Budget Resolutions — Amendment of the Law

– in the House of Commons at 12:30 pm on 16th March 2005.

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Motion made, and Question proposed,

(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. Gordon Brown.]

Photo of Michael Howard Michael Howard Leader of the Opposition, Leader of Her Majesty's Official Opposition, Leader of the Conservative Party 1:22 pm, 16th March 2005

May I begin by welcoming the return of the Chancellor to the general election campaign, not that I am entirely sure that it was worth waiting for?

Earlier this week, the Prime Minister's official spokesman was asked whether the Prime Minister and the Chancellor had discussed the Budget. The spokesman said that

"as you would expect, normal communications exist".

So that has confirmed it: the Prime Minister, like the rest of us, has just heard what is in the Budget for the very first time.

This is a vote now, pay later Budget. The simple fact is that if Labour gets in again, taxes go up again. This Budget is not about what is good for our country; it is all about the interests of the Labour party. But I can agree with the Prime Minister on one thing: this Budget is the last Budget this Chancellor will ever deliver.

When the Chancellor promised to increase the stamp duty threshold to help first-time buyers, why did he not admit that he is the Chancellor who raised stamp duty in his first four Budgets and froze the stamp duty thresholds in his first eight Budgets, making the property ladder a step too far for so many first-time buyers? When he announced the raising of the thresholds for inheritance tax, why did he not admit that he is the one who has dragged millions of people into the net of death duties? When he talked about helping savers, why did he not admit that he is the one who hit savers with his £5 billion a year raid on pension funds?

When the Chancellor offered help to pensioners to pay their council tax bills, why did he not admit that while he offers them £200 off their council tax bills, we offer a discount of up to £500? When he reannounced more spending on business support, why did he not admit that his extra spending never achieves value for money and always leads to more bureaucracy and more waste? What this Chancellor gives with one hand he takes with the other.

There is one item of Whitehall expenditure that the Chancellor and I agree is a total waste of money: the £130,347 a year the taxpayer spends paying for the Chancellor of the Duchy of Lancaster to run the Labour party's election campaign. But, unlike the Chancellor of the Exchequer, I appreciate the efforts of the Chancellor of the Duchy of Lancaster. From my point of view, he could not be doing better, so I say, "Carry on, Alan, carry on!"

Labour's faltering campaign will not be helped by this vote now, pay later Budget. We can all see the sweeteners, but let me tell the House what they hide. They hide the crippling tax rises for hard-working families that are inevitable if Labour wins. They hide the massive waste of taxpayers' money that defines this Government. They hide the huge burden of regulation that under this Government has increased, is increasing and will continue to increase.

This Government and this Chancellor have run out of solutions to the problems Britain faces. Their only answer is to tax, to spend and to waste—to get people to vote now and to pay later.

This Chancellor has got form: 2001 was vote now; 2002 was pay later. The Chancellor is a fan of all things American. The famous American baseball coach Yogi Berra must have been thinking of the Chancellor when he remarked:

"It's déjà vu all over again".

In the 2001 pre-election Budget, the Chancellor cut taxes by £1 billion. In his 2002 post-election Budget, he raised taxes by £8 billion—his biggest ever tax-raising Budget. He gives with one hand and then he takes with the other.

This dodgy Government, who brought us the dodgy dossier, are now publishing a dodgy Budget based on dodgy numbers. The Chancellor likes to rattle off a whole series of numbers—magical balances conjured out of thin air, intended to convince people that there is no black hole and that he will not have to raise taxes after the election. These figures are like mirages in the desert: we get closer and closer, and then discover they do not exist.

We have heard it all before. Look what happened with the pre-election budget of 2001. Gripping the Dispatch Box as though it were the windpipe of the Chancellor of the Duchy of Lancaster and barking out numbers like a bingo caller, the Chancellor of the Exchequer said that

"in successive years the current surpluses are projected to be 17, 15, 8, 9 and 9."—[Hansard, 7 March 2001; Vol. 364, c. 297.]

But now we know what actually happened in those years. Instead of all those surpluses, we had deficits—a deficit of 14, a deficit of 21, a deficit of 13 and a deficit of 7. The £58 billion surplus turned into a £45 billion deficit. Today, the Chancellor has confirmed a current deficit £6 billion higher than the one he forecast at the last Budget just a year ago. He now proposes to borrow over the next six years no less than £168 billion. So much for prudence.

The Chancellor proposes to borrow more in every one of the next five years than he forecast he would have to borrow in the last Budget just a year ago. His forecasts of surpluses are no better than the Prime Minister's forecasts of weapons of mass destruction. The fact is that the Chancellor's pre-election numbers today are about one thing and one thing only—votes.

Something was missing from the Chancellor's Budget statement today. I listened in vain for the endorsement from his old friends, the International Monetary Fund. I listened hard but there was none. Could that be because it is thinking what we are thinking? It said last week that Britain's national accounts have

"deteriorated sharply over the last five years".

Today, the Chancellor confirmed that the IMF is absolutely right. Indeed, it is not the only one thinking what we are thinking. The IMF's damning judgment is reinforced by a chorus of disapproval from almost every independent economist and international organisation that has examined his figures. The Institute for Fiscal Studies says that

"the Chancellor would need . . . fresh tax increases worth at least £11 billion to pay for his spending plans and to get the public finances back on . . . track".

The most astonishing reaction of all to the Chancellor's stewardship of the nation's finances, however, came from the Chief Secretary to the Treasury—he is resigning and is planning to leave the country. The question for the future is not whether taxes would go up under Labour, or when, but which taxes would go up? Will it be capital gains tax on homes, a devastating tax on home ownership, or council tax, now the stealthiest tax of all, or national insurance, Labour's tax of choice? To fill the Chancellor's black hole, he would have to tax people's income by an extra 3p in the pound—3 per cent. on national insurance. That is £1,000 a year more for a typical working couple. That is on top of the 66 tax rises that we have already had from this Chancellor. That is the scale of the tax rises that we will face if Labour wins the election.

We all know what would happen to the extra money raised from the tax bills of hard-working families and pensioners. It would be wasted, just as Labour has wasted most of the extra money that it has raised in the past eight years—

"people will say 'we've paid a lot of taxes but what has really been achieved with all that money?' . . . Too often a lot of money has been spent but very little seems to have been achieved".

Those are not my words, but the words of the Financial Secretary. At last, someone at the Treasury is telling the truth, but he will not last long. The Chief Secretary wants to go to South Africa; the Financial Secretary is more likely to be sent to Mongolia.

What happened to the Prime Minister's promise, made three years ago, that if the national health service is not

"basically fixed by the next election, then I am quite happy to suffer the consequences"?

Let us look at the facts. Average waiting times are up. Cancelled operations are up. Super-bug deaths have more than doubled since 1997. The Chancellor used to praise the wisdom of Derek Wanless and his report on the NHS. We now know that what he actually told the Chancellor was, "Your policies" since 1997 "have made" the NHS "worse". What did the Chancellor reply? According to reports, there was

"an uncomfortable silence . . . Brown was no longer interested in the conversation."

Poor Sir Derek, he committed one of new Labour's cardinal sins—he told the truth—so he never became Lord Wanless after all. Nothing in today's Budget will give people the cleaner hospitals and 21st-century health service that they deserve.

What about education? Labour promised to cut truancy by a third, but it is up by a third. Nothing in today's Budget will give parents and teachers the school discipline and higher standards that they want.

Labour promised to be, "Tough on crime, tough on the causes of crime". The Chancellor must remember that phrase—he dreamt it up only to see it nicked by the Prime Minister. For the first time ever, more than a million violent crimes were committed in our country last year. The chief constable of Nottinghamshire said this week that the police cannot cope any more. Nothing in today's Budget will get extra police on to our streets or deal with the growing lawlessness in our society.

The Prime Minister claimed:

"We will do our . . . best by" pensioners. Now his Turner report says that millions more will retire without adequate pensions. Mr. Field, the Prime Minister's first Pensions Minister, said that

"when Labour came to office we had one of the strongest pension provisions in Europe and now probably we have some of the weakest".

Labour Members really ought to listen to him. The current Secretary of State for Work and Pensions said only yesterday:

"We would be absolutely foolish if we didn't listen to people with the wisdom and experience of Frank Field".

But nothing in this Budget will restore confidence in pensions and savings.

So where has all the money gone? It has gone on bureaucracy and red tape. Today, the Chancellor tells us that he will curb bureaucracy and red tape, but we have heard it all before. In 1998, he launched a "Better Regulation Guide", and in 1999, a Regulatory Reform Bill. By 2002, it had turned into a red tape checklist. All the while he was piling £40 billion-worth of regulation on British business. Asking the Chancellor of the Exchequer to cut red tape is like asking the Chancellor of the Duchy of Lancaster to run a decent election campaign. It is just not going to happen.

Has not the Chancellor learned anything from his recent study trips abroad? This country faces major economic challenges in the years ahead from emerging economic powerhouses such as China and India. As a result of this Government's policies, however, we are much less well placed to meet those challenges today. The Chancellor repeats his claims about the economy—claims that The Economist recently described as

"all . . . in varying degrees, dodgy".

Now we know what happened when he took office. We know what Treasury officials told him:

"'These are fantastically good figures . . . The state of the economy is much better than predicted'. Eyes swivelled to Brown. 'What am I supposed to do with this?' he snarled. 'Write a thank-you letter?'"

Since then, we have fallen from 4th to 11th in the world competitiveness league. Our trade has gone from a surplus to a record deficit, as confirmed by page 234 of the Red Book. We have lost a million manufacturing jobs, and our productivity growth rate is down by a third. While other European countries are cutting taxes to improve their competitiveness, Britain's tax burden under Labour is set to be the highest for 25 years.

The Chancellor should listen to the Prime Minister's former chief economic adviser, who says:

"Britain's economic arteries are slowly being furred up by a higher and more complicated tax system, excessive regulation and endless micro-management".

Only in this dysfunctional Government would the Chancellor not talk to the Prime Minister and the Prime Minister not listen to his chief adviser on the economy. Britain needs a Government who will get a grip on spending, not a Labour party that has let spending get out of control. Britain needs a Government who will deliver value for money, not a Labour party that wastes taxpayers' money. Britain needs a Government who will invest in front-line services, not a Labour party that hires more bureaucrats and sets up more quangos.

People will face a clear choice at the election: more waste and higher taxes under Labour or lower taxes and value for money with the Conservatives. That is the battleground at this election. That is what this election is going to be all about. And I say, "Bring it on."

Hon. Members:


Photo of Charles Kennedy Charles Kennedy Leader of the Liberal Democrats, Leader of the Liberal Democrats 1:38 pm, 16th March 2005

The words may be "Bring it on," but after examining the detail of Conservative policy, I will be amazed if Mr. Howard can pull it off, as far as the British public are concerned, over coming weeks.

I want to acknowledge that the Chancellor's Budget statement is taking place against a fortunate backdrop for our country. Ours is one of the largest and most successful economies in the world. We are generally doing well. Of course part of the reason for that, on which I know the Chancellor now agrees, is that when he first came to his high office, he implemented Liberal Democrat policy on giving operational independence to the Bank of England. The difference between the Chancellor and ourselves, of course, was that he did not say it and he did it, whereas we said it and would have done it had we been given the opportunity to do so.

The Chancellor rightly speaks about the need for social justice in our country and for our tax and expenditure policies to reflect that ambition. This is his ninth Budget. Given all the responsibility and, along with that, all the opportunity that his task involves—buttressed by a fairly stable economy and by a three-figure majority, which means a stable Government as well—how can it be right, in terms of social justice, that nine Budgets on, the poorest 20 per cent. in society are still paying a higher proportion of their income in tax than the richest 20 per cent? It cannot be right—and this from a Chancellor who, rightly, trumpets the cause of social justice.

I shall deal with the Chancellor's specific announcements shortly, but why are so many pensioners still receiving what are officially classed as poverty-level pensions? The Prime Minister—I mean the Chancellor, perhaps to become Prime Minister; who knows?—has referred to international experience of late. He has said that 4 million graduates are emerging from China and India each year, and that our country must be alert to that competitive challenge. How, then, can it make sense to burden would-be graduates and students in our countries with massive student debts, tuition fees and top-up fees? And then there is the council tax.

The council tax is patently unfair. It is worth asking ourselves about it, because there will be a real choice at the general election—between two parties that accept the status quo, and another that says "Scrap the council tax: it is regressive, unfair and discriminatory." What has the Chancellor been able to announce today? What, indeed, has the leader of the Conservative party been able to announce? There has been something of a Dutch auction between them on council tax. The Chancellor talks of a £200 refund for all pensioner households, for one year; the Conservatives talk of £500. Neither has addressed the ticking bomb that is coming down the track, in the form of council tax revaluation. If recent experience in Wales is anything to go by, 7 million households in England alone will bear a significantly heavier council tax burden.

Photo of Charles Kennedy Charles Kennedy Leader of the Liberal Democrats, Leader of the Liberal Democrats

I will not, if the hon. Gentleman does not mind.

We have that looming revaluation, we have the sticking plaster that the Chancellor is applying, and we have the slightly larger amount of sticking plaster of which the leader of the Conservative party speaks. Surely to goodness, the sensible course is to adopt a principle of local taxation based on ability to pay. That means a local income tax. It works well in other countries, it is fair—much fairer than what we currently have—and it would free us from the ridiculous Dutch auction that is taking place between the other parties.

Photo of Charles Kennedy Charles Kennedy Leader of the Liberal Democrats, Leader of the Liberal Democrats

No, I will not.

The Chancellor mentioned the Institute for Fiscal Studies. The IFS has examined our proposals for a local income tax. It says that half those affected would pay less, the contributions of a quarter would be unaffected, and, yes, the remaining quarter would contribute that bit more, but that bit more would be based on the domestic household income of those people. It is a good principle. It is a principle of fairness, and we shall be very proud indeed to present it at the forthcoming general election.

According to the IFS, a typical family would be £450 a year better off, 50 per cent. of pensioners would pay no local tax, and more than 3 million pensioners would be better off by more than £500 a year—every year, year on year. We are not talking about a one-year quick fix for the purposes of a general election, like the one of which we have heard this afternoon.

As for the position of pensioners generally, we are being very straightforward and up front. According to all the indications and studies, because of greater longevity the oldest pensioners tend to be the poorest. That is why we argue that the over-75s should be a priority, and that they should receive £100 more per month in basic state pension. That will inevitably benefit women in particular, as they live longer than men.

That brings me to another important issue, which returns us to the theme of social justice. It is an absolute scandal that, in this day and age, women are still so discriminated against by the operation of the basic state pension. Why are they discriminated against? Because they take time out to start a family or bring up children, or perhaps take time out from their careers and working patterns to care for elderly relatives. In those circumstances, they do not maintain their national insurance contributions. When they reach pensionable age, they find that because their contributions are not complete they are not eligible for the same level of direct return from the state as men. That is iniquitous, which is why we argue—again, in line with international experience—that instead of basing women's entitlement to a pension on national insurance contributions, we should base it on residency. The system works well elsewhere, and there is no reason why it should not work well in Britain. Where there is a will, there is a way. We believe that such a system would end, at a stroke, the fundamental inequity in the present arrangements for women, and it is another proposal that we will put at the forefront of the coming debate at the general election.

There will be a third and, I think, very telling debate at the election on the back of this Budget. The Conservatives have their views, to which they are thoroughly entitled, and the Chancellor has his policies, which he has recommended to us today. We have a different take on things. If we want to tackle injustice and inequality—if we want to define priorities, and make the tough choices that go with deciding those priorities—we must be straight with people. We must say what our proposals will cost, and where the money will come from.

I am not interested in a general election debate that is predicated on nonsense that people do not believe in the light of their daily experience: "Vote for us and your taxes can go down, the national debt can be reduced, spending can go up, and the sun will shine for 24 hours a day." People are not stupid about this sort of thing. What they do want to know is what our priorities are. I have mentioned one of them: getting rid of the council tax and replacing it with a local income tax. I have mentioned another: alleviating the burden of student debt that currently afflicts far too many of our young people. A third is, of course, the introduction of free long-term personal care for the elderly. But all that bears a price tag. Where will the money come from?

According to Government figures, if every pound paid by those earning more than £100,000 a year and paying the top rate of income tax—the 1 per cent. top earners in the country—was taxed at 50p rather than 40p above that £100,000 level, enough money would be generated to enable a Government to get rid of the council tax and introduce a fairer local tax, to end the imposition of student debt that results from top-up and tuition fees, and to legislate for the introduction of free long-term personal care for the elderly. We have done that successfully in Scotland, where, ironically, we have been working with the Labour party—

Photo of Charles Kennedy Charles Kennedy Leader of the Liberal Democrats, Leader of the Liberal Democrats

I prefer to be more generous. I am in a generous spirit this afternoon.

That is who will pay, that is what it will cost and that is what people will get—and that is the direct, straightforward, honest approach that the Liberal Democrats will present at the general election. I believe that we will find, as we have indeed found in recent years, a very positive and supportive echo in favour of that argument.

We have identified those areas in which we would pursue a different agenda, on a different financial basis, from the Government of the day. But I should point out that the entire agenda that the Chancellor has just set out is influenced by the fact that, at the last general election, he was very careful to say that, if re-elected, a Labour Government would not raise income tax. They did not, but what did they do? They raised national insurance contributions, and for most individuals, families and households, that adds up to exactly the same thing. This Labour Government wonder why people get cynical about politicians, yet they give one impression before an election and do exactly the opposite afterwards. Well, we are not in that business.

In light of what the Chancellor has said today, and particularly given the imminence of the election, he should be prepared to open his books to the National Audit Office, so that it can examine the assumptions underpinning his forecasts. He made some allusion to that, but interestingly, no such thing is going to happen until the end of this calendar year. I wonder why. The Chancellor talks about the savings that can be achieved in central Government—we agree that such savings should be achieved—but how can we properly identify them if the NAO does not have such access, along with the right to publish the findings of its inquiry into the Government's behaviour as a whole?

I turn to my second point about the overall context of the Chancellor's speech. There was a very revealing sin of omission, save for one passing reference, in that it is now perfectly clear that the environment does not loom large in this Government's overall economic thinking. We will argue at the coming election that the environment should be factored into each and every one of the Government's public policy decisions. That process has to begin with the Treasury itself, but it is clear that that is not happening.

There will be clear choices and competing priorities before the country at the forthcoming general election. I want to, and we will, go into that election arguing for the principle of social justice, with which the Chancellor would agree, but based on a transparent tax system and fairness in terms of the priorities to which such proceeds should be devoted. That is a good story to tell, and I am looking forward with enthusiasm to telling it. As for the Chancellor and the leader of the Conservatives, they can carry on being two ships that pass in the night; the Liberal Democrats will address the agenda that matters most to people.

Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee 1:53 pm, 16th March 2005

It is a pleasure to be called in this fevered election atmosphere, but we must take a cool analytical look at what this Budget means. I certainly welcome the Chancellor's statement, because it shows an economy that is growing strongly. The Government are also meeting their fiscal rules for public finances; that is a very important issue for the Select Committee on the Treasury, which I chair.

I am also delighted to see that there is a long-term investment programme to deliver 21st-century facilities in primary schools, to increase support for information and communications technology, and to provide help for young people. Mention has been made of China, to which I shall return. It is important that we upskill in order to compete with the markets and developing economies in China and elsewhere in Asia, which are increasingly high-tech. From the Treasury Committee's point of view, the reduction in the regulatory burden is also extremely important. When the Chancellor comes before the Committee next Tuesday, we will doubtless ask him how he intends to reduce that burden.

I welcome the modest fiscal tightening in the Budget, particularly given the backdrop of potential global instability. I cite two major issues: first, the growing US current account deficit, which is now 6 per cent. of the entire US economy and is reaching $700 billion; and secondly, the oil price hikes of the past few months. Oil prices have recently exceeded $50 a barrel, and we must bear it in mind that every jump of $10 takes half a percentage point off the annual global growth rate for several years. So events in the wider international community impact on our own economy.

In the past few years, the Treasury Committee has been concerned with issues such as the labour market. Our report states that the evidence that we received suggests

"that migration into the UK has played a useful role in relieving skill shortages in the labour market and boosting non-inflationary growth."

Indeed, although factory-gate prices are increasing, prices in the shops are not, and much of the reason why is the impact of such migration on our economy. In considering this issue, it is important to look at the experience of countries such as the United States, which has a generally young population, an immigrant community and economic growth. I hope that we look at this issue in a sensible, rather than emotive, way during the election campaign, because increased migration can provide an economic generator.

As the Chancellor said, we need to increase the UK's skills base to meet this competitive challenge. The Treasury Committee has devoted time to considering this issue; indeed, as recently as two weeks ago we visited China, in the wake of the Chancellor's own visit. We have also been examining the operation of the golden rule and the fiscal cycle. As our report points out—it is important for the Chief Secretary to the Treasury to hear this again—

"we believe the Treasury should clearly inform Parliament in a timely fashion of its preliminary analysis that the cycle has ended. To delay making an announcement, potentially for several months, to the next Budget or pre-Budget report, would not be in the interests of informed public debate."

I hope that the Chief Secretary will take that observation back to the Chancellor.

The Treasury Committee has also looked at spending in general and end-year flexibility. As a Back Bencher, I welcome increased spending on education, health and public services, but the Committee has found

"that some departments, local authorities and public corporations are still failing to deliver capital spending at the planned level . . . We recommend that the Treasury take further action to improve the management and delivery of public sector investment and to monitor its effectiveness closely."

That way, we can counter the argument that such spending increases achieve nothing. We want to ensure that such spending leads to solid outcomes. However, the Treasury has work to do on that issue.

In the past year or two, the Treasury Committee has also focused on the issue of tax avoidance. Our report states:

"The Paymaster General's announcement that future legislation to outlaw future income/NIC avoidance schemes . . . will be backdated to 2 December 2004 raises significant issues . . . It would be helpful if, at this stage, and without jeopardising their position, the Inland Revenue were to publish a paper setting out their thinking on the principles which will guide future decisions as to whether a scheme is reckoned to be within or outside the terms of the announcement."

The publishing of such a paper could preclude further recourse by individuals and companies to the European Court of Justice.

The Government need to focus a great deal more on excise duty avoidance. We published a report on this issue as recently as yesterday, and we found that losses from excise duty fraud total some £4 billion. The revenue loss from tobacco smuggling alone is estimated at £1,900 million a year. The Treasury and the Government still have a long way to go to in clamping down on such fraud.

I mentioned that the Select Committee visited China, and while there we took the opportunity to talk to its Customs authorities. They told us that in the past year or so, they had closed down 2,000 illicit cigarette manufacturing factories. There is a huge trade in that area, but we were a little dismayed to find that the Customs officers were based not in China but in Hong Kong. Given the burgeoning market in China, it is important that we have a Customs and Inland Revenue presence in China. I ask my right hon. Friend the Chief Secretary to consider that point.

