraph 5 of that Schedule;
(b) "predecessor" has the same meaning as in that paragraph;
(c) the reference to an "asset" is to anything falling within any of paragraphs (a) to (d) of the sub-paragraph (4A) inserted into that paragraph by paragraph (1) above.