In fact, duty is paid on only three out of every 10 packets of hand-rolling tobacco consumed in the United Kingdom. That is a matter of very serious concern. The illicit market share for hand-rolling tobacco has been above 30 per cent. for each year since estimates have been available—and the figure is rising, thus indicating, in the view of the Treasury Committee, that the level of tobacco smuggling is, to put it mildly, extraordinarily high.

We also considered alcohol fraud. The latest estimate of fraud involving spirits—£250 million a year—is obviously of a different magnitude from what we see in tobacco smuggling. However, as we noted in our report, given the compliance costs of introducing tax stamps—£7 million a year in start-up costs and £5 million a year thereafter—such proposals should not be considered as a disproportionate response to the problem. I look forward to an increase in the very positive engagement that has taken place between the Scotch whisky industry, other alcohol producers and the Government to ensure that we clamp down even further on such tax avoidance and the smuggling of alcohol.

One of the various groups that the Chancellor considered in his Budget speech was pensioners. What we regularly hear in such debates is the pejorative term "means-testing". I am a Member of Parliament with a constituency that includes a high percentage of pensioners who have benefited from the proposals that the Government have introduced since 1997, and hon. Members should not talk to me about means-testing. My constituents welcome the extra money that they have received. They welcome the winter fuel allowance. It is very important to realise when we talk about means-testing that everything in life is means-tested—income tax is means-tested—so individuals are rightly entitled to those benefits and moneys.

In 1997, single pensioners had an income of £67, but they now have a minimum income of £105. That 40 per cent. increase is hugely welcome to pensioners, and I want the Government to pursue the strategy of pension credit for the time being. As the Turner commission report says, that is not the solution for the long term, but it is certainly the solution for the short and medium term.

Photo of John Barrett John Barrett Shadow Minister (International Development), International Development

Does the right hon. Gentleman agree that there is a very serious problem with those who are entitled to those very benefits but are not yet getting them? The poorest of the poor are not just those who are entitled, but those who are entitled but not receiving.

Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee

Just over 3 million people are entitled to pension credit and well over 2.5 people get it at the moment. Yes, some people have still to get the credit, which is why it is important for all hon. Members, not just Government Members, to run road shows in their constituencies, along with the pension credit personnel, to ensure that people apply for those credits and get their entitlement. If the hon. Gentleman is asking whether we have a way to go, the answer is yes, so it is important that we all work together in our constituencies to get that message across to pensioners and community groups.

It is worth considering whether pensions should be allied to earnings. I have worked out that between 1997 and now the net pensioner income has increased by 19 per cent., and net earnings have increased by 12 per cent. In other words, pensioners have had a seven percentage point increase above the inflation rate as calculated using the retail prices index, so the link to earnings virtually exists. If we went back to a flat rate for all pensioners, we would find that 30 per cent. of pensioners at the bottom end of the scale would be hugely deprived as a result. The need to pursue the Government's policy is extremely important.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Is my right hon. Friend aware that research by the Department for Work and Pensions shows that a single female pensioner aged 75, who has too much income to be eligible for any pension credit whatever, is still better off than she would have been if the Government had not introduced the myriad measures to which he refers but had simply restored the earnings link?

Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee

I agree entirely, and I shall deal with that point with an anecdotal comment. Just a few months ago, there was a council by-election in my constituency—there is one tomorrow, in which I shall vote—and I met an old lady. As my right hon. Friend Mrs. Liddell would agree, we might call her an old dear in Scotland. She said, "I was brought up on a farm and I've been a Tory all my life. You're the Labour MP for this area, aren't you, Mr. McFall? I want you to go back and thank that fellow, Gordon Brown, because over the past few years my income has increased and I've never been better off." That was said by an old Tory farmer, so our prospects in the next general election are pretty good.

On behalf of the pensioners in my constituency, I welcome the pension credit guarantee and the savings credit. I have been a Member of Parliament for 18 years, and for well over a decade of my time here, I was used to pensioners coming into my constituency surgery and saying, "Look, I've got just a little bit of extra savings, and there's a 100 per cent. withdrawal rate as a result." The pension credit is helping to alleviate that situation, but we still have some withdrawal tax rates of 50 or 60 per cent. I suggest to my right hon. Friend the Chief Secretary that we should work on improving that situation to ensure that we do not have such penal rates. However, when we consider that in 1997 the withdrawal tax rate was 100 per cent., we see that have come a long way.

I want to mention China. The need for investment in manufacturing and the need to upskill our population are extremely important. As I have said, the Treasury Committee went to China the other week. Three things struck us about our visit to China that we should take note of: first, the sheer size of the country; secondly, the pace of change there; and, thirdly, the need to pay close attention to China. When we put together the first two—the size and the pace of change—the result is an emerging economic superpower with an increasingly important impact on the global economy.

First, China is supporting the American current account deficit. Secondly, it is supporting many countries in Asia. Thirdly, it has bilateral arrangements with countries as far apart as Africa and south America. Australia is flourishing because of the commodities market. Half the cement in the world is imported by China. China is looking to Africa, especially Nigeria, for oil. A fascinating example comes from one of my former colleagues with whom I worked, the former Secretary-General of NATO, who visited Venezuela about six weeks ago. He told me that the second biggest user of the Panama canal is China. So China's stamp is all over the world—it is a global superpower—and that is a very important issue for us to take on board.

China's population is 1.4 billion, but it is sometimes very hard to get an understanding of that when we bandy such figures about. It may help to consider the fact that more people are learning English in China today than the population of Britain. There are 60 million people in Britain, but more than 100 million people in China are learning English. That gives us an idea of what is happening there.

Let us go down to a very low level—sport. English football attracts 500,000 fans to games and another 8 million people watch it on television. English sport is a very big issue in China: 400 million people watch English football in China. An example that was cited to us is Stockport County. I do not know whether any hon. Member present represents Stockport, but certainly, coming from Scotland, I would not consider that as one of the biggest teams, or as a team in the premier league. Am I correct?

Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee

I think that I am correct. That team plays to gates of about perhaps 4,000 or 5,000 every week—but it has an arrangement in China, and when it goes to China it plays to crowds of 25,000 to 30,000. No wonder the English Football Association has set up a website as the result of such initiatives.

On a per capita basis, China remains a relatively poor country with per capita income of approximately $1,000 per annum, but it is a £1.4 trillion economy and is in the process of overtaking the United Kingdom to become the fourth largest economy in the world. In 20 years' time—who knows?—it could be up there with America.

The Chancellor mentioned that China is now producing 2 million graduates and is spending three to four times what we spend on research and development. It has accounted for a bigger share of world growth over the past few years than the whole of the G8 combined. Given that China exports more than France, Italy and Britain combined and is the world's No. 1 destination for foreign direct fixed investment, we have a challenge on our hands in this country.

There are two ways of looking at that. We can consider it a threat or we can consider it an opportunity—and it is important that we consider it as an opportunity. Chinese politicians and officials have indicated to us that they are heavily engaged in a search for new technologies to improve energy efficiency. China has huge scope to make efficient use of energy and to make its energy production—currently heavily reliant on coal—less environmentally harmful. There are opportunities for clean technology in China—an area in which we should encourage British firms to get involved.

The present level of car ownership in China is 10 per 1,000 people. The average in the EU is 500 per 1,000 people. What will be the environmental damage if China gets up to the EU average? There are opportunities for us in China, but there are also responsibilities to ensure that, in a global sense, we have a measured environmental policy and that we help our economy while engaging with the Chinese.

The need for positive engagement is extremely important. The processes, such as the entry of China to the World Trade Organisation, mean that China has begun constructive dialogue with the rest of the world. We need to build on that and broaden it out into other economic co-operative bodies, but that may require a change in the international economic bodies as well as on the part of China. When the Governor of the Bank of England, Mervyn King, came before the Treasury Committee a number of months ago, he mentioned that very point, as did the Chancellor.

It is striking that many of the international bodies that are currently used as platforms for dialogue between the world's major economic powers evolved long before China's emergence as a significant economic force. These bodies have shown themselves to be capable of change. To accommodate Russia, the G7 became the G8, but as the pace of change in the global economy has accelerated in recent years, our international economic organisations have still to adapt to the changing environment.

Economic experts have indicated to the Select Committee that a lot of what the G8 currently talks about—oil prices, currency evaluation and world trade negotiations and imbalances—are subjects increasingly beyond the control of the G8. We should be considering the role of China in such bodies.

Photo of John Barrett John Barrett Shadow Minister (International Development), International Development

I agree with much of what the right hon. Gentleman says, but does he agree that much of what he says about China is also applicable to India, which in future will have a massive impact on the world economy?

Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee

I agree entirely. I have mentioned that China is producing 2 million graduates a year. India also produces 2 million graduates a year, so we have two superpowers, in economic terms, producing 4 million graduates a year with a heavy emphasis on research and development. When we take account of India, it makes it more urgent that we develop.

The Chancellor has pointed out that as the world economy develops and major new economies such as China and India emerge, there is a strong case for reassessing what international bodies such as the International Monetary Fund and the World Bank do. The calls on those organisations now are very different from those that existed when they were set up in 1945.

Lest anyone think that this will just be a case of inviting China into the G8 to become the G9, China—in my humble opinion—has moved on from that. China is developing links with developing countries, and is more interested in the G20. We should approach China not in an arrogant way—saying that we are making way for it in the G8—but in a more humble way, recognising its importance to the global economy and working along with China for its benefit, but particularly for our benefit.

As we emerge into the 21st century, we have a stable economy, but if we are not alert to the challenges that face us in a global context, we could find ourselves behind the curve in 10 or 20 years. I certainly do not want that, and I urge the Government to look at the economy in a wide fashion, as they have done to date.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire 2:15 pm, 16th March 2005

It is one of the traditions of the House to congratulate the Chancellor on his Budget statement, though that does not necessarily mean an endorsement of every detailed part of what he said in policy terms. I have heard eight of the Chancellor's nine Budget statements and they have all been formidable affairs. I pay tribute to him, as I do to my right hon. and learned Friend Mr. Howard. It is quite obvious why the national press is reflecting the increased nervousness and sense of rattle on the Government Benches as we approach a general election.

I expect this to be my last speech in this House. I made my first 26 years ago. As is appropriate and traditional, I said nice things about my predecessor, Michael Ward, and spoke lovingly and appreciatively of Peterborough before making some comments about Northern Ireland. I have nothing new to add on Michael Ward and I still appreciate Peterborough and North-West Cambridgeshire. I thank the people there for the confidence that they have had in me for 26 years and for their support and encouragement. I can look them in the eye and say that I have responded, to the best of my ability, on their behalf. I shall come back to the subject of Northern Ireland.

I, too, spotted the comment in Tom Bower's book "Gordon Brown" in which the Chancellor was told by an official what a fantastic economy he was inheriting and snarled, "What am I supposed to do? Write a letter of thanks?" The answer to that question was yes; he should have symbolically written a letter of thanks. There is no debate—other than among Treasury Ministers, who have a different agenda—about the fact that the Government inherited what has been called a golden legacy. They have built on it, as one recognises and appreciates. My constituents, in general terms, are better off today than they were when I became a Member of Parliament 26 years ago.

Yet one of the problems that the Chancellor has when making Budget speeches is that he is so partial in what he tells the House. The distinction between what he tells the House and what turns out to be the reality is so considerable, and appears to get bigger every year, that it is not surprising that what he tells us is taken with a large pinch of salt. To put a little balance into his statement, he might, for example, have reflected on the fact that, when he came to power, the current account of the balance of payments was virtually in balance. Last year, it was in deficit to £57 billion, which is the largest in our history. The previous record was the previous year when the deficit was £47 billion. If he had considered that, we might have had a slightly more balanced appreciation of the state of the economy.

Photo of Liam Byrne Liam Byrne Labour, Birmingham, Hodge Hill

The right hon. Gentleman must surely be aware that the current deficit is only about 1.5 per cent. of gross domestic product. That is in sharp contrast to the 4 or 5 per cent. of GDP that we saw in the 1980s.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

When one is old and grey, the temptation is to offer advice to young men. The Chancellor made much about figures in billions that were considerably less than the £57 billion of deficit last year. One therefore needs to be a little careful in being quite so dismissive of the growing—and record—balance of payments difficulty.

As those of us who listen—occasionally through gritted teeth—to the "Today" programme know, four years ago and at this point in the previous Parliament, the Chancellor told us that his plans for this Parliament were to borrow a total of £16 billion. He has actually borrowed £95 billion. If he had reflected on that fact, it would have given his statement slightly more substance.

Right hon. and hon. Friends will recall what I was doing in 1995. I remember that when the Prime Minister was in opposition, he said that he had no plans to increase tax. That statement is engraved on my heart. However, the British people discovered that it would not take long for this Government to make their plans, and 66 stealth taxes were introduced. Sixty-six is a big number, but I will give the House a bigger one—the £5,000 per household that represents the increase in taxation imposed on our people by this Government.

The Government bridle at the fact—if I were a Labour Member, perhaps I would bridle too—that many people do not now trust what Ministers say. That problem has been accentuated by Iraq and various other events in the past few years, but it can be traced back to the misleading and disingenuous statement that was made about taxation. It turned out to be spectacularly wrong.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I share the right hon. Gentleman's recollection of the importance of the balance of payments, and I take the other points that he has made about debt. However, is not the point that one takes on debt based on one's ability to pay it back? Is it not a fact that the dynamism of our economy and the growth figures that the Chancellor presented to us today show that households and the nation are far more able to meet that debt? It is probably a smaller proportion of households' total income.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

That is an interesting thought, and I do not have the statistics at my fingertips. However, the Chancellor reminded us today that the figure for average earnings was £23,400. If one takes £5,000 from that, average earnings look a lot less attractive than would have been the case if the Government had stuck to their pledge not to increase taxes.

My right hon. and learned Friend the Member for Folkestone and Hythe was absolutely right to point out that this is a vote now, pay later Budget. The Chancellor would not have even recognised the position of council tax payers had an election not been planned for a few weeks time. However, it is worth recalling that council tax has gone up by 70 per cent. under this Government, and a third of the increase in the basic state pension has been eaten up by council taxes. It is no wonder that the so-called grey vote is on the march. We respond to it out of instinct; the Government respond purely on the basis of trying to get themselves through 5 May.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

May I clarify two statistics for the right hon. Gentleman? In my city of Wolverhampton, the council tax has gone up quite a lot under this Government. In eight years, it has gone up by 16 per cent. in real terms, and we must consider real-terms increases rather than the gross increases to which, I suspect, he referred when he mentioned the figure of 70 per cent. On the money for the poorest pensioners, in 1997, a single pensioner was expected to live on £69 a week. However, from April, the figure will be, in round terms, £115 a week. In real terms, that is a 40 per cent. increase.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

I am tempted to engage in this argument, but I will not except to say that it seems to me that the hon. Gentleman is using two different sets of inflation statistics to enhance his position. I heard the figures for an increase from £69 to £115, and I am perfectly happy to accept that such a £45 increase has occurred. However, that has taken place over eight years, which equates to 5.75 per cent. a year. Had the Chancellor said to us that he was happy to be able to tell us that he could increase pensions by an average of 5.75 per cent. per year, we would have had a better opportunity to assess the comprehensiveness of the statement that he made to the House.

I wish to mention something else that the Chancellor forgot to say, but that would have given substance and balance to his statement. He forgot to say that for every job in the private sector that was lost last year, two jobs were created in the public sector. We are all in favour of employment, and we do not enjoy seeing our constituents out of work. Two jobs for one seems, on the face of it, a good exchange. However, the Government are seeking to persuade us that they have changed their attitude to wealth creation and substituting two public sector jobs for one private sector job in one year is not a recipe for wealth creation in the medium term.

I was extremely interested in what Mr. McFall, the distinguished Chairman of the Treasury Committee, said about China. He has no means of knowing this, but one of my sons is completing a PhD in Chinese history at Harvard and has taught for some time in China. My wife and I have been out to visit on a couple of occasions, and one cannot help being impressed by the level of activity and economic growth there.

I want to add a further point to those that the right hon. Gentleman made and with which I agree without reservation. China is so big that we must not fall into the mindset that it is homogeneous. It is taking our jobs at the moment because it pays less. However, when costs rise in one part of China, another part will come along that is even poorer than Beijing, Shanghai and Hong Kong. That part of China will start the process all over again and, after that, a third part will come along to start the process again.The right hon. Gentleman knows that I do not indulge in criticisms of what he says in the House, but if I have a criticism of him, it is that he almost understated the threat. Last year, my son taught in one of Beijing's universities for a year. He taught not just English, but how to write job applications for the west so that the students could be trained abroad and bring back their skills to inject into the local community.

I have just stood down after six years as a trustee of Boston university in the United States. I tried—I have to say, I failed, but that is Boston's disadvantage, not mine—to persuade it to be involved in a university link-up with China to develop the technology, the potential and the investment for years to come. Had the Chancellor been so minded, he could have said that he was going to give some of the pockets of money to British universities on the understanding that they would go to China and India, which I agree is also important, to look for new opportunities to develop the knowledge economy in new ways. He told us that that is fundamental to the country's future, and no doubt all hon. Members would agree, but it is one thing to say that and another to produce the resources to drive that forward. When the right hon. Member for Dumbarton has the Chancellor in front of him next Tuesday, he will have the opportunity to raise that with him.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Minister (Trade & Industry), Trade & Industry, Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

I, too, welcome the comments on China. There are many ways to link with it and to go forward. That is certainly the case for students, with either them coming here or our students going there. It will also be important to exchange technology. China is interested in inward investing in this country, and we should encourage that.

Photo of Barry Sheerman Barry Sheerman Chair, Education & Skills Committee, Chair, Education & Skills Committee

Is the right hon. Gentleman aware that my Select Committee on Education and Skills has just taken evidence on the UK e-university, which, sadly, did not progress? In the course of that, we found many universities with strong partnerships in China, which they are developing with the help of the British Council. A lot is going on that is sometimes below the surface.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

That is a helpful contribution. However, that development is probably one, if not two, orders of magnitude inadequate for the challenge that this country faces over the next 10 to 15 years. I am not going to stray on to the topic of universities, except to say that we all know that they do not have the resources to drive the level of commitment and entrepreneurial activity from which they would benefit out of the new shared technology. They will need help, and that means from the Government, but unfortunately we heard nothing about that.

The Chancellor could have said something to make his comments more balanced and to give us the ability to test the truth and scope of his remarks. He could have reminded us that in his first Budget he took £5 billion out of pension funds, and he has taken £5 billion each time ever since. It is a matter of record that I chair a pension fund in the City, so I remind the House of my declared interest. He has taken £40 billion or £45 billion, which has helped to turn the extremely robust pension arrangements that he inherited in 1997 into a major crisis. He takes no responsibility for that and simply tries to sell us a bill of goods.

The Chancellor mentioned three things en passant on which he should have focused much more. The first is inheritance tax. The papers of one Government are not made available to their successors. I am happy to tell the House, however, that I was one of the voices in the last Conservative Government that argued for a much more generous inheritance tax regime than we put in place. If I believed that 10 years ago, how strongly does the House think I believe it now, after eight more years of house price inflation and after dragging more and more people into the net?

One reason for that belief was that instinctively the British people do not believe that the tax is fair. They use their after-tax income, and there is a sense of bitterness that they are taxed again, arising out of the initial income stream. My hon. Friends on the Front Bench have to fight an election in a few weeks. I do not. Now that we have heard where the Government have positioned themselves, my guess is that there are considerable votes to be won in middle England, Scotland, Wales and Northern Ireland by the party that says, "We will allow you to take your primary residence out of the inheritance tax calculation." I even offer my hon. Friends the election slogan, in case they are too busy to work it out. I would be very happy to go to North-West Cambridgeshire and say, "Vote for me and give your children your home, not the tax man." I was deeply disappointed that the Chancellor did not rise to the occasion on inheritance tax.

The second thing that the Chancellor talked about was his tax credit proposals. There is an element of truth in what he said. Let me make it clear that I am not trying to make a particularly partisan speech. However, as a Back-Bench Member of Parliament, one thing that irritates me more and makes me more angry on behalf of my constituents than virtually anything else is the sheer incompetence of the pension tax service, the working tax credit and, above all, the Child Support Agency.

The Government have lost the plot. They seem to think that if they stand there and unveil a policy, that is it. Well, it may be "it" in Labour constituencies, but it is not "it" in my constituency. I receive a higher proportion of letters on the tax credit arrangements and the Child Support Agency and their inability to work than I do on any other issue. It makes me angry. I always said that when I was no longer able to be righteously angry on behalf of my constituents, it was time to quit. I am quitting, but I am still righteously angry. We heard nothing about investment or holding to account those who screw up the lives of my constituents who, by definition, are among some of the most needy. That washes off Ministers like water off a duck's back.

We heard some time ago that the man who leads the Child Support Agency was going. We interpreted that as meaning that he was resigning. We were told, "Oh no, he's not resigning. He's retiring." He is still in the job. I will not believe that the Chancellor and Treasury Ministers are serious about helping the most needy until they deliver a service in an efficient and humane way. Let me offer a suggestion: fire the chief executive and deputy chief executive of the CSA "pour encourager les autres". I do not care who is put in their place. It cannot be any worse than the existing system. I was disappointed that the Chancellor said nothing about that.

The right hon. Member for Dumbarton pointed out that there was a passing reference to red tape. Come on. Hon. Members must forgive me, but after 26 years I know how this place works. I have heard the Chancellor lay red tape upon red tape upon red tape upon red tape upon red tape, yet five weeks before a general election he thinks that perhaps it is a good idea to say, "Maybe I am not totally in favour of it." The Treasury Committee has been telling the Chancellor for eight years, "Keep red tape to a minimum; reduce red tape, and then cut red tape." The Chancellor will go to that Committee on Tuesday and say nice things, yet the country's economy is being strangled. If the Chairman of the Committee looks before next Tuesday at the business surveys, he will see that all of them say that business is now more worried about regulation and red tape than anything else. I was disappointed that the Chancellor did not say anything more convincing.

I want to return for a moment to whether the Chancellor should have said thank you for the legacy of the economy. There are two other things for which he should have said thank you in 1997. He should have said thank you to the previous Government because, for the first time in our history, we set about trying to reduce third world debt. I am proud that I was a member of the Government who did that. I pay tribute to the Chancellor because he built on those foundations; in a sense, it has been a seamless operation, as it should be. Overseas aid and trying to reduce the debt burden on the poorest of the poorest in the world ought not to be a partisan point, so it would have been nice if the right hon. Gentleman had said thank you. I say thank you to him, even though he has not said thank you to us, because he has built on that foundation. I hope that that can continue.

The other thing about which he could have said thank you—but I will say thank you to him—is that we changed the fundamental socio-economic basis of Northern Ireland, about which I do know something. That enabled the peace process to start, because as a matter of Government policy we addressed some of the road blocks in the thinking and the experience. I give just one example; when I became a Northern Ireland Minister in 1986, people were two-and-a-half times more likely to be unemployed if they were Catholics than if they were Protestants. There was a range of issues that needed to be addressed, and we addressed them. We laid down the beginning of the improvement of the Northern Ireland economy, so I say thank you to the Government for building on that.

The House will not recall—it is obviously more in my memory than in that of the House—that I was the first Minister who started the peace process, and I have a vested interest in its success. Today, Northern Ireland is much better than it was; tomorrow it will be better still, and although we continue to run into troubles for the peace process in the short term, the Government should not take their eye off the economy, which needs to be strengthened further and in the strengthening will make political progress even more possible.

I have spoken for longer than I intended and certainly longer than in my maiden speech, but I have one more thing to say and then I will sit down. I have had the privilege of being in this House for four Parliaments in government and two in opposition. In that time, irrespective of which side of the House I was on, in my constituency I have spoken minimally about politics and party politics, and maximally about the issues that people tell me are important to them and about moral values. I discovered something very interesting: when I make a speech about what interests my constituents, or about moral values, there is a long queue of people who want to talk to me afterwards, but when I make a speech about politics, they say, "That was a great speech, Brian," and get off to the bar as quickly as possible. I am not as stupid as I may look to some people. I have learned through that process.

The House will not be surprised that I noted with particular interest the opinion poll conducted after the United States presidential election, when people were asked what was the single most important issue in determining their vote. We were brought up on "Keep it simple, stupid" and "It's the economy, stupid", so we might have guessed that the answer would be Iraq, security, 9/11, jobs or public services. But the issue that came top of that poll was moral values.

Let me be the first to say that the moral and religious framework of this country is very different from that of the United States—my wife is an American, I have lived in both countries and I know whereof I speak—yet I have to tell the House that I suspect that underneath those differences are some significant similarities. We have similar instincts. My final words to the House are these: politicians who want to be held in higher regard by the public need to hear and respond to the beliefs and values of their constituents, as well as to their needs and aspirations. For 26 years, that is what I have sought to do. That is what I believe and I commend it to the House.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston 2:46 pm, 16th March 2005

It is my great privilege to follow Sir Brian Mawhinney, who came into the House 26 years ago at the same time as me. I am sure that the whole House will join me in wishing him a long, happy and healthy retirement.

Photo of Mark Francois Mark Francois Shadow Economic Secretary (Treasury)

I thank the hon. Gentleman for giving way and I will not detain the House for long. By convention there are no winding-up speeches on the first day of debate on the Budget, so having heard the valedictory speech of my right hon. Friend Sir Brian Mawhinney, who spoke for half an hour and held the House for that entire time, I hope that the hon. Gentleman will allow me to say humbly from the Opposition Front Bench that the whole House will miss my right hon. Friend in future. After hearing in detail what he said, I think that we on the Conservative Benches will miss him particularly and I take this opportunity to place those comments on record and thank the hon. Gentleman for his courtesy in giving way.

Hon. Members:

Hear, hear.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

I am glad that I allowed the hon. Gentleman to intervene and I am grateful to him for that contribution. I concur with his remarks about the right hon. Gentleman.

Just where can I begin after such an excellent Budget speech from our Chancellor? I can only give his ninth Budget speech a warm welcome and say how much I look forward to hearing his tenth. My right hon. Friend has rightly earned his place in history as our greatest modern Chancellor and perhaps as our greatest Chancellor ever.

This may be my last contribution as the MP for Shettleston, not for the reasons that some of my hon. Friends have been teasing me about recently, but because of the massive boundary shake-up and renaming of many constituencies in Scotland that will take place at the forthcoming general election. As the House is no doubt aware, we are reduced from 72 to 59 constituencies. The name of my constituency will disappear and as the constituency has existed for 87 years, I would like to say a few words about it.

Believe it or not, the first MP for Shettleston, when it became a constituency in 1918, was a Conservative. He was the first and also the last Conservative to represent the constituency. Rear-Admiral Adair was elected in 1918 and did not seek re-election in 1922.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

He was certainly not Red Adair.

The legendary John Wheatley won the 1922 election for the Independent Labour party and became Minister of Health in the 1924 Labour Government. His Housing (Building Facilities) Act 1924 may have been one of the best and most important measures ever to go through the House of Commons. It led to the construction of hundreds of thousands of houses, mostly by councils at affordable rents for people who needed decent homes. Some of my very elderly constituents still say that they live in a Wheatley house and are proud to do so.

John Wheatley had the talent and ability required to become the leader of the Labour party, but sadly it was not to be: he died in early 1930. He was followed by John McGovern, Independent Labour party and later Labour, who held the seat until 1959, when my predecessor, Sir Myer Galpern, then Lord Provost of Glasgow, became the Member of Parliament for Glasgow, Shettleston. Just prior his retirement in 1979, he occupied the Chair in which you now sit, Mr. Deputy Speaker; he was a popular and distinguished Deputy Speaker until he moved to the other place on becoming Lord Galpern. I was fortunate enough to succeed him.

It is a matter of regret that the traditional names of constituencies in cities such as Glasgow—Shettleston, Govan, Springburn, Maryhill and so on—are disappearing, to be replaced by almost meaningless geographical indicators, such as north, south, east and west. Glasgow, Shettleston is to be divided in two: one half is to become part of the new central constituency; the other half, including Shettleston itself, the area in which I have had the pleasure and privilege of living for the past 35 years, will merge with the Glasgow, Baillieston constituency to form the new Glasgow, East constituency, which I hope to represent after the election.

I had to sit on the Opposition Benches for 18 years, listening to one wretched Conservative Budget after another—Budgets that destroyed working-class families and communities throughout the United Kingdom, but especially in Scotland and particularly in Glasgow. We experienced closure after closure, job loss after job loss. My constituency has always had more than its fair share of life's trials and tribulations, but it has faced up to them. It was distressing to see the hopes and aspirations of young school leavers being destroyed by the fact that there were no jobs available for them. Once, there were two jobs available to 2,000 young people in the Parkhead area, such was the scale of the problems we faced. I had to watch adults of working age descending into poor health and depression because of unemployment and poverty, and old-age pensioners dying before their time because they had to choose between eating or heating—they could not afford to do both. That happened during Mrs. Thatcher's so-called glorious years. All we were left with was a legacy of misery, despair, huge health and social problems and unemployment running at more than 20 per cent.

I never want to hear another Conservative Budget as long as I live—and I hope that I have a lengthy period left to me, even though I have now exceeded by one month the average adult male life expectancy in my constituency, which is 14 years less than the UK national average and the lowest in the UK. That is the legacy inherited by an area that was once the workshop of the empire, turning out tradesmen, engineers and skilled workers by the barrowload. The area was reduced to an industrial desert and is starting to recover only now.

The eight years that have passed since Labour came to power have witnessed a remarkable turnaround. Unemployment has been slashed to about 8 per cent.—still far too high, but at least it is falling. The new deal, the national minimum wage, the winter fuel allowance, all the tax credits, the increased family allowances, the free television licences for the over-75s and the free eye tests for pensioners have all helped to make life that bit better and easier for my constituents. The Budget will continue that improvement and I am sure that my constituents, like people throughout the UK, will think long and hard before they even give a second thought to allowing the Conservatives back into power.

Since 1997, more than 50,000 jobs have been added to Glasgow's employment base. Sadly, however, 100,000 people—one in three of the available work force—are still classified as economically inactive. In the past 12 months, I have been delighted officially to open two new Jobcentre Plus offices, in Bridgeton and Shettleston, and two new working neighbourhoods pilot schemes, in Gorbals and Parkhead. Although the offices and projects are working hard to tackle problems of long-term unemployment and people who have illness or disability and face barriers to employment, they cannot succeed on their own.

Such are the problems in Glasgow that more help is needed. Glasgow is Scotland's only metropolitan area and should be recognised as such. The city council, Scottish Enterprise Glasgow and the Scottish Executive desperately need Westminster's help if the city's problems are to be overcome. I therefore welcome the Chancellor's announcement today of the new deal for jobs and skills, and his announcement about apprenticeships. That is precisely what my constituency needs. I hope that we can find a way to ensure that apprenticeships are not confined to youngsters but benefit adults who may have lost their job years ago and need to retrain. Such people are often good workers who have been left to rot; all they need is an opportunity to retrain and learn the skills that will enable them to find employment.

I especially welcome all that my right hon. Friend the Chancellor is doing for pensioners throughout the UK. Maintaining the level of the winter fuel allowance will be popular, as will the 13 per cent. increase in their tax credits, free local bus travel—although, to its credit, the Scottish Parliament has already introduced free bus travel in Scotland—and the new £200 help with council tax bills. All those measures will improve pensioners' quality of life.

Photo of Mr George Foulkes Mr George Foulkes Labour/Co-operative, Carrick, Cumnock and Doon Valley

I hesitate to interrupt my hon. Friend, who is proving that he is as eloquent as Sir Brian Mawhinney. The Commons' loss is football's gain and we wish the right hon. Gentleman well in the Football League. However, he blamed the present Government for the problems with the CSA, and the Leader of the Opposition blamed us for the council tax. Will my hon. Friend remind the House of when both the CSA and the council tax were instituted, which I believe was under the Conservative Government?

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

I am more than grateful to my right hon. Friend for his intervention. He is correct. Furthermore, the poll tax—perhaps the worst and certainly the most unpopular tax ever implemented—was introduced by "that lot opposite", as one Conservative Member used to call us.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

Mr. Foulkes was right on both counts regarding the introduction of the measures. On the other hand, will the hon. Gentleman compare his constituency mailbag in the first few years of the CSA's existence and in the last few years, and then tell the House—with a straight face—that the service has improved?

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

Perhaps I have been fortunate, but I have not had many CSA cases. In all the time it has been in existence, I have had fewer than 50 cases involving the CSA. That might say something about the CSA or about the way in which my constituents sort out their problems—I am not sure.

I take the opportunity of his intervention to wish my right hon. Friend the Member for Carrick, Cumnock and Doon Valley a long, hearty and healthy retirement. He, too, entered Parliament in 1979. I never mention it, but he was kind enough to write an article for the Scottish Parliament's Holyrood Magazine in which he pointed out that he was a candidate for my seat in 1976, when the selection process took place.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

I have to admit that my right hon. Friend was the best candidate on the night, but a Glasgow constituency could not possibly select someone from Edinburgh to represent it.

My right hon. Friend has something else in common with the right hon. Member for North-West Cambridgeshire. He is chairman of Heart of Midlothian football club. I do not know whether his ambition is to become chairman of the Scottish Football Association, but he could have picked a better club than Hearts to be the chairman of.

To continue on the Budget, I also warmly welcome the family tax cuts, which will help low-income families. So many of my constituents fall into that category that the measure will be especially welcome to them. My right hon. Friend the Chancellor's decision not to penalise servicemen and women who receive compensation awards will also be particularly welcome. Many of my constituents join the services, some for the wrong reason—not because they want to, but because it is the only option open to them. As the father of a serviceman who recently returned home safely after completing a tour of duty in the Gulf, I know that the matter was of concern to my constituents, as well as a disincentive to good servicemen continuing in the forces. I therefore welcome the announcement.

I also welcome the standstill on excise duty on spirits. Increases in spirit duty are always counterproductive, because they result in falling sales and fewer tax revenues. The standstill will be particularly welcome in the Scotch whisky industry and in Scotland. I have two whisky companies in my constituency—Dewar's bottling plant and Allied's Strathclyde distillery—and it will be welcome news for many of my constituents.

The raising of the stamp duty threshold for first-time buyers from £50,000 to £120,000 will be welcome in the east end of Glasgow, where the majority of properties fall into that price range. If those properties were situated in the west end of Glasgow, Edinburgh or London, they would be worth a great deal, but because they are in the east end of Glasgow, their value is much lower. Young people in particular find it very difficult to get a foot on the property ladder, and every little bit of help is welcome.

There is a definite need for decent, affordable socially rented housing, which local authorities used to provide. No matter what the interest rate or house prices, not everybody can afford a mortgage or take on such a responsibility. Many people who live in rented accommodation are at the mercy of unscrupulous landlords or live in squalor.

In the Govanhill area of my constituency, between 400 and 500 houses are still below a tolerable standard, and successive Governments have been unable to remedy that problem. They do not have proper bathrooms, central heating or hot water facilities. In many cases, they are owned by very poor people or by individual landlords who do not have the finances to do them up. Some of them are let to people who have mental health problems, problems with alcoholism or other problems, and such people are usually poor and require assistance.

A definite need exists for decent quality—for lack of a better expression—council houses or socially rented houses. I hope that my right hon. Friend the Chancellor and his Cabinet colleagues will consider a house-building programme, perhaps along the lines of the scheme to which I referred when I discussed one of my predecessors, John Wheatley. We need more Wheatley houses in this day and age.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

My hon. Friend is right. We need such houses for those who cannot afford to look after themselves.

I welcome the recent announcement of the increase to national minimum wage rates, but I do not understand why a person must wait until they are 22 years old before they qualify for the top rate. Why should the limit not be 21? I accept that 18 is perhaps too low, but I cannot see the difference between 21 and 22. I hope that people will soon qualify at 21 for the top rate of the national minimum wage, which has done so much to help to take people out of poverty and to deal with employers who pay miserable wage rates.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

With the advent of four-year modern apprenticeships, will my hon. Friend concede that the minimum wage should logically apply when the apprenticeship is complete at the age of 20?

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

My hon. Friend has made a valid point, which I hope that Ministers will pick up.

When the very rich are getting even richer, why can we not consider some way of taxing the super rich, because it is not as if they cannot afford to pay? That is perhaps my one disappointment.

I welcome the decision to defer fuel duty rises for the third year in a row. In my opinion, the motorist in this country feels that they are the most put-upon member of society today, given harassment from police and cameras and increasing petrol prices because of increases in the world oil price, which is outwith people's control. Motorists will welcome that help, because, whether we like it or not, people will do anything rather than give up their cars. In some areas, people will pay 50 per cent. or more of their disposable income to maintain their cars, and, once again, the poorest people suffer. A car can be a lifeline for someone to get out of an unpleasant environment.

I want to see schools teaching children to drive. If children are going to stay on at school until they are older, driving lessons should form part of the curriculum, which would not only deal with part of the joyriding problem, but give teenagers a skill that could lead to their finding all kinds of employment as bus drivers, lorry drivers or car drivers. Many people in my constituency cannot afford driving lessons and do not have access to a car. If they were given the opportunity to obtain a licence, I am sure that many of them could obtain employment.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

The Chancellor will get a windfall because of the VAT element of increasing petrol prices at the pump. No one has got off scot-free, because we are all paying the Chancellor more.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

The hon. Gentleman has made a point.

Moving on to the additional billions of pounds that have been pumped into education and the NHS, which is, of course, administered through the Scottish Parliament in Scotland: we are beginning to see substantial dividends, and the additional money announced today for primary school and secondary school head teachers will be welcome and will be used to advantage pupils. That is a good way of seeing that every school gets a share, rather than the previous practice of giving money to local authorities that perhaps have had other priorities, often for valid reasons. Such substantial sums of money going directly to schools will be of great benefit. I contend that the public sector is showing that it can deliver, and I hope that my right hon. Friend the Chancellor will support the public sector delivery of public sector services.

I welcome all that my right hon. Friend the Chancellor has done to tackle child poverty. Some 200,000 Scottish children have been raised out of poverty since he came to office, and I support his campaign eventually to eliminate child poverty in the UK and also to tackle it worldwide, wherever it may occur.

Many of my constituents may be relatively poor in financial terms, but they are indeed rich in spirit and generosity, especially in support of appeals such as the recent tsunami tragedy appeal. Some of the largest numbers of representations that I receive from constituents relate to third world debt and poverty.

On third world debt and poverty, I pay the greatest possible tribute to my right hon. Friends, and, as the right hon. Member for North-West Cambridgeshire has pointed out, I also pay tribute to successive Governments and to successive Ministers. However, I reserve the highest possible tribute for my right hon. Friend the Chancellor, who has become the undisputed world leader in attempting to tackle third world debt and poverty. That is typified by his announcement this afternoon that the UK will unilaterally give 100 per cent. relief to 19 of the world's poorest countries during our presidency of the G8. The other seven countries will hopefully be shamed into doing likewise, and we shall see what happens.

In conclusion, we have the lowest unemployment for more than 30 years and the lowest interest and mortgage rates for 35 years. Instead of the Tory party philosophy of unemployment being a price worth paying, and the boom and bust of Tory Budgets, we have stability, stability and stability. This Budget lays firm foundations for a third-term Labour Government, and I am delighted to support it.

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs 3:08 pm, 16th March 2005

May I add my congratulations to the Chancellor on his Budget speech? But I feel that he might be congratulating himself, too.

It is irritating that under this Chancellor's stewardship, the Budget speech, which should be a fair survey of the economy and the outlook for the country, has become increasingly selective. Mr. McFall correctly upbraided the financial services industry on the subject that what is said to prospective investors and that what is in a prospectus should be fair.

When it comes to businesses and even citizens, the outlook for the economy that the Chancellor paints provides a basis for people's decisions whether to save, spend or invest. Perhaps we would all agree that the Chancellor is a master at being selective.

I have noticed that in a Britain that has a Labour Government who are a little authoritarian, it has become unacceptable to voice criticisms and point out problems. We are damned with either misrepresentation or as doom-mongers. Dr. Cable, in honest terms, pointed out the risks for house prices and has been written off as a doom-monger.

I shall focus on some of the things that the Chancellor has not said and on some of the things that I view as bordering on mis-selling. As is the Chancellor's style, we shall no doubt learn subsequently of all the nasties that were not referred to. I shall be 60 in four years' time, and I now know that I will be able to use my free bus pass only during off-peak hours. I am disappointed to learn that the inadequate help with council tax will be for only one year.

I shall move on to a description of the past. My right hon. Friend Sir Brian Mawhinney made similar comments. Everyone must welcome the recovery of employment and the fact that since 1992 we have been a successful economy. We have had low inflation, low interest rates and good growth, but it was Lord Lamont, the then Chancellor, who started the policy of inflation targeting, and the success has been carried right the way through under subsequent Chancellors. It is not something that the present Chancellor invented.

The problems in the early 1990s were very much the results of joining the exchange rate mechanism. The Chancellor forgets, rather conveniently, that he was a stronger advocate of joining the ERM than any Conservative Member. It was Bryan Gould, who said rather harshly at the time:

"It has always been a puzzle to me that people who make mistakes of such magnitude and reveal such a total inability to understand the issues of which they are supposed to be masters nevertheless sail serenely on unscathed by any suggestion that they might not be up to the job."

The Chancellor learned a new mantra thereafter. The issues that beset the economy, that caused many people to lose their jobs and did the Conservative party untold damage for a decade resulted from that unwise membership of the ERM at that time.

There are many other things that it would have been more open for the Chancellor to have mentioned. For example, over the Government's four-year term to date, the borrowing outcome has become about £80 billion worse than forecast. In terms of total progress of the economy since 1992, productivity growth has trailed off quite significantly since 1997. We have lost 1 million manufacturing industry jobs—we had difficult times in the 1980s, but manufacturing jobs have continued to be lost and we have become increasingly uncompetitive. Above all, globalisation—the opening up of world economies—has enabled sustained prosperity to continue. In the past, both Labour and Conservative Governments had the problem of stop-go. Excess demand led to inflation, which in turn led to damping-down measures. But since globalisation it has led to a major rise in imports. The compound current account deficit since 1997 is now approaching £150 billion. There is no problem with that so long as there are matching capital inflows to finance it. Were we not in such an open global world, there would have been inflation problems as a result of excess demand.

The Chancellor has refused to enter into a debate on the warnings of the International Monetary Fund and the Institute for Fiscal Studies that taxation needs to be raised. He has not addressed the issue. My right hon. Friend the Leader of the Opposition quoted what the IMF had to say—namely, that the national accounts have deteriorated sharply over the past five years and that the Government are overspending. Indeed, the IMF calls for a reduction of £12 billion in public expenditure. The point that has not been made is that the deterioration in our public finances has been material in relation to the other economies in Europe.

My fear, in terms of both the proportion of the economy that is consumed by Government and the public finances, is that convergence with Europe will mean convergence with sclerotic economic conditions.

A bit has been said about pensions. The pension tax credit was targeted to help pensioners dependent on the basic state pension who were in need, but there has been a problem, with about 40 per cent. of the population having stopped saving for pensions in the private sector because pension credits are a major disincentive to do so. For those with private sector pensions, there is an unresolved problem. Millions of people will not receive the pensions that they had expected from their employment-related pension schemes. We are talking not only of the £35 billion cash-flow cost of the £5 billion per annum tax on pensions; there is also the fact that that has caused a fall of about £100 billion in the value of the assets held by pension funds. That sum is approximately equal to their deficits.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

On the point about the £5 billion, does the hon. Gentleman recall that at the time that the so-called raid on pensions was made, the tax mountain from unclaimed advance corporation tax stood at £12 billion? It is through reform and the abandonment of ACT that companies have benefited. I do not say that they have benefited to the tune of £5 billion a year, but they have benefited year on year from the change in ACT.

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs

Even if companies have benefited, members of pension schemes have suffered. I discovered only recently—something that I found most disturbing—that when the Treasury was examining the issue in 1997, the argument was made that British equities were over-valued in relation to European equities because of the ACT credit, and that it would be a convenient opportunity to get rid of that because the stock market was buoyant.

A responsible person would have seen that we were in a bubble market that was highly vulnerable, and would have gone on to ask what would be the impact when the situation boiled over and markets fell severely. The impact was that markets fell by 25 per cent. more than they otherwise would have done. They fell to a level where dividend yields exceeded gilt yields, which is normally where stock markets bottom. Had dividend yields been 25 per cent. higher, with ACT credits, markets would not have fallen to the extent that they did. Having fallen thus far, pension funds and insurance companies all became forced sellers and have never rebuilt their equity holdings. The net result has been about £100 billion of pension fund deficits. That is about equal to the total deficits, which pension funds will be unable to make up.

Photo of Mrs Helen Liddell Mrs Helen Liddell Labour, Airdrie and Shotts

The hon. Gentleman's memory is rather selective. He seems to have forgotten that the beginning of the phase-out of ACT began under the previous Government. When he referred to the disincentives to saving in private sector pension schemes, he failed to recollect the scandal of personal pensions mis-selling, which adversely affected the public's perception of how such schemes operate.

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs

I think that we are all aware of the 2 or 5 per cent. reduction in the ACT credit during the time when Lord Lamont was Chancellor. The right hon. Lady will be aware, however, that that was part of a plan to reduce the level of taxation and to bring the two into line; there was nothing secret about it. But that really misses the point, which is that a modest reduction was nothing in comparison with getting rid of the whole lot and its impact on pension schemes.

The right hon. Lady and I could debate pensions mis-selling for a long time, but if she believes passionately that everything should be correct, clear, transparent and open, she will agree that the Chancellor should, similarly, present a correct, transparent and open picture of the prospects, pluses and minuses for the UK economy, not a selective picture.

Finally, on pensions, while it is excellent that the public debt has been reduced to £401 billion, in the meantime, on Watson Wyatt's measure, there is an actuarial deficit of £695 billion in relation to public sector pension schemes. Mercifully, that deficit will not present itself as a cash liability, but it is a forward contingent liability that will need to be addressed in one way or another. While private sector pension members have had a rough time, the taxpayer subsidy to pay-as-you-go public sector pension schemes, which remain index-linked, has continued to rise. That is an issue about which the Chancellor, conveniently, does not talk.

We have all got used to the phrase "stealth taxes", and everybody is broadly aware of the 65 per cent. increase in taxation in cash terms since 1997 and the famous 66 new taxes, but it is some of the more devious aspects of that increase that I dislike. For example, 7.5 million people have been raised into higher tax bands because tax thresholds were under-indexed over the past eight years. Indeed, if we added up all the clever ways that the Chancellor has found to extract more tax from us and asked what income tax would be if he had used none of those, we would find that it was 39p in the pound.

The Chancellor boasts of attractive corporation tax rates. However, Terry Leahy, the head of Tesco, has pointed out that national insurance charges, corporation tax, property taxes and employment taxes, when taken together, mean that Tesco now pays more than 50 per cent. of its profits in some form of taxation. If we compare UK tax rates with those in other EU countries, we find that the net taxation paid by British businesses is, in the main, now slightly higher; we are no longer the attractive tax base to invest in that we were. That is one reason why inward direct investment, which is needed to finance the current account deficit, has halved. Indeed, when I looked at last year's figures for what matched the substantially rising current account deficit, I was concerned to discover that about half of it was what we used to call hot money in the old days; it was not safe, long-term investment flows.

I shall go on to comment on what I call cooking the books. I remember sitting all through the night in this House when we debated the Government Resources and Accounts Bill. I said at the time that, although it might be deemed a great advance to move from cash accounting, which had been there since Gladstone, to resource accounting, the change offered whoever was in power the opportunity to cook the books; they had only to change the depreciation rates. Even if cash accounting has its shortfalls, I prefer something that is extremely transparent. Such is the complexity of the public accounts that it is hard enough for anyone to understand what is going on anyway. However, I have done a little digging.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I am most grateful to my hon. Friend for the powerful oration that he is giving us. Does he agree that there is a certain irony in the Government moving in that direction a generation or so after the private sector started to put more emphasis on cash flow?

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs

I thank my hon. Friend for his comment; he is precisely right. Members may have looked at the OECD's analysis of the UK economy. Extraordinarily, it says that the public sector now consumes 45 per cent. of GDP, not 40 per cent., and that the deficit is 3.4 per cent. Those figures are very different from those that the Chancellor reports. The main reason is that they are calculated on the same basis as they are calculated in other European countries and without the distortions.

What are some of the little tricks that have been got up to? Significant changes in depreciation have made the figures look better. Members may have noted that the odd £2 billion has come from something strange going on in relation to the Office for National Statistics and the treatment of expenditure by the Highways Agency. I have been in contact with the National Audit Office, which is looking into it but still does not have a full explanation. Some of it seems to be genuine—there was double counting of depreciation—but the NAO told me that most of it resulted from transferring revenue expenditure to capital expenditure. We all know about the business of balancing over the cycle. I always understood that this would take the sensible approach of having a cumulative total of deficits and surpluses, but no—we re-base every year as a percentage and produce some theoretical figure that nobody understands and is no longer a measure of the net deficit over a cycle.

We heard the wonderful news that inflation is down to 1.6 per cent., but that is under the new measure of inflation. In fact, RPI minus X is now 3.5 per cent. and, if anything, rising. There were arguments for having the same measure as Europe—we know of the Chancellor's great fondness for Europe—but people are being misled when they are told that inflation is 1.6 per cent., because the true measure, comparable with the recent past, is 3.5 per cent.

During the past three years, I have found it very interesting going up the learning curve in relation to private finance initiative and public-private partnership deals. The way in which they are accounted for and when they are on balance sheet and when they are not is a mystery rather like the Schleswig-Holstein question. The head of the Accounting Standards Board could not explain it to me. I once succeeded in understanding it for about two days, then I lost it and had to go back again. In truth, a dickens of a lot of public expenditure is off balance sheet. Whether PFI and PPP projects are on balance sheet or off balance sheet is amazingly arbitrary and random. The Government themselves, having gone to such lengths for a rather bad PPP for London Underground, were surprised that they had to put that on balance sheet. The structuring of Network Rail is completely ludicrous—it is a renationalised rail service provider and the only reason why the £21 billion debt is not on balance sheet is that the situation has been fudged by having a body of 100 council people who are supposed to be consulted. In describing meeting the debt and borrowing ratios, it would be much fairer and more meaningful to have a figure that included all the Government's off-balance-sheet liabilities. I was surprised to learn that for some reason, contributions to the EU are not included in Government expenditure figures.

I want to return to the current account. We have all been lulled into the belief that that no longer matters. Those of us who have been around for a long time remember when Governments won or lost elections on £300 million balance of payments deficits. It is currently running at £57 billion and approximately 2.5 per cent. of gross domestic product. That is nowhere near as bad as America, where it is more than 5 per cent., but America has to run a current account deficit because the dollar is the main reserve currency and it has to put more dollars into foreigners' pockets in order to finance growing trade. If one takes that factor out, the effective levels of current account deficit are fairly similar. That is no problem as long as the direct inflows are there, but they are reducing quite significantly. Indeed, the number of jobs that have resulted from foreign direct investment in this country is down 20 per cent. on the 1997 figure.

The danger in all that is that if sterling yet again came under pressure, as the dollar has in the past year, there would be obvious implications for interest rates. It is all very well to say that it is fine for Governments and citizens to borrow more because everything is stable and lovely and interest rates will be low for ever, but the whole edifice is vulnerable to anything that results in interest rates rising more than modestly.

It is excellent that the Bank of England was given autonomy to manage monetary policy. I argued strongly in the 1980s for privatising the Bank of England. However, the recent monetary growth figures show that, alarmingly, M4 is growing at 10 per cent., which is entirely incompatible with an inflation rate of 3.5 per cent. RPIX or 1.6 per cent. under the new measure. Not surprisingly, Lombard Street Research, the main monetarist economist, has warned that interest rates will soon be 5.5 per cent. if that M4 growth is not addressed.

I believe that it was the leader of the Liberal Democrats who drew attention to the big increase in private credit and borrowing; hon. Members are aware that the amount borrowed by individuals is now well over £1 trillion. An excellent recent study by Edward Chancellor—an acknowledged expert on the history of financial bubbles going back over 300 years—points out, although it overdoes it, that, by any measure, there has been an unsustainable surge in personal borrowing and credit, that the growth rates of personal borrowing are unsustainable at present levels, and that we are acutely vulnerable to any material increase in interest rates.

The big issue, which the general election will be about, is the effectiveness of public spending. The data are produced by the Office for National Statistics and the figures can be slightly different depending on what measure is used, but they show in the round, that in cash terms public spending has risen 70 per cent. since 1997. The ONS measure of what is included to calculate public sector inflation and of what is and is not output was attacked by the Government, but it reveals that only 16 per cent. of that spending has got through to front-line delivery services. According to its calculations, public sector inflation is up from 1.6 per cent. to 10 per cent. and public sector productivity is down by 10 per cent.

What is public sector inflation? It is a mixture of higher bureaucratic costs, higher pay, higher pension costs and more people. How many more people are working in the public sector? The aggregate, including universities, to last autumn is 862,000 people. Since the autumn another 70,000 can probably be added, so the total is of the order of 930,000 people. It is possible to work out that many of those people are doctors, nurses, teachers and policemen—front-line people—which gives us a figure of approximately 144,000. So what is everyone else doing? Are they adding to productivity? I am afraid that the great splurge in public sector spending has not worked, and the complete change from the prudent Chancellor in 2000 to one who has turned on the public spending taps in dramatic fashion since then has not worked because the resources have not got through to front-line delivery.

There were arguments for increasing the pay of nurses and some other public sector workers, but the ONS figures show that pay levels in the public sector are now 20 per cent. higher, layer by layer, than in the private sector. The figures show that median pay in the public sector is £10.50 per hour. It is £8.71 in the private sector. The pensions of people in the private sector are suffering badly from all that has happened, but people in the public sector still have their inflation-proof pensions, although they may have to pay a little more towards them.

When I was an economics student many years ago I asked my schoolmaster why people earned less in the public sector than in the private sector. He told me that it balances out because those in the public sector have greater security of employment and better pension deals. That stuck with me. It may be a generalisation, but much of the public sector spending has simply increased pay levels in the public sector to 20 per cent. above those in the private sector.

A general point—I have just referred to it and hon. Members may be aware of William Keegan's excellent book on the subject—is that, by any measure, we had an extraordinarily prudent Chancellor from 1997–2000, but we have had a very different Chancellor since then. Along with that public sector expenditure, growth in this country has been largely puffed up in reality by higher public borrowing, an unsustainable growth in public sector jobs and unsustainable private sector consumer borrowing. The legacy of that is likely to be five years of sluggish performance.

It is interesting that the Red Book forecasts lower growth beyond next year to the end of the decade. I am deeply concerned that—this is probably the last thing the Chancellor wants—convergence with Europe will mean convergence with sclerotic European growth rates.

The Chancellor and others have talked about the challenge from Asia. I spent the 1970s in China and India, and I know something about those countries because of my 25-year involvement with them. In China, the proportion of GDP spent by the Government is between 22 and 24 per cent., depending on which measure is used. Business in China is not shackled with regulations that make it a nightmare to do anything. What is happening in China is, to an extent, unacceptable old capitalism, which we had in this country 100 years ago. That is part of the competitive threat.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

The hon. Gentleman is telling us about the Chinese economy. Would he really want to go back to the days in this country when health and safety were never considered and entrepreneurs were free to lose as many men and women in the process of enterprise as they wanted? Would he really want to go back to that?

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs

I do not believe that anyone would. [Interruption.] I have done some very interesting jobs in my life. However, as the hon. Gentleman will know, it was Conservative Governments in the 19th century who started to introduce health and safety measures to protect people. It miscasts the issue to argue that our party has not supported such measures. However, if he is involved in any business at present, he would agree that many such measures are over the top. Regulation is often needed to change behaviour but once that has been achieved and behaviour is satisfactory that is followed by a mass of excessive inspections and regulations that accomplish little. I was pleased to hear the Chancellor's proposals about consolidating a fair deal on inspection, as that is in line with our recommendations.

I am not, however, advocating that this country should return to raw 19th-century capitalism; I was trying to make a point about what is happening in China. We have to compete with China, so we need the minimum regulation. Another major reason for the dynamism of the Chinese economy is that the tax take or the amount spent by the Government is about half the public sector take in the UK, so in China there is a great deal more to reinvest in industry. Members may have noted the recent study on developments in continental Europe since the second world war, which found that for every 1 per cent. more taken by Governments in public expenditure there was a fall in the growth rate of 0.14 per cent.

It is manifest that advanced economies need a sensible balance. Given the fact of ageing populations and higher expectations, there is an ever greater need for a public sector that can deliver what people want. It is therefore crucial that the public sector is as efficient as possible, because if it continues to consume more and more without improving its output we will end up with economic growth that is insufficient to sustain it.

Photo of Andrew Love Andrew Love PPS (Rt Hon Jacqui Smith, Minister of State), Department of Trade and Industry

The hon. Gentleman has talked about a sensible balance. About 38 per cent. of the gross domestic product is spent by the public sector. What does he suggest is a sensible balance? Is it 36 or 34 per cent., and can he tell us how we would achieve that rate?

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs

I hope that the hon. Gentleman will not mind my saying that such questions are rather silly. The Organisation for Economic Co-operation and Development puts the current UK figure at 45 per cent., so no one really knows whether we are at 39, 41 or 45 per cent.—it depends on which measure is being used. It is a fact, however, that the higher it is, the lower the growth rate. We therefore need a balance between the two. That balance may be about 40 per cent.—the Conservative spending plans are to return to 40 per cent. in five years' time—but it may change if circumstances change. Welfare will not be delivered if the economy suffers from an ever increasing tax take. Who would have thought that Ireland would have an economy with an income per capita well in excess of the equivalent figure in the UK, or that it would have grown at twice the rate of our economy? The public sector spend in Ireland is 34 per cent. of GDP.

In introducing his Budgets, the Chancellor has always talked about a Budget for enterprise. He has made great play of the wonderful things that he has done for the venture capital industry and implied that he had learned lessons from the USA. The reality is that the venture capital industry is in a poor state. It is in decline, and has experienced major problems in the past three years. None of his initiatives has succeeded in achieving a material improvement. The small and medium-sized enterprise sector is in reasonable shape, but it regards itself as a Cinderella as it does not have any of the fiscal advantages that have been given to the venture capital sector.

The private equity sector—the one area of success—is now threatened with retrospective taxation dating back to 1998. Part of its success is based on the tax deductibility of partnership interest costs, which are now regarded by the Revenue as an incorrect tax privilege. A successful example of enterprise in this country is therefore under tax attack. The UK could do a great deal more to make new enterprise more effective and successful, and there is much that we can learn from America and implement. We should not be under any illusion about the fact that, although we may be doing better than continental Europe in these areas, we are still not doing anything like as well as the US, and nothing like as well as we ought to be doing for the long-term health of the economy.

In conclusion, the Chancellor is a little unwise to treat the electorate as dummies. People know very well that there have been major tax increases. Indeed, they supported the proposition at the last election. Everyone said, "Yes, we're happy to have higher taxation to get better public services." They were better off as mortgage interest rate costs had fallen. However, people do not believe that they have got the delivery for that additional taxation. They are not happy with the way in which public services are being run or provided.

People know that this country could not possibly sustain the rate of growth in public spending that has obtained for the past four years. They know and feel nervous about the fact that the economic edifice of this country is vulnerable if interest rates rise materially. They know that what they thought would be a relatively secure old age, provided by their occupational pension schemes, will not now be delivered. A little humility on the part of the Chancellor would be politically wise in the circumstances.

Boasting "You've never had it so good" may have won an election for Lord Stockton in 1959, but on canvassing a great deal throughout the country, I have discovered a great deal of economic unease. I repeat my initial comments that the Budget speech gave a selective and incomplete prospectus, and was guilty of some mis-selling.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli 3:46 pm, 16th March 2005

Sir Brian Mawhinney, who is no longer in the Chamber, said that he had been a Member of Parliament for 25 years. I can beat him by 10 years. I shall leave at the next election having been a Member of Parliament for 35 years. I suppose that means that I have sat through 35 Budgets, but in the 1970s we sometimes had the luxury of two Budgets a year. I have therefore sat through at least 35 Budgets.

I entered the House in an era of high inflation and consequently high interest rates. I leave in an era of low inflation and consequently low interest rates. The reasons for the high inflation and the low inflation are complex and I shall leave them to the historians and economists. However, I commend again an excellent Budget from my right hon. Friend the Chancellor. He is right to remind the House that we have one of the best growth rates, one of the lowest inflation rates and one of the highest employment rates in the western world. That is some achievement by him and others on the Front Bench.

In a Budget debate a couple of years ago, I drew hon. Members' attention to the problems of competition with countries such as China and some of the other Asian countries. There was not much reaction. Even a few years ago, the fashionable economists said that globalisation was an absolute good, as indeed was free trade. We heard similar comments from Mr. Flight today. The view was that we all make and sell what we are good at and import what we are bad at, so why worry? There was no attempt to tackle the enormous balance deficits, which are now increasing in Europe, Britain and the United States.

I agree with the hon. Gentleman that globalisation has reduced prices and increased wealth. However, if it were to reduce prices to zero, we might have problems. It appears that inflation is 1.6 per cent., although he does not like the European measure of inflation.

Only a few years after the matter was raised in a debate in the House, people are talking about China. Hon. Members have rightly spoken of little else but China today. The Chancellor went to China and announced specific measures about that country. There is now at least an understanding that there is a global competitiveness problem, which increasingly affects most western capitalist countries. The European Union Trade Commissioner, who used to be a Member of this House, called the other day for import controls on specific Chinese textiles, and the sky did not fall on his head. All the fashionable economists kept quiet, and indeed nobody said anything.

There is a very real problem, and it is not simply that China is a very large country that can compete with us. It is also that it is at a totally different stage of development from western capitalist countries. China is still at the 19th-century Victorian stage of development, so we are competing not with a country that has the same social, economic and industrial beliefs and policies as ours, but with a rather ruthless capitalist economy, certainly in terms of its economics. Perhaps I shall return to the subject of its politics a little later. China has an advantage that the Victorians did not have, however, in that it can copy, borrow and perhaps steal the high technology expertise of western countries.

There are some areas in which we cannot, and should not try to, compete. Health and safety has been mentioned in that regard.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

In regard to the borrowing of expertise, is it not also the case that many advanced western companies go to China and take that technology with them in order to make even bigger profits than they would make in the west?

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

Yes; technology, like capital, moves freely around the world today, and we cannot do much to stop it.

The reality is that we are now competing with a country that has advantages that we do not necessarily have. I agree that we cannot compete, if that is the right word, on health and safety. We read recently of a terrible mining disaster in China, and no one is suggesting that our health and safety rules should be diluted so that we can compete.

We cannot compete with China on wages either. However, we must recognise that the pressure from countries such as China is having an adverse effect on wages in some sectors of our manufacturing and service economies. The pressure might not be pushing wages down, but it is certainly preventing them from increasing, even though our rate of inflation is low at the moment.

We welcomed the recent announcement that the minimum wage would rise to £5.05 in September. Indeed, the Chancellor also welcomed the fact that there was going to be a minimum wage in Hong Kong, although I do not know what effect that will have on the Chinese economy. But it is certainly welcome that we have pushed up our minimum wage again. We should realise, however, that in some sectors of industry, certainly in some areas of manufacturing, the minimum wage is now being treated almost as an excuse by management under pressure not to increase wages much above that level. In other words, it is becoming not a floor but a ceiling in some manufacturing sectors such as the car component industries.

With global pressure keeping wages down in certain areas, what will happen to the working tax credit? We all welcomed the introduction of the working families tax credit, as it was then called, the child tax credit and the pension tax credit. The Chancellor has talked about the child tax credit and the pension tax credit, but he did not mention the working tax credit. If wages are going to be pushed down, however, the increase in wages will be less than the rate of inflation, and the cost of the working tax credit will increase.

The working tax credit is, in effect, a subsidy for those on low wages. It is an implied recognition that we cannot pay the kind of decent wages that should be paid to families to enable them to have a reasonable standard of living. So the Government, quite rightly, decided to subsidise their wages, because private industry cannot afford to compete with the foreign competition. I hope that we will be able to continue to pay the working tax credit at its present level, but the more wages are pushed down, the less likely it is that the Government will be able to fund it, unless we cut the level. That is a danger that we might have to face.

We are told that we must produce added-value goods. I am not quite sure what they are, but I suppose that they are goods of higher quality and greater sophistication that we can sell at a higher price on the world markets to increase the profit margins of our exporting firms. Let us hope that we can do so.

We used to talk about a high-wage, high-tech economy. I notice that the Chancellor said we must not be a low-wage, low-tech economy. I agree with him entirely, but why he put that in the negative I do not know. Whether "not low tech, not low wage" is equal to "high tech, high wage" I am not sure, but perhaps, even if we work hard, we will aspire to "high tech but not necessarily high wage", because these Chinese are clever too, Mr. Deputy Speaker. They can produce those high-tech goods for low wages. I am expressing the obvious, but at least we are beginning to believe that that is a problem we will have to face. That is a good start.

I had better be careful now, because I am going to talk about employment policies. Again, there will be a challenge to our employment policies. Recently, it was announced—we all welcome it—that there will be longer maternity leave. Over the last few years, we have created enlightened policies whereby people can work flexible hours, whether through part-time working or other measures designed to improve the work-life balance.

When such changes are introduced, I am not aware of there being a rigorous analysis of whether they are good for competitiveness and productivity. These are good policies; they are fashionable policies. Therefore, we do not really have to analyse them. It may be that that does not matter if the other countries in western Europe that we compete with—and, indeed, the United States—also have policies of more or less the same kind. There is an odd level playing field, so we do not have to examine these policies.

Again, China is different. If we are serious about competing, although we might not get there in the end, we must try to be more rigorous in our analysis of many of these extremely enlightened policies, which we want to keep, in light of the fact that we are competing with a country that does not have such policies and will not have them for a very long time.

Photo of John Bercow John Bercow Conservative, Buckingham

The right hon. Gentleman gives us China as an example of a country that does not have such policies. Will he concede that it is at least as valid to invoke the example of the United States, where the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996 have an altogether different tinge from the heavily regulatory policies common in the European social model?

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

I am not dealing with regulations. I am talking about more fundamental policies involving flexible working, which exists in the United States, and part-time working. Those policies help with the work-life balance.

Photo of John Bercow John Bercow Conservative, Buckingham

I apologise to the right hon. Gentleman if I did not express myself sufficiently clearly. My point is that in the United States, for example, it is commonplace in a culture of expected entitlements, such as maternity leave, to make a distinction between, on the one hand, relatively small firms, which are the seed-corn of our current and future prosperity, and, on the other, much larger businesses, which can more readily accept and absorb the costs of such policies.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

I am not as conversant with the position in America as is the hon. Gentleman. I am making a general point: if we are serious about competing, we should at least consider policies in light of this very vicious competition that we face now and are likely to face in future.

The Chancellor also mentioned—we have heard about it from others—the knowledge economy. Perhaps that is the same as high tech or value added. I do not know about these clichés. Clichés are not meant to be very precise, but I think I know what it means and I am not decrying it at all. To have a competitive knowledge economy, however, we need a high-quality education system, which I do not think we have achieved yet. I believe that over the past 20 years we have seen a diminution in the rigour and intellectual discipline required to create such a high-quality education system. We need much more rigour. Nor should we decry excellence—there is a tendency in our education system to do so, or to bracket it with elitism. We will need all the excellence that we can find if we are to compete with these wretchedly clever Chinese and Indians.

Those of us who remember how the Japanese manufacturing industry cut swathes through British and western manufacturing in the 1970s will remember the anecdotes, which I heard from managers and engineers from my constituency who went to Japan, about the attention to detail—which could be pedantic in some cases—self-discipline and rigour that went into the creation of the Japanese engineering and manufacturing miracle. All societies are different, and our society is not like Japan's. To create a knowledge economy, however, we need that rigour and intellectual discipline, which, I am sorry to say, does not seem to be present at the moment in parts of our education system.

Some people believe that we do not have to worry too much about the Chinese system because it will implode as a result of the contradiction between politics, driven by a Chinese version of Marxist-Leninism, and economics, which is a rough and ruthless form of capitalism. It is a bizarre kind of partnership, if there can be such a thing, between Karl Marx and Adam Smith. Perhaps it will implode—I do not know—but I suspect that if it does, the loser will be poor old Marx, and the winner will probably be Adam Smith.

Photo of Mr Howard Flight Mr Howard Flight Special Envoy To the City of London, Economic Affairs

Could I put it to the right hon. Gentleman that, rather than imploding, the next thing to happen will be that China's currency will be forced to appreciate dramatically, making it much less competitive? The alternative is for China to have more and more huge dollar balances.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

All sorts of things could happen in relation to China—M4 could grow through the roof, public expenditure could be dreadful and currencies could implode. But given the size, force and energy of that country, even if Karl Marx disappears and some version of Confucius comes back, I suspect that Adam Smith, at least for some time, will go marching on in China.

As I have tried to say, the Chinese are clever, and they realise that there is a problem with that contradiction. They have come up with a slogan—I do not speak Chinese and cannot translate it myself—which is translated as, "Make the theory fit the facts." That sounds like something out of Gilbert and Sullivan, does it not? Well, the theory is communism, or some Chinese version of it, and the facts are brutal capitalism and the global capitalism in which they must compete. Up to now, they have done well in making the theory fit the facts.

In one of my last speeches in the House of Commons, may I suggest that we pinch the Chinese slogan and make the theory fit the facts? Let us examine some of the fashionable theories that we have enjoyed, rightly, over the past 20 years, as it is a mark of an advanced, civilised society that we should be able to put those theories into practice. Let us consider those in relation to trade, employment and education and, if we can, try to make them better fit the facts of global capitalism.

A few years ago, we never had to worry about globalisation or global capitalism, because the west owned them. It was our capital; it was our globalisation. But now we have lost control of it, or are losing control of it. There are new kids on the block, and they are growing up very fast. We are losing control of something that we thought we could control and fashion. At least we have made a start in recognising that there is a problem, and I commend the Chancellor for that.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford 4:05 pm, 16th March 2005

It is a pleasure to follow Denzil Davies. I am sorry to infer from his closing remarks that he does not expect to be in the House much longer. I was not aware that he would not be standing again, and he will certainly be a great loss to the House. He is one of the few remaining Members who refer to Karl Marx with some respect. Incidentally, I must correct him slightly: Karl Marx was, in fact, a great admirer of Adam Smith, whose theories he did not see as contradicting his own. Indeed, he saw himself as building on Adam Smith's theories, and produced the absurdities of his own theory of surplus value by extrapolating from the one fallacy in Smith's "Wealth of Nations", his theory of value. However, I did not rise to deliver a lecture on Marxian or, indeed, Smithian economics. I want to talk about something much closer to home, much closer to the feelings—and, for that matter, the pockets—of all our constituents: the Chancellor's Budget.

One thing can be said about the Budget with absolute certainty and conviction. It is not a prudent Budget, and it is not the work of a prudent man. We should not be borrowing more than £30 billion when the economy is growing above trend. That is not balancing the budget through the cycle; that is not being prudent at all.

It was clear from the statistics given by my right hon. and learned Friend the Leader of the Opposition that this is not the first time that the Chancellor has been losing control. His projections for growth of revenues, for spending and therefore for deficits have been consistently wrong. He has been wrong about both revenues and expenditure so far. Members who have the Red Book to hand will note from page 250 that revenues have been considerably more buoyant than he expected. The Chancellor took risks, and to an extent he has got away with them because the revenues have been above his expectations. Had they been in line with his expectations, the borrowings would have been a great deal more serious than the £34 billion or so for which the Red Book provides in the coming financial year. We read on page 250 that the outturn for 2003–04 in terms of current receipts was £418 billion, the estimate for 2004–05 was £449 billion and the projection for 2005–06 is £486 billion.

Photo of Mrs Helen Liddell Mrs Helen Liddell Labour, Airdrie and Shotts

The hon. Gentleman is contradicting himself. One reason for the increase in receipts is the improving performance of the economy, which is forecast to continue for some time. I think that he has been rather churlish, and I am surprised that someone with his experience should reach such conclusions.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Perhaps the right hon. Lady should have listened rather more carefully. The fact that the country is enjoying more buoyant revenues than the Chancellor originally predicted shows not that he is prudent, but that he is imprudent. He or his officials made—one hopes—the best possible estimate of the likely levels of revenues in the economy. He then set a level of expenditure. What has happened in practice is that we are running a considerable deficit—a much larger deficit than he expected. Last year's projections have been revised by £6 billion this year. The position would have been a great deal worse had his own revenue projection been accurate, which it clearly was not.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I have just given way to the right hon. Lady; I might give way to her again a little later, but perhaps she will allow me to make some progress. I notice that during her intervention she in no way quarrelled with my basic thesis concerning the approach to be taken when the economy is growing at or above trend. The Chancellor used to think that the trend rate of economic growth was 2.5 per cent. Last year he increased the estimate to 2.75 per cent., so perhaps he thinks that it is still 2.75 per cent. In the coming financial year, the economy is projected to grow by 3 to 3.5 per cent., according to the Red Book, and next year by the trend rate of 2.5 per cent. So at this point in the cycle, we should not be borrowing at all. Rather, we should be running a surplus, because the economy is growing above the trend rate, and has been for two years. I now give way to the right hon. Lady.

Photo of Mrs Helen Liddell Mrs Helen Liddell Labour, Airdrie and Shotts

The hon. Gentleman is being very generous in giving way. I seem to remember that when he was in government and I was in opposition criticising his Administration for their attitude to borrowing, they were borrowing for failure. However, the point that the Chancellor is making is that we are borrowing to invest.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I am pleased that I have convinced the right hon. Lady of the arguments that I have been adducing. She has now changed the subject altogether and is talking about the Major Administration of the 1990s, of which I was not a member. Although I did support them most of the time, I carried no particularly convinced brief. So much has she endorsed my arguments that I feel able to move on to my next point.

Emerging from these figures is a great worry about the situation of the nation's finances. We have enjoyed high rates of growth in the past few years, but they have been associated not only with very substantial Government spending, but with greater Government deficits than the Chancellor himself originally anticipated. They have also been accompanied by a complete collapse in private savings. The savings ratio has virtually halved in only eight years, which is a very worrying development. As I recall, when Labour took office the savings ratio was some 9 per cent.; now it is approximately 5 per cent., which is a massive reduction. That dissaving by the household sector has been accompanied by massive dissaving by the public sector, which, as I just explained, has also been borrowing above its own expectations in the past few years.

Of course, those two factors combined contribute to very buoyant demand. It is not surprising that an economy grows fast in those circumstances, but one has to ask oneself where the motor of growth is coming from now. If demand has been fuelled during this period by massive, above-expectation borrowing—I believe it to be excessive—and a collapse in household saving that amounts to substantial dissaving, where will such growth come from during the next period? Do the Government plan to run up even bigger deficits? Are they going to borrow £100 billion a year instead of the current £50 billion—a figure which includes the refinancing of gilts falling to maturity, involving some £35 billion net? Is the household savings ratio going to collapse to zero? I do not think it possible for it to collapse to a minus figure—at least, not for a sustained period.

That is a big and worrying question about the economy, but I do not suppose that it worries the Chancellor. It sounded to me this afternoon as though he simply wanted to win the next election—if he can— and that it does not matter what happens afterwards. "Après moi le déluge" is the motto, according to this Government's current economic policy. I have been waiting to see whether the Paymaster General, or somebody else, is going to answer my question about where growth will come from in the next few years. That is a crucial question to ask about any economy, and the silence of Ministers on it is extremely eloquent.

The Chancellor made much of the economy's stability over the past few years. Of course, that stability is very welcome indeed. The question is whether we should confine ourselves to self-congratulation about it, as the Chancellor did earlier. It is perfectly true that we have had low inflation, high and rising employment and very low unemployment, all of which is very welcome. My constituents are pleased about that, naturally—everyone should be pleased about it—but it would be sensible for hon. Members to ask again what lies behind it, how it has been achieved and whether it is sustainable.

There is no question but that the economy's stability, as shown in a low and pretty stable inflation rate, is largely the result of turning over the management of the monetary side of our economy to an independent Bank of England—or rather, to the Monetary Policy Committee—a policy of which I was always in favour and for which I argued consistently in the 1990s. When the new Government came to power, I refused to join my Front-Bench colleagues in voting against that measure, because I thought it absolutely right.

I am glad that the Government did that. Indeed, I pay tribute to the Chancellor for that treatment—it was a very sensible thing to do—and it would be extremely churlish and dishonest of me to say otherwise, because I have always advocated that move. It is splendid, but there is more to it than that: one must ask oneself how it has been possible to run the economy with high demand, high employment, low unemployment and low inflation.

Ten years ago no one, myself included, would have supposed it possible to run an economy with high demand, getting unemployment below 3 per cent. of the economy, and very low inflation—somewhat under 2 per cent. on the basis of the harmonised index, which we now take as the measure. The right hon. Member for Llanelli was moving in the direction of the same analysis. I do not often agree with him, but I do agree on that.

There is no doubt that the reason is international competition. The manufacturing sector of our economy has been consistently undercut by competition, particularly from the newly developed economies of India and China. There have been enormous, dramatic structural changes in the economy over the past few years. Swathes of manufacturing have disappeared—they are no longer economic—and either the companies have gone broke or, in time, they realised the way the wind was blowing and set up manufacturing capabilities in or entirely contracted out to India, China and, in certain cases, eastern Europe or other places where labour rates are much cheaper.

In fact, we have been destroying employment in a very important sector of the economy—manufacturing—and it has been absorbed largely in the public sector, by all those people who are directors of communication, co-ordination and something else who organise conferences for health service workers and so on. Those completely new jobs have arisen in the public sector. Hon. Members can read about them in The Guardian. [Interruption.] I am sure that Mr. Purchase regularly reads The Guardian. I do not know whether he ever feels tempted to apply for any of those jobs—most of them are very well paid—but he can read about them every Thursday. That is not a cheap point.

In fact, on a quantified basis, twice as many jobs have been created in the public sector as in the private sector over the past eight years. I do not think that that has ever happened before, except under Labour Governments. It has always been a very bad feature of Labour Governments. Of course it is not sustainable, because the role of those people is regulatory—and, some of us would say, parasitical in many cases. They are certainly extremely expensive. They are therefore a burden on the productive sector of the economy. People who are working profitably and productively must pay taxes to support the burgeoning public sector. That reduces the return on investment and the return from effort, work and risk taking and so on in the rest of the economy; it is a major burden.

There is no doubt that in the past few years a combination of those factors has caused the running down of household savings almost to nothing, the borrowing of large sums and, given the impact of international competition, a certain freeing up—although that seems a rather brutal way to describe what is, of course, a traumatic change in the circumstances of an individual and his or her family. If someone is a skilled worker in engineering or another traditional manufacturing industry and finds that there are no more jobs in that field, and no more opportunity to deploy their skills, that is very traumatic.

Nevertheless, on an aggregate basis, it is perfectly true that the unemployment that has been created in one sector of the economy has been counterbalanced by employment created in other sectors, particularly the public sector. That is not sustainable, which is my theme this afternoon. We can have a lovely ride and get away with it for a long time, as the Government have done, but it is not sustainable. How long can one get away with borrowing? One cannot borrow for ever; even Governments—even this Government—cannot do that. We must think about these matters very carefully.

Instead of reflecting, as a sober, responsible and prudent Chancellor would do, on the way in which these favourable outcomes have been achieved, on the risks attached to the policies that have been pursued, on the potential threats to those policies continuing to be successful and on whatever changes might be required—that is the sort of sensible and sophisticated discussion we ought to have in the House on these occasions—the Chancellor went in for an orgy of self-congratulation. I do not believe that people who do that can ever be described as prudent. They may or may not succeed in deceiving other people, but they are clearly running a considerable risk of deceiving themselves. Once someone has deceived himself into a state of complacency about the world, he is not prudent and responsible, and not a person to be entrusted with the management of anybody's finances, let alone the country's finances.

That was an unattractive and frankly problematic attitude adopted by the Chancellor. He is not a Chancellor who has not made any mistakes. One might have thought that, for a second's genuflection in the direction of modesty and humility, he might have referred to an absolutely devastating misjudgment and mistake—the destruction of our pensions system. Mr. Field and many others have used similar words in different places, including in the media, when speaking about this matter. The words I will use are cautious, sober and not in any way exaggerated.

In 1997 we had a pensions system in this country, including very substantial defined benefit pension funds in the private and public sectors, that was the envy of the world. It was the envy of the whole of the European Union, except for the Netherlands, which had a similar system to ours and has managed to preserve it. In eight short years, the system has been completely destroyed.

The Government try to pretend that factors beyond their control destroyed that system. They say that the stock market collapsed, but we have had far worse stock market collapses before. I remember one very well, because it was in the year that I started work in the City—1974, when the index went down to 100. I wish that I had had some money at the time; I would be a rich man now if I had been able to buy at that stage. We had a bad recession—although not as bad as that of 1974 under the Labour Government—at the beginning of the first Thatcher Administration; Labour Members will surely remind me of that if I do not mention it. There was a stock market collapse—also, I am afraid, under the Conservatives—in 1987. But none of that undermined the steady growth of the defined benefits pensions system in this country.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I find what the hon. Gentleman says fascinating; I know that he is very knowledgeable. At that time, were not pension funds more prudent in investing and were not their investments spread more widely? The old rules of going in quietly, coming out quietly and never causing a ripple were more or less obeyed at the time. We have become very adventurous, and part of the cost of that has been the difficulty that we have experienced recently. Does he agree?

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I do not. Incidentally—if I may return the compliment—the hon. Gentleman has intervened on almost every speech made from either side of the House and has made very sensible and challenging interventions. That is how parliamentary debates should proceed, and I pay tribute to the hon. Gentleman; that is why I was delighted to give way to him.

If the hon. Gentleman cares to spare a little time looking at the history of pension funds, he will find that when they started in the 1930s, and during their big growth in the 1950s, a typical portfolio was more conservative, or, as he would say, more prudent. There was a larger amount of fixed interest, particularly gilts, in the portfolio, and in those days we had debentures, which were a form of fixed interest that does not exist now—it was destroyed by a Labour Government in the 1970s, but that is a long story. Funds therefore had rather fewer equities.

The position changed in the 1960s, which were an interesting time not only for the growth in the economy but for the growth of economic theory. As the hon. Gentleman may recall, great strides were made in modern portfolio theory. It became generally accepted at that time that one could not achieve a reasonable return from a long-term pension fund except through equities. Fixed-interest gilts or other forms of fixed interest were a bad investment in theory, and should be the minority of the funds in a pension fund. I think that the hon. Gentleman will find that from the 1960s through to the 1990s, the commitment to equities has been very much a constant. Of course it varies across the cycle, but there has been no conceptual change in fund managers' views over that time.

Over the past few years, in the light of the series of crises and new regulatory requirements, a number of funds have reduced—wrongly so—the share of equities in them. That is unfortunate, but it is a consequence of the crises, and has been a feature of the past two or three years, but not all of the past 10 years. If the hon. Gentleman cares to spend half an hour on his computer looking at the information that he can gather on this subject, he will, on reflection, not disagree with my analysis.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I enjoy the hon. Gentleman's interventions, so I shall give way in a moment. However, perhaps I can at least deliver the first two sentences of what I was about to say.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I am grateful for approval from my own side for once. It is always a pleasure.

The real thunderbolt from the blue, or deus ex machina, which was very unpleasant and had not been predicted—it hit the ship below the waterline—was the Chancellor's pensions tax in the summer of 1997.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman rather patronisingly suggested that my hon. Friend and neighbour Mr. Purchase spend half an hour on his computer looking into these issues. I have spent four years on the Select Committee on Work and Pensions looking into them, and I disagree profoundly with the hon. Gentleman's analysis. It may well be true that the £5 billion tax did not help pensions but, to use his phraseology, two things holed them below the waterline. The first was the revelation brought about by FRS 17 of the terrible state of some pension funds that the Government inherited from the previous Government, which had been hidden for years. The other thing that definitely holed them below the waterline was the appalling oversight by actuaries concerning rising longevity. Although the hon. Gentleman's Government and this Government are perhaps partly responsible for that oversight, the actuarial profession should bear the major part of the responsibility, and it is still making mistakes today.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

We are now getting deeper into this subject, and the hon. Gentleman is not going to get away with what he has said. I respect his knowledge of the subject, and I dare say that I was optimistic in suggesting that half an hour was enough to consider the changing structures of pension portfolios over 30 or 40 years. Perhaps he and I should form a club, so that we can spend many hours on the subject. I am sure that that would be very revealing.

The hon. Gentleman is not right on a number of points, and although he may not realise that he was doing so, he has opened up another field for major criticism of the Government. They were completely crazy to implement FRS 17 when they knew that the new international directive under the international financial reporting standard was coming in two or three years later—indeed, it is coming in this year. Its implementation caused quite unnecessary consternation in boardrooms around the country and quite unnecessary panic about the liabilities of pension funds. That was very foolish and a great mistake.

I am glad that two Treasury Ministers are listening to what I have said about the implementation of FRS 17. The Government should have gone to the Accounting Standards Board and said, "Look. We're getting these new international accounting standards, IFRS, in 2005. There's no point in implementing this in 2003." It was a gratuitous additional blow to the pensions industry, but it did not compare with the death blow dealt in the Chancellor's first Budget in 1997.

Again, if the hon. Gentleman looks at some historic series—I know that he enjoys looking at historic series—he will see the rate of creation of new pension schemes. Right until 1997, virtually no defined benefit pension schemes were closed down, except in exceptional circumstances when companies went out of business, and new defined benefit schemes were created every year. From that Budget on—from the very moment when the pensions tax was announced—not one new defined benefit scheme has been launched, and that has been the case for eight years. That tells us something. If the line on a graph suddenly goes down as though it is falling off a cliff, that should tell the hon. Gentleman something. He accused me of patronising him, but I know that he is intelligent and spends a lot of time on these matters. He does his best to defend the indefensible, but it is an impossible task.

We have not had a word of apology from the Chancellor. We have had attempts by his supporters gallantly to defend him, but despite their gallantry, they cannot achieve the impossible. I do not know whether the Economic Secretary would like to intervene to express a brief apology to those whose lives and prospects in retirement have been devastated by the collapse of defined benefit schemes—and, indeed, to future generations.

I declare an interest. Like many hon. Members and members of the public in the Gallery, my children will no longer be able to look forward to—let alone take for granted, as my generation did—a pension system that assures them that after a lifetime of hard work, they can look forward to a reasonable amount of security in retirement. That has been destroyed by a devastating mistake. I do not suppose that the Chancellor wanted to destroy that. He was just incredibly imprudent. He thought that the rise in the stock market would go on for ever. He said at the time that he would get away with it because the stock market kept on rising. After about two weeks, he said that that rise had compensated for the damage that he had done by reducing the return to pension funds over that period.

What an extraordinarily incompetent thing to say. What an extraordinarily naive thing to think. What a desperately complacent attitude towards something that is fundamental to the sense of security and well-being of millions of families. The Chancellor needs to be on the Front Bench when someone talks about pensions and to tell the country himself what he really thinks about that now. Was it really so clever to introduce that pensions tax eight years ago? If not, I look forward to hearing an apology in the House. Nothing less will do.

The rest of the Budget was pure electioneering. Some of it, frankly, sank to a level that insulted the public's intelligence. The Opposition propose to reduce council tax for people over 65 by 50 per cent. or £500 a year, whichever be the less. The Chancellor thought he would match that and came up with £200 for just one year, and it happens to be in a year when we think we will have an election. Does he really think people are that stupid? Does he really think he is dealing with an electorate who are about five and a half years old, whose teddy bear has been taken away and who think it a good deal to be offered a sweetie in exchange?

As a result of that self-congratulation and complacency, the Chancellor is becoming so cut off that he is beginning to underestimate the intelligence of the electorate. When politicians underestimate the intelligence of the electorate in a democracy worthy of the name, something nasty happens to them. I trust and believe that something nasty will happen to the Chancellor in electoral terms before too long. He will have no one but himself to blame.

Several hon. Members:


Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. Perhaps it would be helpful if I offered a little guidance to the House. If the average Back-Bench speech length of 26 minutes is maintained, not everyone will be able to catch my eye. I leave it to hon. Members to use their judgment accordingly.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East 4:35 pm, 16th March 2005

I will take that message to heart, Mr. Deputy Speaker, and promise not to speak for quite so long.

After the speeches from the hon. Members for Grantham and Stamford (Mr. Davies) and for Arundel and South Downs (Mr. Flight), if we were genuinely looking for a dividing line for the general election, we would easily know where it was—between the toffs on the Conservative side of the House, who visit boardrooms in the City of London on a daily basis, and people with a bit of dirt under their fingernails on the Labour side. There is an unreality about what life consists of for ordinary people in our towns and cities and our constituencies.

Photo of John Bercow John Bercow Conservative, Buckingham

I do not lightly take offence at the gratuitous observations of the hon. Gentleman, but I cannot resist the temptation to put it on the record at the outset of his speech, first, that I am not a toff; secondly, so far as I can recall I have never visited a City boardroom during the time that I have been a Member of Parliament; and, thirdly, I and many of my colleagues have been preoccupied with identifying ways in which to reduce the tax burden on the poorest people in the country, because we think we ought to help most those who have least.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

There is always an exception that proves the rule.

The Office for National Statistics tries its best, given the magnitude of the figures that it now deals with—economies of £1,000 billion a year, North America, Britain, Europe—and obviously does not get it right; it never has and it never will. We have had to listen today to a tirade of figures from the hon. Member for Arundel and South Downs, which he appears to have plucked from nowhere. I do not know if he reads Keith Waterhouse—one of the funniest men still writing in tabloid newspapers today—in the Daily Mail. He has a name for the Office for National Statistics: he re-christened it the national guesswork authority, and if he had heard the hon. Gentleman today, he would have found a chairman for it. The hon. Gentleman was spraying figures about with gay abandon, wholly ignoring anything said by the Office for National Statistics, which tries to guide the Chancellor in how he might see the future and, indeed, recent history.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Does the hon. Gentleman agree that it is a matter of considerable national importance that the Office for National Statistics is made independent of the Government and reports directly to Parliament, because it is unreasonable that an agency of the Government that is subject to the Government should itself be judge and jury in the Government's own case?

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I find that a very serious point. It is a separate point, but it again seeks to undermine what the Chancellor has said today. It pretends that the people employed by the ONS are corruptible. That is exactly what the hon. Gentleman suggested. I reject those arguments, which now almost tend to say, "Let us see the workings, let us see the arithmetic. Can I see this paper, can I see that paper?" The fact is that the overwhelming number of people in public services—in the ONS and elsewhere—do their very best, every day of their working lives, to produce information and services which, generally speaking, the people of this country value. Attempts to undermine them by saying, "Make them independent" as though they are corruptible is unfair, and not worthy of a comment in the House.

Photo of John Horam John Horam Conservative, Orpington

The hon. Gentleman is missing the point made by my hon. Friend. The problem is not that civil servants are corruptible—they do their job very well—but the use that is made of their work and the spin that is put on it by politicians. The Audit Commission's comments on the use made by the present Government of NHS statistics provide perfect chapter and verse for that assertion.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

The hon. Member for Grantham and Stamford should thank his hon. Friend for trying to dig him out of a hole. Rather than pursue the point, however, I shall move on, given that you, Mr. Deputy Speaker, have rightly reminded us to be brief.

The hon. Member for Grantham and Stamford asked where future growth will come from. He referred, rightly, to manufacturing and the loss of jobs in the sector. Between 1980 and 1990, when the Conservatives were in control, we lost about 350,000 jobs; during the same period, output fell and in 1990 it was still slightly less than it had been in 1980. Under the Labour Government, however, although a similar number of jobs have been lost, which is regrettable, especially in areas such as mine in the west midlands, productivity has increased massively, outstripping productivity gains in the economy as a whole, and present output is broadly similar to what it was in 1997. Although we have been overtaken in many respects, our engineering and manufacturing companies have created something of an economic miracle.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I am sure that the hon. Gentleman does not want to confuse productivity and production. Manufacturing production may not have increased in the 1980s, but productivity increased quite substantially; that often happens when employment is falling.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

That is true. I certainly understand the distinction. My point is that output was falling in the period between 1980 and 1990; it is not doing so now. With the other two factors held constant, the Labour record and the Tory record stand in distinction from each other. I am actually complimenting the people who work in engineering and manufacturing, who have brought about a minor economic miracle.

If we are looking for engines of growth, we must look at what my right hon. Friend the Chancellor has done in respect of lifelong learning. Although in the 1980s, during the period of Conservative rule, supply-side measures were at the top of the agenda, no real attention was given to upskilling, new-skilling and retraining for the people who would eventually produce the goods and services we need. Now, the great amount of funding that has gone into further education in particular is helping to bring about the kind of changes that I have been describing. A couple of weeks ago, my right hon. Friend the Chancellor visited Wolverhampton to open a new city learning quarter, called Metro One. Millions of pounds have been spent to the great advantage of adults who are returning to learning and now finding jobs in our economy. That cannot be thought of as a waste of public funds.

Earlier today, the Leader of the Opposition declared that millions had been poured into a black hole and had made no difference to services, but that is not the everyday experience of ordinary people. They do better in terms of waiting lists and speed of treatment; they do better in terms of emergency ward provision and social services; they do better with their children in school. By no means is the money being wasted.

Let me pick up a couple of points from the economic data that the Chancellor mentioned. I am particularly interested in the export figures. Our island economy is not amazingly well blessed with natural resources, so we have to export in order to buy the other things that we want. Exports have increased by 6 per cent., which is largely due to the way in which we have been working on the supply-side factors such as education, which has brought about smarter, better working and higher productivity, which have enabled us to remain competitive in world markets. You do not get that kind of increase in your exports without acting to ensure that people can do the work and add value to our output. The Chancellor gave us that extremely important statistic today.

I also want to mention that borrowing will fall in the longer term, that investment in science will increase and that the enterprise economy will be supported. Given all the evidence that the Chancellor has presented to the House today, it seems that we will meet both the golden rule and the sustainable investment rule in both the current cycle and the next cycle. This masterful Chancellor has presented us with a golden scenario.

Some hon. Members have discussed the Chancellor's letting things get out of control, but this Chancellor stands out more than any other I can recall because of his iron grip on all the factors in the economy. Despite the enormous help that this economy has had from the worldwide pressure on inflation, which occurred for all kinds of reasons that hon. Members enunciated earlier, our Chancellor has managed our economy to provide a golden scenario.

Today's Budget is an election Budget. Why not? What is different about that?

Photo of Michael Jack Michael Jack Conservative, Fylde

I have listened to the hon. Gentleman with care. If the Chancellor has such an iron grip, will he explain why he required the services of Sir Peter Gershon to rein in an accumulation of overspending in the public sector of some £20 billion?

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I have never worked for a company in which savings could not be made. Whether those savings entailed mere stock control, better and smarter working or something else, I have never worked for a company that could not make savings in its day-to-day operations. I would be amazed if a Government of whatever stripe examined what they were doing and how they were doing it and could not make savings. The Gershon savings amount to about 5 per cent. of total expenditure and will be gained over a period of years, which is not surprising. The right hon. Gentleman is right to draw attention to the fact that those savings should have been made some little time ago, but I do not regard such expenditure as wasteful. The expenditure should have been managed better, but savings are available and we will make them as we go.

Photo of John Bercow John Bercow Conservative, Buckingham

The hon. Gentleman's loyalty is valiant, but his argument in response to my right hon. Friend is implausible. Either way, he is in checkmate: if the sudden accumulation of waste is just that—sudden—it logically follows that the Chancellor has recently lost control; if, on the other hand, the waste has accumulated over a long period rather than being the result of a sudden lapse, the Chancellor is guilty of a long-standing failure. Either way, the Chancellor cannot be defended on this occasion, and the hon. Gentleman should give up the unequal struggle.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

Once again, you try to proceed from a false premise. I do not accept that what you are describing as waste is necessarily—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The hon. Gentleman is experienced enough to know that he should not be referring to me.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I apologise, Mr. Deputy Speaker.

I do not accept the hon. Gentleman's checkmate. I think that he is wrong—he is not often right, and he is wrong again.

The competitive labour market appears to be in the best equilibrium that I can recall in my lifetime. We still have more vacancies than the number of people who are unemployed, and that would normally lead to wage inflation. However, that is not happening. That is partly due to the international situation. There is no question about that. The way in which my right hon. Friend the Chancellor has worked with all the flows of the economy has meant that we have reached a point where it is possible—the fact that there is to be an election does not escape me—to make life better for those who are at the bottom of the heap.

Mr. Bercow will recall that in his article of a few weeks ago, I think for The Independent, he called for tax to be lowered for the lowest paid. In large measure that call has been met today. I noticed that there was an interesting look on his face when my right hon. Friend the Chancellor was talking about joint incomes and an average of about £24,000 for people with two children, who would be virtually tax free up to that amount. I hope that the hon. Gentleman feels vindicated by writing his article in The Independent and perhaps not being entirely popular within his party. In that instance, however, I support him.

It is right to welcome the raft of improvements for people who are the worst off in our society, those who do not have the advantages that we would like to see them enjoy. I welcome what my right hon. Friend the Chancellor has had to say. It is an excellent Budget and one in which the dividing lines will be clearer as we move into the general election.

Photo of Michael Jack Michael Jack Conservative, Fylde 4:52 pm, 16th March 2005

It is a pleasure to follow Mr. Purchase, who always makes thoughtful speeches. He engaged in a proper debate on matters connected with the Budget. I was asked by my local newspaper what I thought about the Budget. I described it as rather like standing outside the church watching the celebrations while being covered in confetti. The Budget is just like the confetti, with lots of little bits and pieces. When they are swept up at the end of the ceremony, it does not amount to very much, and should be quickly consigned to the waste paper bin.

The Government are attempting to be all things to all men and women. There is a statute here and an initiative there. There is the chopping up of a bit of red tape, most of it made by the Government. That is the sum total of the Budget.

There are some points that we need to consider in detail. Much has been made of the fact that the Chancellor subcontracted to the Monetary Policy Committee the setting of the monetary framework, which is the other side of the Budget. By and large, the Budget report and financial statement deals with the fiscal dimension of the Budget while the Monetary Policy Committee deals with monetary matters. The fact that we have interest rates at about 5 per cent. raises the issue of the structural nature of our economy. If, to achieve an inflation rate, projected by the Chancellor, of about 2 per cent., we need to have effectively internationally uncompetitive interest rates of 5 per cent., that says something about the structure of the economy. That in part reflects the substantial growth in public sector employment. Without doubt, it has tightened the labour market considerably.

I would not disagree with the taking on by the public sector of more and better trained people such as doctors, nurses and teachers. However, that has not been the entire hallmark or characteristic of changes in public sector spending by the Government. Since they came into office, the Government have recruited about 583,000 extra people into the public sector. Not all of them are nurses, doctors and teachers, and others of a vital nature. The growth of the quangocracy, the new organisations and so on requires to be teased out so that we can ascertain where the money has gone.

One of the interesting points that the Chancellor has made great virtue of in his golden rules is borrowing for investment. I want to spend a moment looking at the term "investment". Within a few years of the Chancellor's taking office, the term "public spending" had been transmuted into "investment" as a way of clothing with respectability what was actually old-fashioned public spending. In the health sector, most of the bricks and mortar activity that I would regard as investment is now being carried out under the terms of the private finance initiative. Likewise, in the transport sector one can see that road building, what little of it goes on, is done by the private sector. In the railway sector, the entire expenditure of Network Rail has been taken off the public balance sheet. I am led to the inexorable conclusion that most of the "investment" has been in borrowing to deal with the variable costs of employing additional labour, not bricks and mortar in the public sector.

Photo of David Taylor David Taylor Labour/Co-operative, North West Leicestershire

The right hon. Gentleman, who is Chairman of my Select Committee—the Environment, Food and Rural Affairs Committee—seems to be heading down a road that would lead him to criticise the private finance initiative in the sense that it is prohibitive in cost, flawed in concept and intolerable in consequence for taxpayers, patients and NHS staff. Can he confirm that that is what he is doing, because if so, I agree with him?

Photo of Michael Jack Michael Jack Conservative, Fylde

No, I am not going to criticise the private finance initiative. I had responsibility for it when I was in the Treasury, and I do not for one moment resile from it as an effective vehicle for the proper transfer of risk and the creation of public sector projects without the cost overruns that used to typify old-fashioned public procurement. My point is that when one takes out of the public sector expenditure equation projects that are being paid for by the private finance initiative, one is led to the inexorable conclusion that the extra so-called investment is people-driven, not what I would term investment-driven.

Much has been made of the long run of growth in the economy. I take this opportunity to salute all the hard-working people in the United Kingdom and the excellence of British management and our companies and enterprises, which by and large have enabled that growth to take place. Following the difficulties of the mid-1990s, industry has got its act together and is working extremely hard. We have become innovative. We have changed the nature of manufacturing and of what we do in the so-called ideas economy. Much of that has happened without the intervention of the Chancellor of the Exchequer. However, let me cite some figures for the record, using data supplied by the Office for National Statistics. Average growth during the period 1992–97, when growth resumed, was 3.1 per cent.; between 1997 and 2004, under the present Administration, it was 2.7 per cent. In 1992–97, manufacturing output volume increased by an average of 2.1 per cent. year on year; under this Government it has been 0.7 per cent. Business investment was 5.5 per cent. under the Conservatives; it has been 4.5 per cent. under this regime. As my hon. Friend Mr. Davies, who has left the Chamber for a moment, pointed out, household saving went down by 3.9 per cent. under the Conservative Administration, but there has been a massive decline of 7.5 per cent. under this Chancellor.

The foundation laid by my right hon. and learned Friend Mr. Clarke formed a valuable basis for what has taken place. Why do Conservative Members worry, despite the attractive numbers put before us by the Chancellor on the growth of the economy and relative borrowing ratios? Why do we have the temerity to criticise? It is because when my right hon. and learned Friend was Chancellor, he recognised that tight and tough control on public expenditure at a level of 38 per cent. of gross domestic product, a tough approach on inflation and a proper approach on fiscal policy were the necessary foundations for a stable economy with the prospect of long-term growth. In fairness to the present Chancellor, he has entirely agreed with that Conservative approach and has maintained, in his own way, the policy foundations that we put in place. I sometimes wish that Members on the Treasury Bench would stop airbrushing out of history the fact that growth in this country started in 1992.

Going back to my first point about inflation and interest rates, one of the problems that the Chancellor has not been able to affect is productivity. Under the Government of my former colleague, John Major, annual productivity growth averaged 2 per cent., but the average now is 1.5 per cent. If productivity is such a struggle, I conclude that many of the macro-economic activities that the Chancellor has introduced, supposedly to modernise and improve the economy, have not had a measurable effect on what has happened in the United Kingdom.

I turn to some of the numbers in the "Financial Statement and Budget Report", because they raise an important issue and if the Chairman of the Treasury Committee had been here, I would have put this point to him. The Chancellor has an uncanny knack of getting his growth statistics and forecasts right, but when it comes to borrowing his track record is poor. In the "Financial Statement and Budget Report" for 2002 the prediction for borrowing this year was £17 billion and the figure for the next financial year was some £18 billion. Those figures have been changed to £32 billion and £29 billion respectively. It is absolutely clear that the forecasts on borrowing are significantly out, and it would be useful if the Treasury Committee could inquire into why it is possible to get the growth figure spot on—that is the central figure for the economy—when the borrowing figure is so far out. Unless there is greater accuracy in the projections, management of the economy is very difficult.

Photo of David Taylor David Taylor Labour/Co-operative, North West Leicestershire

The right hon. Member is numerate and a former Treasury Minister. I am sure that he will acknowledge that if figures of this scale are out by £12 billion—in an economy of £1,200 billion that is 1 per cent.,—that is hardly to be criticised, because of the uncertainty about the levels of revenue that will accrue from the taxation system.

Photo of Michael Jack Michael Jack Conservative, Fylde

The hon. Gentleman is right. When we compare the big figure of receipts with the big figure of expenditure, what is left in between is a small figure. That has always been the case. However, having worked so hard in the last four years of the Major Government, and recognising that the Chancellor accepts the importance of a prudent approach to the economy, when one starts to see the cumulative effect of borrowings mounting up considerably above previous projections—and with the inevitable fact that they will have to be repaid somehow if the sort of prudent approach that the Chancellor wants us to support is to be maintained—it is right to question the methodology by which one can accurately predict growth within the Treasury model, but not borrowings.

I mention that because in the "Financial Statement and Budget Report" the Chancellor looks to substantial growth in, for example, corporation tax revenues to underpin his overall growth. Yet he is looking between this financial year and the next for a £9 billion increase in corporation tax receipts. If that is multiplied by three—the average rate of corporation tax is around 30 per cent.—he is looking for an increase in taxable profits of around £30 billion in the UK year on year. There will be some windfall gains from the oil sector, but it is evident that in the retail sector, for example, there are problems and there may not be sufficient revenue to give the Chancellor the sort of lift of taxable profit that he is looking for.

Again, if the Chairman of the Treasury Committee were here—I know that he has probed the Treasury on the modelling methodology that it uses for tax revenues—I would ask him some important questions about whether the numbers that underpin the Chancellor's position are correct.

Photo of Michael Jack Michael Jack Conservative, Fylde

I shall give way for the third time.

Photo of David Taylor David Taylor Labour/Co-operative, North West Leicestershire

The right hon. Gentleman is very generous in giving way again. He will recall the debate about the background to the merger of the Inland Revenue and Customs and Excise, as he contributed to it. The gap in revenue that the two departments can levy from business and taxpayers is widely accepted as about £35 billion a year, so £9 billion is just one hesitant step across the bridge.

Photo of Michael Jack Michael Jack Conservative, Fylde

I return to a point that I have made before. I have acknowledged that receipts and public expenditure both involve big numbers but that in between there are some smaller numbers. Part of running a successful economy is about the credibility of the numbers that are published. Markets determine exchange rates, as the hon. Gentleman knows, and indeed have a profound influence on interest rates. If they believe that the numbers are right they can decide if they are going to support the Chancellor of the day. I am raising the question of how correct the numbers are, because if they are proven by subsequent analysis to be incorrect, that undermines the Chancellor's position and could have an effect on interest rates, which by definition would have an effect on the rest of the economy. It is right in the context of a Budget debate to probe carefully the basis of the numbers that the House has been given and asked to accept.

May I apologise to the House for a discourtesy and an error on my part? I should have reminded Members at the beginning of my speech to look in the Register of Members' Interests to see my business interests. I apologise again to the House for forgetting to mention that at the outset.

I shall comment briefly on Gershon following my exchanges with the hon. Member for Wolverhampton, North-East. One of the things that worried me about the Gershon report was the fact that it did not analyse how the accumulation of £20 billion of overspending had occurred. Its starting point was "Here we are, so what can we do to try to reduce it?" If there is to be good government and control of public expenditure in future, work such as that by Sir Peter Gershon should provide analysis of why, in certain cases, overemployment and overdeployment of resources in the public sector occurred to the tune of £20 billion, which is equivalent to two thirds of Britain's defence budget and is a great deal of money.

I would like to look at some issues raised in the Chancellor's speech. He talked about the indexation of inheritance tax. My personal view is that inheritance tax has had its day, but I recognise that getting rid of it altogether has revenue implications. As an interim step, I urge the Treasury to re-examine the nature and structure of the tax to reflect the fact that house price inflation has increased substantially above the rate of indexation of inheritance tax. In that context, the Council of Mortgage Lenders recommends a threshold of £330,000, not the current £263,000. Personally, I would like a much lower marginal rate of inheritance tax and the removal of exceptions. If someone has money and good legal advice they can sidestep most of the effects of the tax. The structure of the tax means that the haves do not pay it but that the have-nots, for want of good legal advice, end up being caught. The Chancellor said that 94 per cent. of estates do not pay inheritance tax. That is a reduction. Last year, it was 95 per cent., and the year before, about 96 per cent. More people are caught and, given the importance of the house as an asset and given what my hon. Friends said about the pension situation, it is time to look at inheritance tax, particularly for householders.

The Chancellor mentioned a national energy network, and I was intrigued by that new creation because I support innovations in energy. However, I emphasise to those on the Treasury Bench, who have patiently listened to my remarks on biofuels, that I was disappointed that, again, there was no indication that the Chancellor was prepared to go beyond the current duty derogation to try to stimulate a UK biodiesel and bioethanol industry. Yesterday, I received a representation from the Iogen Corporation—a Canadian-based company—which made the position clear:

"Fuel duty reductions in themselves will not motivate the longterm investment needed to build a cellulose ethanol plant for commercial production" in the United Kingdom.

I appreciate that consultations are currently taking place between industry and the Department for Transport and I urge the Treasury Bench to look at the matter again. If we are to meet our European targets for inclusion—they are targets, not directives—we will need a biofuels industry of our own. It is therefore important to encourage that embryonic industry off the ground, using United Kingdom raw materials to the benefit of our rural and, indeed, overall economy.

The Chancellor sensibly mentioned the need for further work to skill the economy. I agree with that. BAE Systems is my constituency's biggest employer and it survives on the talents of talented aerospace engineers. However, if the Chancellor wants to back high-tech manufacturing in the United Kingdom so that it provides the sort of technologies that will survive in a world dominated by competitors such as China and India, the Government will have to do more to sustain investment in technology, the development of new materials and new techniques in aerospace and, most important, ensure that they have contingent moneys should they decide to buy the Eurofighter tranche 3, thus enabling that commitment to be honoured. They should also do more to bring about a final assembly check-out facility and maintenance unit in the United Kingdom for the joint strike fighter, to keep our technologies fully engaged and ensure that Britain continues to be up with the best in the new arts of aerospace aviation—for example, unmanned air vehicles and stealth technologies. If the Chancellor's comments about reskilling and investing in new technologies cover that, I put a tick in that box. However, if they do not, one of our key future technology industries will be severely damaged, as will the economy of the north-west and the nation.

Photo of Michael Jack Michael Jack Conservative, Fylde

No. It is not that I do not want to hear my hon. Friend's point, but I wish to conclude my remarks in the light of the Deputy Speaker's comments a moment ago.

I should have liked more on the environmental front to encourage energy saving, especially in the domestic sector. To that extent, I should have been happy for the landfill tax to rise because that would have accelerated some of the important work in recycling.

I fear that the Budget was tailored for the general election but that afterwards, the people of this country will pay the price. On this occasion, the Chancellor has not been as prudent as he should have been.

Photo of Mrs Helen Liddell Mrs Helen Liddell Labour, Airdrie and Shotts 5:13 pm, 16th March 2005

I am grateful for the opportunity to speak in the debate. Like Sir Brian Mawhinney and others, this will probably be the last time that I shall speak in the House. I am sorry that the right hon. Gentleman is not in his place. I do not blame him for going for a cup of tea because we have heard the speeches of the hon. Members for Arundel and South Downs (Mr. Flight) and for Grantham and Stamford (Mr. Davies) in every Budget debate for the past eight years. I absolve Mr. Jack of that because he always gives a considered analysis of the Budget. I may not agree with it, but it shows deep consideration.

I had a particular reason for wanting to wish the right hon. Member for North-West Cambridgeshire well for the future. When I entered the House in 1994 after a traumatic by-election caused by the death of the late John Smith, the right hon. Gentleman was, in his normal courteous way, the first Member to wish me well for the future. I should therefore like to take the opportunity to return the compliment and wish him well. I remember that he spoke about the pre-1997 state of his then constituency of Peterborough. My experience of Airdrie and Shotts under the previous Conservative Administration was markedly different, however, and it is for that reason that I rise to congratulate the Chancellor on this Budget.

I disagree with the right hon. Member for Fylde, who took up the theme of the Leader of the Opposition and the right hon. Member for North-West Cambridgeshire that this is a vote-winning Budget. It is not. What will win an election is the fact that this Budget is incremental on other Budgets that have gone before. Almost everything that the Chancellor talked about in this Budget builds on initiatives that have already been undertaken.

I know, as a Member of Parliament for a particularly deprived area, that my constituency comes top in terms of the transfer into employment of people of working age. That is a considerable achievement in an area blighted by the end of the coal mines and badly affected by the end of the steel and shipbuilding industries. Such an achievement would have been impossible were it not for the actions of this Government from 1997 onwards. Pensioners in my constituency will share the view expressed by Age Concern this afternoon, warmly welcoming the Budget. The constituents whom I have had the honour to represent have seen a significant change in their well-being as a consequence of the Government's actions.

I come from an area in which no pensioner—indeed, no individual—would ever have known what it was like to have £200 in their hand at one time. Yet that is what the winter fuel payment has meant for my constituents. Something else that would not have been possible without the sound management of the economy and the consideration of the Treasury—something that the Chancellor did not mention in the Budget—is the payment to miners who have suffered ill health. I represent a constituency in which the pits closed 30 or 40 years ago, and where there are 240-odd men whose health was damaged as a consequence of their work in them. In my constituency of 58,000 souls, £9.3 million has already been paid out to some of the poorest people, almost all of whom are pensioners. Never in my wildest dreams could I have imagined, when I made my maiden speech in 1994, that that would happen.

I made my maiden speech in a debate on the Finance Bill. I was too naive to realise, when the Whip sent me in to do so, that I was making a job application to serve on the Bill's Committee. This was at a time when no Member could say that they had worked on a Finance Bill until they had seen the sun come up over St. Thomas's hospital night after night. I remember the subjects that I spoke about during the deliberations on that Bill. I talked about pensions, and about the difficulties that people had experienced as a consequence of the personal pensions mis-selling during the lifetime of the previous Conservative Administration. I was privileged to be able to play a part in putting that right.

I also remember talking about the assistance needed by the creative industries, especially the film industry. Manufacturing industry in this country will never be the same again, but when we are experiencing growth in our economy, we can turn to the part of that economy that adds to the overall well-being of us all, namely the creative industries. I have seen this happening in Scotland and throughout the country, and I hope, at some point in the future, to be able to sing the praises of our creative industries in another part of the world.

The assistance that the Budget has given to small and medium-sized enterprises in reducing the burden of regulation is something that I feel passionately about. I made my maiden speech on the need to encourage SMEs, because I had previously been the chief executive of a small company that worked with such businesses. Reducing the burden of regulation can make a great change to those small companies, probably more so than any other aspect of what the Government can do.

I say to the Paymaster General, who is in her place, that merging Customs and Excise with the Revenue and simplifying value added tax are direct incentives to more and more people to consider joining the growing band of the self-employed who set up small businesses. They are the ones who can generate the wealth that we want in this country, which will enable us to have the public services and the lifestyle that everyone is entitled to.

Everybody in this Chamber is well paid, and if push comes to shove we can dig ourselves out of a hole by throwing money at our problems. All Labour Members, I am sure, represent people who cannot do that. I listened to the hon. Member for Arundel and South Downs complaining about the public services, although he was unable to answer a question about what he thinks is the right level of public services. He seems to know the cost of everything and the value of nothing.

When we talk about public services, we are talking about not only the human resources directors and the guys who run the transport, but the men and women who will be going into people's houses at 9 or 10 o'clock tonight to sit with the terminally ill to allow their families to have a rest. We are talking about the teachers and the classroom assistants who are giving our children an opportunity to have a future of the kind that we were guaranteed because of the nature of the education we received. We are talking about public services that can transform not only people's lifestyle, but their ambitions for the future.

The Chancellor concentrated on education, in particular ensuring that the children in our primary schools go to school in a safe, sound and dry environment. In 1996, I went to a school in the constituency of my right hon. Friend Mr. McFall, which still had outside toilets and had water coming in through the roof. In place of that school is a brand new, state of the art school.

I know what it is like: my kids sit down at computers, but I visit houses in my constituency where the youngsters do not have access to computers. We need to give every child that opportunity or we will not have the high-tech, high-wage economy that Members on both sides of the House want for the future. This is about making fundamental changes that all add up.

The right hon. Member for Fylde talked about confetti, but the reality is that although every change in the Budget, if considered in isolation, might not mean a lot to all of us in here, each one will have a meaningful effect on the lives of the people we represent. It is the sum of the parts that makes the difference.

This has not been talked about much this afternoon, but I believe that when the Chancellor took the decision on that first weekend in government in 1997 to give operational independence to the Bank of England, achieving the climate that was to reduce interest rates and allow more and more people to become home owners and more and more people to set up businesses, a fundamental change was made to this economy. We shall reap the benefits for years to come.

I believe that the Government have achieved a lot and I am delighted to have had an opportunity to play some part in that.

Photo of David Marshall David Marshall Labour, Glasgow Shettleston

My right hon. Friend referred to the fact that this might be her last speech to the House. We have been friends for 35 years, ever since she started work, as a wee lassie, in the Scottish TUC offices in Glasgow. Like other colleagues, I want to thank her for the courtesy, kindness and assistance that she offered to us all when we raised constituency cases with her when she was a Minister in various Departments. I am sure we all wish her every success when she takes up her appointment as high commissioner to Australia.

Photo of Mrs Helen Liddell Mrs Helen Liddell Labour, Airdrie and Shotts

I thank my hon. Friend very much indeed. He has been a great friend for many years, although I am not sure whether I like the fact that he referred to 35 years. I am getting to the stage where I prefer to lie about my age just as much as I lie about my height.

I commend the Budget to the House. I am privileged to have played a part in some of the Government's successes. There have been successes, but there is much, much more to do. That is why the next few weeks and months are very important for the people of this country. I hope that there is another Labour Budget this time next year and I hope to be listening to it on the BBC World Service.

Photo of John Horam John Horam Conservative, Orpington 5:25 pm, 16th March 2005

I am glad to follow Mrs. Liddell and am sorry to hear that that was her valedictory speech. She made it in a typically passionate, robust and personal style, which the House entirely appreciated. She has had a distinguished career in the House, of which she can be legitimately proud. We are also deeply envious of her destination, and many of us wish that we were following her to that splendid continent. I congratulate her and thank her for her contribution.

One of the themes of this Budget debate has been international competitiveness. The Chancellor referred to that in his speech, Mr. McFall, who is the Chairman of the Treasury Committee, referred at length to the threat from China in particular, and my right hon. Friend Sir Brian Mawhinney, in another excellent valedictory speech, referred to China and India.

There is an old forecast, which even the Treasury Bench may have heard of, that as the 21st century unfolds, China will do the manufacturing, India will do the IT, America will do the farming, and all the tourists will come to Europe. That might be the sort of forecast that is not proved to be accurate in reality, and economic forecasts tend to be the reverse of what happens. It indicates, however, the insecurity and dangers that we face in an international world in which the huge economies of China and India are beginning to flex their muscles in a way that has tremendous advantages for us in terms of reducing costs and prices and keeping our economy competitive, but that none the less poses huge threats to our way of life and standard of living in Europe and this country in particular. I am glad that that theme has been raised, as it is a phenomenon that will grow and grow as the years go by.

Inevitably, in this possible pre-election period, the other theme of the debate has been the contrast between the performance of this Government and their predecessor, who, along with the Chancellor, have lasted eight years, and the preceding 18 years of Conservative Governments and their economy policy. Now that we have had eight years of this Chancellor and this Government, it is legitimate to compare what has happened under them with what happened in the preceding 18 years on the economic front. The contrasts are interesting.

The greatest achievements of the Thatcher years of government, and following that, the Major years, were on what economists call the micro-economic side. Reducing the power of trade unions, the privatisation of monolithic and unprofitable nationalised industries, the elimination of exchange controls, deregulation and the big bang in the City, and the reduction in taxation were all extremely radical at the time. In retrospect, they are an incredibly innovative and radical set of measures that were much envied, much copied and will stand the test of time. This Government, despite their different philosophy, have not thought it right to unravel most of those achievements. In terms of the 20th century, they were the most brilliant set of measures achieved by any two Governments in a row.

On the other hand, I must admit, as someone who follows economic policy reasonably closely, that the macro-economic performance of those Conservative Governments was not as good until much later. The way in which monetary targets were followed—as we all know, M1 and M3 are no longer motorways but measures of monetary policy—with great lack of success and great confusion in the early 1980s, was not a great credit to the then Government and their advisers. A period then followed in which the switch was made under Chancellor Lawson to following an exchange rate, and to following the Deutschmark, which was not exactly one in which macro-economic growth was handled steadily. It eventually led to our membership of the exchange rate mechanism, and the fallout from that was disastrous for the Government of the time. It is certainly not something of which they can be very proud.

What followed was brilliant. My hon. Friend Mr. Davies mentioned this. In fairness to Lord Lamont, it should be said that his first Budget after our exit from the ERM was both brave and well judged. It set the framework for what followed. It was brave in that Lord Lamont was well aware, as we all were, that he had been through an extremely bad time after we came out of the ERM, but he had the guts to go ahead and do exactly what the country needed. We needed him to produce a well-balanced Budget, and also to accept inflation targets which have stood the test of time.

When my right hon. and learned Friend Mr. Clarke became Chancellor, he took that a step further in what we all remember as the Ken and Eddie show, in terms of management of inflation, interest rates and so forth. That was the beginning of what could legitimately be called the Lamont-Clarke expansion, which has continued throughout the final years of Conservative government and the eight years of Labour government that we have experienced so far.

Macro-economic policy was mixed. It was poor to begin with, but got better under the Conservative Government. During the last eight years, almost exactly the reverse has happened under Labour. I think we all agree that it started brilliantly. Conservative Members have conceded that the new Chancellor's first steps were excellently judged—the independence of the Bank of England, for instance, which could be described as outsourcing. It always amuses me when Labour Members rebel against outsourcing or criticise it, as they often do. One of the largest undertakings of that kind was the outsourcing of the entire fiscal policy to the Monetary Policy Committee. It was a brilliant success, but Labour Members do not see the parallels with other types of outsourcing, which may also prove successful. This was certainly successful, and continued a vein of policy that began with the Conservatives.

Since then, sadly, the Chancellor has got worse—unlike the Conservative Government, who got better after a muddled and difficult start. Prudence was followed by profligacy on the public spending side, and there is an obvious black hole that has not been filled by any of the proposals in the Budget. There is real cause for concern about what will happen after the election if the present Government are returned. Let us pray that they are not. My hon. Friend the Member for Grantham and Stamford used the phrase "Après moi le déluge", and I think that that encapsulates the Government's attitude to public spending. We must bear it in mind that higher taxes will almost certainly result if they are returned.

On the micro-economic side, the Government faced two challenges. First, they were required to continue the improved performance in the private sector brought about by successive Conservative Governments. Sadly, they have not achieved such an improvement. One example is public transport in London. If people in the City were asked what one development would make their lives easier and make London an even better magnet for international capital and employment—which are hugely important to the British economy as a whole—they would name better transport, but the Chancellor has played a poor role in the management of London's public transport. He has prevented real expansion and development. We have a crumbling tube system, because nothing was done for five or six years while the Government argued with the Mayor of London. Certainly, for the past four or five years there has been no real investment in London's tube system, as a result of the Chancellor's ridiculous concept of the public-private partnership and a long wrangle with the mayor. That is an example of the Chancellor's getting the task of helping the private sector badly wrong.

The complexity of the tax system has increased enormously. Regulation has also increased enormously, and there have been problems with the pensions system, to which reference has been made. So the Chancellor's behaviour in respect of the private sector has been extremely poor from a micro-economic point of view.

As we know, however, the real challenge that the Chancellor faced was improving public services. If a Labour Government were elected for anything, it was to improve public services, which had not improved as much as was necessary under Conservative Governments. Rather, they concentrated on getting the economy into shape, which they did very successfully. The Chancellor has got this challenge wrong, and in a number of ways. In the first instance, in successive Budgets he made the mistake of talking about how much money he was going to put into the public sector before asking for the necessary reforms. Any ordinary business manager in such a situation would say, "Let's see your plans, and if they're good I will give you the money." He would not take the opposite approach and say, "Here's the money, now where are your plans?"

As a result of the Chancellor's approach, the temptation was to spend money in all sorts of wasteful ways and to increase salaries. I accept that in some cases, such increases were necessary, as certain public sector employees were well behind those in the private sector—although now, of course, they are well ahead. But that approach was a serious error of judgment and I do not know why the Chancellor came to that conclusion. Perhaps it was an attempt at self-flattery; perhaps he wanted to appear to demonstrate great largesse, in order to please his own side. However, in terms of managing the public sector, that approach certainly was a major misjudgment.

As has become apparent over the years and as the Chancellor himself has pointed out, he has been an opponent of some of the reforms that the Prime Minister and other Secretaries of State wanted to implement. For example, at one stage the Chancellor seemed to oppose foundation hospitals, yet freeing managers to make the decisions that they need to make down the line is obviously good and sensible management. Such reform is essential and we believe that it should be taken further, but the Chancellor is glorying in deriding the extent to which the market and decentralisation can play a part in changing the public sector.

Not only does the Chancellor apparently oppose reforms that the Prime Minister and other Government members want; he has strangled the public sector by imposing bureaucracy, red tape, regulations, directives and money controls. At one stage, there were 6,000 public sector targets—more than in Stalinist Russia at its height. The Chancellor has displayed a fatal tendency to control, and a clear misunderstanding of the management required in the public sector.

So the Chancellor is far from being a good Chancellor. Rather, in this competitive world in which China and India, for example, have much lower costs than ours, he has dangerously weakened the private sector through the particular enterprise and growth climate that he has created. Moreover, he has totally failed to improve public services in the way that his supporters and ordinary people want.

Photo of Michael Jabez Foster Michael Jabez Foster PPS (Rt Hon Lord Goldsmith, Attorney General), Law Officers' Department, PPS (Rt Hon Harriet Harman QC, Solicitor General), Law Officers' Department

The hon. Gentleman's generalisations about regulation are all very interesting, but can he name just three specific regulations that he considers damaging to industry?

Photo of John Horam John Horam Conservative, Orpington

Well, we should consider the complexity of such regulations. I wonder whether the hon. Gentleman receives the sort of complaints that I receive about the tax credit system, which is hideously complicated and difficult for individuals to deal with. Such people are often in and out of work simply because the Inland Revenue has miscalculated the sort of tax credits that they get. Such a situation does not encourage stable employment.

Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown Conservative, Cotswold

May I put some flesh on the bones of the intervention by Mr. Foster? This country has slipped from fourth in the competitiveness league to 11th in the last eight years. Some 1.1 million of our 16 to 24-year-olds are neither in employment nor in education, but most worryingly of all, a Department of Trade and Industry employment skills survey of 76,000 employers published just the other day shows that 2.1 million of our work force—10 per cent.—lack the basic skills that they need to do the job. What does my hon. Friend think about such a structure? Surely the Chancellor ought to have done something more in this respect this afternoon.

Photo of John Horam John Horam Conservative, Orpington

I am grateful to my hon. Friend for that intervention. To be fair to the Chancellor, he did say quite a lot about education and skills, which are of genuine concern to him, and one or two other Labour Members also spoke about them, but one of the elements that they have missed—this follows the failure of all Governments since the war—is to place enough emphasis on vocational education.

There has been a huge argument, as we all know, about how to fund higher education in our universities, but far too little has been said about vocational education. Again, the Chancellor was not able to give high priority to that in the Budget. That is a sad lack in this Labour Government, who claimed to be the party that could solve some of those problems.

There is an old adage that a Budget that looks good on the day quickly unravels, and it becomes apparent fairly quickly that it is not as good as it first seemed. Sadly, that will also prove true of the Chancellor's reputation.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South 5:40 pm, 16th March 2005

At the end of every Budget debate, Members stream out of the Chamber and are greeted by those in the press, who want to know whether or not we thought it a good Budget. Usually, answers to that question are based on relatively short-term considerations—whether it will last a day or a week before people start to pick holes in it. Even after imperfections and weaknesses have been identified, we are asked whether, on balance, we would describe it as a cup that is half full or half empty. With today's Budget, there are easy and difficult answers.

In the short-term, this is a Budget with a cup that is three-quarters full in relation to the next election. As Labour Members have pointed out, that is not an opportunistic Budget because a stable economy, with a period of sustained economic growth, cannot be delivered by a single Budget. The Chancellor has rightly flagged up and sustained a year-on-year commitment today, and it will rightly provide the basis for Labour's manifesto claims at the next general election. The additional trimmings that he has put on the cake will be attractive because they underpin Labour's commitment to an inclusive society, where we genuinely deliver reinvestment and opportunities for all.

I welcome the fact that we have made substantial commitments in the Budget to the rights and prospects of our children. I welcome the fact that we are making a commitment to extend the concept of an entitlement to education and training from the ages of three to 18. I welcome the commitment to reinvest in the infrastructure of the schools and health services that our communities depend on. I welcome the commitment to employment for all and the associated implication, which is that we will unashamedly target resources towards those who have been excluded and most alienated from the jobs market. I also welcome the commitment to pensioners that we will deliver to them free bus travel and a council tax rebate. I am sure that the communities that comprise my own constituency will understand the substantive nature of this as a package that a Labour Government can deliver on the back of a period of stability and economic growth.

For all those reasons, the Budget is to be welcomed. It will take us through the next general election. My doubts are whether it will take us through the next Parliament and whether it will see us through the big challenges of the next decade. It is against those challenges that I want to try to make my own contributions, and I make them unashamedly to a Labour Chancellor not only on the presumption that he will continue to be the Chancellor in the next Labour Government, but on the basis that only a Labour Government can take on board the implications of the challenges. Sadly, the contributions from Opposition Members, who seemed to go little further than a "we can tax you less" approach, do not even begin to touch the nature of those challenges.

The challenges come down to two things. First, as a Parliament and as a society, we must ask ourselves how we renegotiate the contract with ourselves. We live in a society in which people rightly expect to live longer and fuller lives. However, a difficult set of questions must be addressed as to how we pay for the services that will underpin those longer lives. In many ways, this is a biological issue more than a political one.

At a political level, the more difficult challenge is one that will come from outside: the challenge of climate change. Tomorrow, a conference will take place in Derby and will be addressed by leaders from across the world. If we were to set today's Budget in the context of meeting those challenges, the cup would be three-quarters empty. It is a poor Budget in relation to climate change and misses some real opportunities that we need to address—when we have the space to do so—before the crises that climate change will cause begin to land on our doorstep at a rate that we cannot deal with.

Severe cautionary warnings have been issued as to what is already happening, but they are not coming from the IMF, the World Bank or the OECD. They are coming from the United Nations and from non-political organisations such as Munich Re, the world's largest re-insurance company. In a recent report to the UN, Munich Re said that in the next 25 to 30 years, the scale of claims for damages resulting from climate change is likely to result in annual costs that outstrip the annual income earned by the world. The forewarnings are dire; it says in simple terms that the costs of climate change could bankrupt the global economy. We will have to think our way into a different world and a different view of economics.

If I wanted an example of that, I could not have asked for a better one than the front page of The Guardian this week. It showed a picture of Mount Kilimanjaro as it had not been seen for 11,000 years above a story that said:

"Brown to hold down petrol duties."

It was prescient, if not predictable. In addition, the final story on that front page said:

"Blood and coal: the human costs of cheap Chinese goods."

To those who are enthusiastic about globalisation, I say that we need to think carefully about its costs and the viability of that policy in even the medium term. In China today, the cost of globalisation, and of being able to flood world markets and dump cheap produce in our shops, is that the Chinese are already in the middle of an energy crisis. The Chinese Government have instructed the Chinese coal mines to increase production dramatically above current levels just to keep the system going. A by-product, with some human significance, is that although China produces less than a third of the world's output of coal, it accounts for 75 per cent. of the deaths of coal miners. That is the product of exploitative markets; we have seen this in our own land in previous centuries. To suggest that a burgeoning global economy can be driven without recognition of these human costs is crass and irresponsible.

Moreover, those who see China and India dominating the global economy in the years or decades to come need to talk to Chinese and Indian environmentalists who point out that, in the short term, China and India will face colossal crises about where they will get access to water supplies to keep their populations alive, let alone how they will expand supplies to meet the water requirements of an increasing domestic production market, driven to sustain the global economy.

The water is not there, and nor are the energy resources. If we try to set that against the obligations that we have entered into in respect of Kyoto, those obligations look absurd. The commitments in China are predicated on the construction of 500 more coal-fired power stations. There is not a cat in hell's chance of our meeting the Kyoto commitments, let alone containing the current rate of climate change, if we presume that that is how the global economy can function in the years and decades to come.

The Budget has missed a real opportunity to address a shift in how we think about taxation—a shift from the taxation of goods to the taxation of bads. We have said nothing about a change in the taxation of aviation fuels; we have said nothing about a change in the petrol fuel duties; and we have said nothing about the windfall profits that have accrued to the upstream gas and oil industries as a result of the recent hike in oil prices. However, we do know that Shell has announced that its profits this year have gone up to £9.3 billion, and those of BP have risen to £8.7 billion. The TUC's estimate of what we could legitimately look for as a windfall tax on such unearned profits would be in the region of £5 billion to £6 billion. Had we levied such a tax, we could have earmarked it precisely for investment in the renewable and sustainable energy systems that we desperately need to maintain our own sustainable economy in the future.

Mr. Jack set the point in the context of biofuels, and there is a case for doing that. However, many other areas in the renewable energies sector are crying out for our help. A lobby from the sector set out to us how it could be a major employment driver in a new technology initiative to provide us with a green economy for the future. It pointed out that Britain accounts for 4 per cent. of the global market in renewable and sustainable energy systems. Germany has 15 per cent.—and not because it was waiting for an investment initiative to co-ordinate energy thinking by its Government, but because its Government created domestic renewable energy markets that allowed the goods to be produced and then to be exported. While we are spending time thinking about the issue, other countries—our competitors—are getting in and investing in changing the nature of their domestic markets. We have missed a real opportunity today by failing to do that.

As a comparison, I wish to refer to some of the discussions on environmental thinking and taxation that are taking place not only among our European partners but within the developing world. Many Governments are in direct discussions with their farming communities and urban communities about how they best support regionalised and localised food and farming systems that cut down on food miles and on the carbon and fossil fuel content involved in the long-distance transhipment of food products. Such systems strengthen the lines of food accountability between local farmers and local consumers and create a virtuous circle for sustainable food production. We have failed to pick up on what many of our competitors are seeking to do in structuring the tax advantages around the relocalisation of food systems, in which food security will be a central issue in our competitors' view of the challenges of the immediate future. Our failure to tax carbon miles, in many ways, plays into the hands of those who disregard climate change to the peril of us all.

We have done little or nothing about our approach to tackling global pollution. I suppose the only good thing that I can say on that is that, at least, we have not filled the space by a reaffirmation of our belief in the virtues of pollution trading credits. Some of the more critical and serious analysis says that the idea that we can create markets in tradable pollution as a solution to the pollution crises is daft.

I offer a comparison with what Parliament did when it acted at its best to deal with pollution and contamination. A number of us are old enough to remember growing up in towns and cities where winters were characterised by periods in which we could barely see in front of us because of the thick fogs that descended. They were part of our annual seasons and cycle. At that time, the Government of the day passed the Clean Air Act 1956. We already knew of the problem, from the hospital wards and doctors' surgeries, and from the cemeteries that were lined with the bodies of people who had spent their lives sucking soot from industries that had no pollution controls. The Government did not set up soot swap shops, but said, "You can't do it. We're giving you a period of notice after which those emissions are not going to be allowed."

We changed the market rules. We did not abolish production in the UK or make the country any less competitive, but we cleaned up the markets. The Government intervened to change that by legislation and regulation. We have to reconsider how we use our tax powers, if we will not use legislative powers, to change the market again in order to clean it up.

As for where and how we do that, it can be done in collaboration with the developing world. If our sustainable technologies can fill today's soot gap or carbon gap, it gives us an enormous opportunity to offer as gifts to the developing world, not the technologies that we have banned or abandoned in our countries and then handed on under the pretext of aid, but the technologies that they, too, will need to rely on for clean production fit for the 21st century.

Photo of Michael Jack Michael Jack Conservative, Fylde

I am following closely the hon. Gentleman's carefully thought-out speech. Does he agree that there is a further medical dimension—namely, the enhanced opportunity for international disease development and transmission—if we do not get on top of global warming? We need a thorough and rapid economic appraisal of the costs of dealing with that dimension, together will all the other things that he mentions, as far as the UK, European and world economies are concerned.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I accept that and thank the right hon. Gentleman for raising that issue in the Environment, Food and Rural Affairs Committee. We may well need to factor that into our view of Britain's role in the global economy, specifically in relation to our commitments to the developing world. In some respects, there may be more mileage in that than he thinks. Today's announcement that the World Bank will be led by Paul Wolfowitz may seriously complicate what the Chancellor said about his plans for debt cancellation and poverty relief. Mr. Wolfowitz's record is such that he is more likely to cancel the poor than the poverty. We must recognise that we might need to look for a different leadership role in addressing the same challenges that we and the developing world will face, which brings me on to my next point.

We will also need a different contract with ourselves. Longevity will force us to go back and consider the fact that most of the tax that we pay in our lifetime is a redistribution from us to ourselves. It comes back to us in our old age and perhaps we pass it across to our children, in the way that our parents passed their taxes across to us in our childhood.

In solidarity with ourselves throughout a longer lifespan, we have to ask how we pay more in our working years for the longer period that we hope to enjoy in our later lives, certainly in our retirement or older years. We need to have a more grown-up debate about that, not a cross-party slanging match, but a recognition of the real challenges for a society that expects to live longer. My only observations on that are cautionary ones about how we address the poverty challenge.

On the Labour Benches and in Downing street policies, a lot of reliance is placed on tax credits. The difficult thing about tax credits is that they rely heavily on a bureaucracy of means-testing that creates its own complications. I doubt that there is a Member of the House who has not had constituents coming to them with real problems and complications because they say that the Inland Revenue has got its calculations wrong on the tax credits that they were entitled to. They face bills for repayment to the Inland Revenue when they have no savings. So the tax credit system is a fragile approach, particularly to those who either have no savings or are in insecure and variable employment. We need to be careful about how much reliance we place on it.

Tax credits and means-testing are good at directing benefits to the poorest of the poor, but they also create anger and resentment at the injustice of tax on the margins. I invite the Chancellor to look at an additional principle, a golden rule, about our approaches to taxation and poverty. It would be a huge advantage if we were able to say, as a matter of principle, that we, as a Labour Government, will not tax the poor more heavily than we tax the rich. Att the margins of entitlement in the tax credits and benefits system, the clawback is about 80 per cent. and above. It is the resentment that people acquire at those margins of clawback that divides neighbour from neighbour, street from street, and parents from grandparents and from their children. The consequence, even in pragmatic terms, is that it is very hard to get any political credit from tax credits. The credits, if there are any, tend to go to the Inland Revenue, but the blame almost certainly goes to the Government.

If we want to rebuild a sense of social solidarity, it will be much easier to do so, and certainly less bureaucratic, if we return to the principles of universal entitlement. Certainly, those marginal tax rates that affect the poor make the suggestion that we should have a top tax rate of 50 per cent. on those earning more than £100,000 seem quite modest. If that were to raise the predicted £6 billion extra revenue stream for the Chancellor, and if he were to earmark the entirety of it to meet the cost of restoring the value of pensions and the earnings link, many on the Labour Benches would rise up and celebrate.

Many of us would also be perfectly happy if the additional £5.6 billion that could be raised simply by removing the ceiling on national insurance was earmarked, not just to meet tomorrow's pension requirements but to repay the pension entitlements of those who thought they had been saving throughout their lives and paying it into their pension funds, only to find that their pensions had been stolen by the collapse and theft of those funds. If we want to convince today's generations of young people that it is sensible and safe to save in pension schemes, at the very least we have to find ways of repaying those who have done precisely that only to find that their pensions have been stolen from them.

Finally, I welcome the Chancellor's direct investments in schools and health. We all know that sizeable costs will have to be paid in the years to come that will be top-sliced as a result of going down the path of funding some of the investment through private finance initiatives and public-private partnerships. They are extremely expensive ways to lock us into long-term debt, before a single nurse, teacher, cleaner and so on begins to be employed. It would be much better to look again at our approach to pension savings and the use of those funds. In 1962, 51 per cent. of pension funds were put into Government gilts or public bonds. When the 2002 crash happened and £250 billion was wiped off the value of pension funds, only 17 per cent. of those funds were in public bonds. We should put the public back into public investment. We must find ways of allowing and encouraging pension funds to become the source of direct public investment; public saving in public investments that will secure public pensions—pensions that would not disappear in the bursting of a dotcom bubble, but would deliver an annual bonus not only in cash terms, but in terms of the quality of life that we in this country are able to enjoy.

Those are challenges that can be tackled only by a Labour Chancellor. I would not even offer them to the Conservatives, because if they understood them, they would probably try to sell them. They are, however, challenges that we will have to face in the next Parliament. My plea to the Chancellor and his Front-Bench colleagues is this. There is no prospect of the Conservatives being able to make a claim that this is a profligate Budget by a Labour Chancellor stand up; its stability, consistency and inclusiveness make it anything but profligate. What is less clear is whether we have been profligate with an opportunity to use this Budget to meet the challenges of the coming decades. If we duck that for long, our children, our grandchildren and the whole of society will have much to criticise us for.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley 6:06 pm, 16th March 2005

It is always a delight to follow Alan Simpson. His was a thoughtful contribution. He is passionate about his politics and after eight years of new Labour it was refreshing to hear a little socialism creeping through. Even though he did not utter the words, "Let's tax the rich," that was the ethos reflected towards the end of his speech.

I enjoyed the hon. Gentleman's comments on environmental matters, especially in the emerging countries of China and India. All hon. Members want to ensure that the poor people who live in those great countries are able to enjoy the fruits of the prosperity that has lately come to both areas. When I first visited China in 1992, while wandering around Beijing I saw oxen in the streets pulling coal carts; when I last visited a couple of years ago, one had to travel further into the rural hinterland to see such scenes. Prosperity is certainly coming to cities such as Beijing and Shanghai and to central China. I visited a place called Chongqing, which I had never heard of before my visit, and found that a staggering 35 million people live there.

It is important that prosperity comes to those countries and reaches into their rural areas, but we must recognise that it will bring with it the challenges relating to energy and water needs that the hon. Gentleman described. To ensure that we all adhere to the Kyoto protocol and reach our climate change-related targets, the emerging countries, which have huge growth rates compared to ours, will have to play their part. If the hon. Gentleman is right about the number of coal-fired power plants being built—500, which is a staggering number—that has to be fed into the equation. We live in a global village and we must ensure that we have the right policies—right for us and right for the world. There will have to be a great deal of discussion and negotiation about how we in the developed world can use the technologies that we possess to help developing countries to acquire the clean energy technologies that they will need.

Mrs. Liddell is, no doubt, packing her bags as I speak. She has made a great contribution to the House in her years as a Member of Parliament. We are all rather envious of her, but we wish her well in her new job as high commissioner to Australia. She is taking over the position from Alastair Goodlad, whom we all remember from his time in this place. Australia is a tremendous country: it always seems to be sunny; the people are warm; and the natural landscape is wonderful. There are two reasons why I am especially jealous that the right hon. Lady is going to Australia—Australia has a Conservative Government and its Prime Minister's surname is Howard. How good can it get? We all understand why the right hon. Lady has got a big smile on her face as she looks forward to her new job.

Before I comment on the Budget, I comment on the staggering fact that page 2 of this morning's Daily Mail told me that the excise duty allowance before one must go through the red channel would increase to £1,000. If that is a prediction, it is pretty accurate—frankly, it is so accurate that it is a leak by any other name. I hope that the Financial Secretary will examine today's Daily Mail—it also mentioned the monument to the Queen Mother, which I do not regard as a Budget leak—because the £1,000 figure is very specific. I also hope that he will tell me that an investigation will take place, because I remember the days when Ministers resigned if they were caught leaking such information.

This is the current Chancellor's ninth Budget. When I was a kid, Budgets were incredibly exciting, and I could not wait to find out in the newspapers and on the evening news what the Chancellor had decided. We used to listen to the excitement of the Budget on the radio—the wireless—before television allowed us to see the excitement, and now I am here listening. Halfway through the Budget, however, one of my hon. Friends said, "Gosh, this is boring," to which I replied, "It is not that good."

Some hon. Members have said that the Budget contains pre-election sweeteners, but I do not think that the British public are that gullible. The Budget contains a bit of icing, but there is no cake, and it will not take the public long to work out that a little bit of icing has been sprinkled around and that there is no cake. The public have been bitten before by previous pre-election Budgets, and they will not be taken in by today's.

It is incredibly inequitable that stamp duty has not been raised for such a long period. In Clitheroe, for example, one would be incredibly lucky to find a house for less than £60,000—as far as I understand it, it is impossible to find a house in Clitheroe for less than £60,000. The increase to £120,000 is a step in the right direction, but it does not match house price inflation since 1997, so I cannot even raise three cheers for that. Stamp duty is forecast to raise £9.4 billion in 2004–05, and today's announcement will hand back £250 million of that £9.4 billion. The revenue from stamp duty has increased dramatically since 1997.

The announcements on inheritance tax are pathetic. I have heard other hon. Members discussing scrapping the whole wretched business of inheritance tax. I do not care about the percentage of people who pay inheritance tax. Given current house prices, an increasing number of people will fall into that category, and inheritance tax loads yet more misery on to people when they are already incredibly vulnerable after a death.

I enjoyed certain parts of the Budget speech. I enjoyed the Chancellor of the Exchequer's smile as he announced that the criteria on the euro will not be reviewed—it was probably the biggest smile of the afternoon when he came out with that one. I did not see the expression on the Prime Minister's face, but there we go—we know that there is a slight difference between them.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

Reliable evidence from a reliable source tells me that the Prime Minister's expression was glum. I can only believe that that was the case.

As for free bus travel for senior citizens, the local newspapers were telling me even last week that local rural bus services will be axed in villages such as Grindleton. The axe has been hanging over the service in Pendleton. We know how important these rural bus services are, especially for those of us who represent rural constituencies. The services are important for the elderly, but not only for them. The bus service that operates through Pendleton is used widely by people of all ages. It is important that we try to preserve these services. I have read recently about the threats hanging over railway services. There is a tremendous rail service running from Clitheroe into Blackburn and down to Manchester, where people can get on to the full network.

If these networks are either to be cut or axed, that will have a dramatic impact on more than 1 million people who use the service. We must ensure that these public services are maintained as much as possible.

I had to break out of the debate for a while this afternoon, as had a number of Members, to visit the Alzheimer's lobby. I listened with great care to what the members of the lobby had to say to me, and not only about the drugs that the National Institute for Clinical Excellence is threatening to withdraw because of cost. Any of us who have come into contact with anyone who either suffers directly with Alzheimer's or is looking after someone with Alzheimer's will know that the drugs are a lifeline. They bring an improvement in the quality of life for those who suffer from dementia. We must ensure that they get the drugs that they need.

I heard what the Prime Minister had to say in response to a question today. It was not quite the ringing endorsement that we read on the front page of one newspaper, that said that the NICE policy had been reversed. It must be reversed. We must ensure that patients get the drugs that they need. We must examine carefully—

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

We are told that the drugs cost £2.50. If patients do not get these drugs, they will end up in hospital and will cost the nation far more for their treatment than if they receive the drugs that they need. It was a throw-away line, but we must ensure that patients receive the drugs that they desperately need. We must consider also the cost of caring for dementia patients. We must recognise the full responsibility that rests on carers. It would have been nice if we had heard something in the Budget about that.

I have had a debate in Westminster Hall about youngsters and obesity, but I want youngsters to have access to computers. Computers are in schools and libraries and I want to ensure that youngsters are not left behind in the IT revolution. However, we must attach some value to the health of our youngsters. Far more must be done. No mention of this was made in the Budget speech, but I hope that when other Ministers make their contributions to the debate someone will say something about schools generally, including our responsibility to ensure that youngsters are able to have access to sports equipment. They should have time during the day to get away from their computers and take part in active and competitive sport.

There was a loud roar when the Chancellor announced his one-off £200 handout in respect of council tax after the clobbering that senior citizens have taken with the increase in the tax since 1997. There have been increases of more than 70 per cent. which amount to several hundreds of pounds. To try to buy people's votes with a one-off £200 is incredible, risible and pathetic in the extreme. We have to ensure that in future our senior citizens are protected from the huge increases that they have had to pay. Many of them will feel, as their children move away and if their husband or wife dies, that although they are the only person left in their house it is where their family memories are. My great fear is that they may feel that they have to sell that family home because they cannot afford to pay the huge council tax increases that are demanded of them. That would be cruel, and we must make absolutely certain that it does not happen.

Much has been made of China, in relation not only to energy but to the fact that it is growing, as is India. Many jobs that were originally in this country have moved to China, India, eastern Europe and south-east Asia, and that is a continuing trend. When I was elected in 1992, we had many debates in this House about the loss of manufacturing jobs, how dismal that was and how it was all the fault of the Tory Government. We have now had a Labour Government for eight years, and the fact that we have lost 1 million manufacturing jobs must be worrying.

We cannot put all our eggs in one basket as regards what we do in the future. I am a big believer in manufacturing industry. BAE Systems is in my constituency as well as that of my right hon. Friend Mr. Jack. We have there the beauty of high-tech jobs, which are, like manufacturing, vital. I am proud of those skills. If we do not cherish and nurture them to ensure that they flourish, they will go to other countries. Our skilled people will take their skills to places such as China, India, south-east Asia and the United States of America, and once they have done so we will not get them back.

Photo of Stephen O'Brien Stephen O'Brien Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Industry

I am noting my hon. Friend's important and cogent points on the loss of manufacturing in this country over the past seven years. He will be aware, I hope, that in the equivalent seven-year period under the previous Conservative Government, 186,000 manufacturing jobs were created; that is to be contrasted with 1 million jobs lost under Labour.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

I fully accept that. We recognised the importance of manufacturing and ensured that our businesses were not over-regulated. I heard the spat that took place earlier about regulations. We know from the Institute of Directors and the CBI that extra regulations are costing British business of all sizes billions of pounds. We even heard the Chancellor admitting after eight years, "We know we have a problem with the gilding of directives when they come from Europe, so we are going to do something about it."

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

My hon. Friend is right.

After eight years, and weeks before a general election, the Chancellor of the Exchequer concedes that there is a problem in this regard. Anyone who has read Christopher Booker in The Sunday Telegraph over a similar period will know that we have huge problems and need to do something about it. We do not want to create the same conditions that exist in places such as China and India—rather, we want conditions there to improve for their workers—but we cannot ignore the fact that we live in a competitive global world and that if we keep unnecessary rules and regulations we become too expensive compared with the rest of the world, and that is when we will start to lose out. British business will not be fooled by the Chancellor's late conversion on extra rules and regulations when he could have done something about it many years ago.

This is a vote now, pay later Budget, and I think that the British public will agree with that. The figures in the Red Book simply do not add up. We are told that there is a big black hole in the Treasury. It is not a black hole, but a Brown hole—a hole made by the Chancellor of the Exchequer. When people are in a big hole, we tell them to stop digging, and that is the clear message that should have gone out to the Chancellor today.

I know that the Chancellor believes that after the next general election, if a miracle happens and the Labour party is re-elected, he will go to No. 10. The one thing stopping him is the general election, which is likely to take place in May 2005. The choice of who will hold the keys to No. 10 is not between the Prime Minister and the Chancellor of the Exchequer. Their little spat is interesting, but alarming. They do not even talk to each other and do not have a civil word to say to each other, which is worrying for all of us. The choice is for the British people who have seen what has happened not just in this Budget but over the last eight years. I am enthusiastic about the next general election. As our leader said, "Bring it on; we look forward to it."

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 6:25 pm, 16th March 2005

I want to follow up some of the comments that have been made about manufacturing in the United Kingdom. The subject is dear to my heart because I was born and bred in the west midlands and represent a west midlands constituency. I know that it is also dear to your heart, Madam Deputy Speaker.

I welcome the fact that the Government are taking manufacturing more seriously than during their early years when there were other priorities. I echo the comments made by Mr. Jack about the aerospace industry, which have a resonance in Wolverhampton. I echo the calls from my hon. Friend Alan Simpson for investment in pollution control and other such equipment in world markets. We should also encourage development of medical technology, which is already a large world market and will grow. We in the west midlands could do the research and development, and build the equipment.

I echo the calls from the TUC—I am proud to have been a member of the Transport and General Workers Union for many years—for the Chancellor to initiate a follow-up of the Wood review. That should identify positive lessons for developing procurement strategy in the United Kingdom. The Wood review examined barriers to bidding on contracts and so on. We have a particular problem when UK companies try to bid for contracts in other countries of the European Union because those other countries do not always have as level a playing field as we do, or competition that is as open as here. We should consider encouraging British manufacturers to bid, and teach them how to bid, for Government procurement of manufacturing-based contracts in the United Kingdom.

Having talked about manufacturing, I salute the Opposition, particularly Conservative Members of the Opposition. They have done a good job today in difficult circumstances. It has been hard for them because economic growth is on forecast and we have great job creation. Some members of the Conservative party recognise that. The right hon. Member for Fylde got his figures right on public sector jobs in contradistinction to private sector jobs. There are 2.1 million extra jobs under this Government, but Mr. Davies got the figures wrong and said that two thirds of those jobs were in the public sector. In round terms, the figures are 600,000 out of 2.1 million. That is slightly less than a third, and there is proportionately slower growth of employment in the public sector than in the private sector. Conservative Members should recognise that. They should also recognise that it is sometimes difficult to determine who is what they would call a front-line worker.

To put another cast on the matter, when there was a decline in manufacturing under the Tories, part of it was masked by the figures. A tea lady in a factory was counted as working in manufacturing. If the contract was outsourced, she was no longer counted as working in manufacturing, but she was still a tea lady. That sort of thing sometimes makes it difficult to determine whether someone is a front-line public sector worker.

We have the lowest interest rates for years and years and we have low inflation, with the expectation that it will continue for many years. That makes it difficult for the Conservative Opposition to attack the Government, but attack they do—on the national debt, Government spending and regulations. I shall deal with those three issues in turn.

On the national debt, table C24 on page 274 of the Red Book gives the historic figures for public sector net debt. Other people spoke for far too long, so I will not bore the House at this time of night by reading out all the figures. It is clear, however, that in most of the years between 1979 and 1997 when the Conservative party were in government, public sector net debt as a proportion of gross domestic product was higher than it has been for the past eight years under the Chancellor. For most of those 18 years, it was higher than the Chancellor's projections for the next five years.

There is a similar situation regarding Government spending as a proportion of GDP. Table C25 on page 275 gives the historical figures for public sector current expenditure as a percentage of GDP. The highest figure in the past 30 years was 42.7 per cent. in 1982, under the Conservative Government. For most of the 18 years of the Conservative Government, public sector current expenditure as a proportion of GDP was higher, and sometimes considerably higher, than it has been for the past eight years under this Chancellor and this Government. It was also higher than the projections for the next five years. I have not worked the figures out exactly, but as a rough average, public expenditure as a proportion of GDP was 40 per cent under the Conservatives. The average under the present Government is 36.5 per cent. We could have a debate about whether that is too low, and whether we should do even more.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I will not, I am afraid, because I have limited time.

We need to consider whether we should do more for the public sector and public services. The fact is, the economy is stable and strong, and there is spending and investment in the public sector. We are catching up on 18 years of under-investment, yet the Government are spending, and have been spending, less as a proportion of GDP than was spent for most of the 18 years in which the previous Government were in power.

There was a strange exchange when my hon. Friend Mr. Foster asked Mr. Horam who, like many Conservative Members, had been banging on about regulations, which three regulations he would abolish. The hon. Gentleman could not name one, and referred to tax credits. If he wishes to get rid of tax credits, his local party and constituents would be interested to hear about that.

Mr. O'Brien chuntered on about the Chancellor when Mr. Evans was speaking about deregulation and saying that the Budget did too little, too late. However, on 1 December, I asked the shadow Chancellor, Mr. Letwin, for three examples of regulations that he would abolish. I shall not read out his entire reply, but he said

"I can give the hon. Gentleman not three but thousands and thousands of examples. I will send him a very long list."—[Hansard, 1 December 2004; Vol. 428, c. 640.]

I did not receive that list, so I wrote to the right hon. Gentleman on 2 December and also reminded him verbally. I finally received a letter dated 16 December on 29 December, citing three regulations that the shadow Chancellor and his party would abolish—the statutory dispute resolution regulations, the Cattle Identification Regulations 1998 and the Care Homes Regulations 2001, which set national minimum standards, so abolition would dilute standards of protection for older residents.

I have still not received the long list I was promised. Conservative Members may claim, incorrectly, that the Chancellor is a late convert to deregulation, but three months have passed since the shadow Chancellor said that he would send me a long list, despite the fact that I gave him reminders both verbally and in correspondence. Mr. Redwood, the Opposition spokesman on deregulation, has not, as far as I know, produced a deregulation list either inside the Chamber or in any other public forum. Conservative Members should not berate us about regulation, and are simply engaging in rhetoric unless they can produce concrete examples. The shadow Chancellor has been able to produce only three examples in three months, and the hon. Member for Orpington could produce only one, which was hardly what most of us would classify as a regulation.

I should like to finish, because I am conscious that other people wish to speak. However, I have been waiting all day. I want to consider the position that an economy can get into when a right-wing Government take over and promise to cut taxes. That has happened in the United States of America. In January 2001, George W. Bush took over leadership of the United States, which at that time had its soundest economy for decades. In four years, he threw that away. Between 2001 and 2004, US federal tax revenues dropped by $600 billion. I shall not alarm hon. Members with all the figures that I have read in an excellent article in the 7 March issue of MacLean's Magazine, but some of them are frightening for America, and frightening in terms of what could happen in this country if a right-wing Government were elected with an agenda of cutting taxes.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

No, I shall not give way because of time. In any case, I think that the hon. Gentleman hopes to speak.

If we got a right-wing Government that cut taxes and said that they could run things more efficiently, we would risk experiencing the same spiral as that in the States, whereby a budget surplus of $128 billion in 2001 has turned into a deficit of $412 billion this year, and the cost of borrowing and servicing the debt at a federal level is now 8.6 per cent. of the federal budget. On current projections, by 2014 all federal Government revenue will be consumed by four areas of spending: health care for the elderly and the poor; social security for pensioners; defence, and interest on the national debt. Furthermore, on those projections, by 2031, the US Government will not even be able to service the national debt. That shows how such things can quickly spiral out of control when a right-wing Government get in on false promises.

Conservative Members make the false promise that they, in government, would be more efficient. They say that they could run government more efficiently—to the tune of £35 billion less—than the current Government. I shall give them an example of how they cannot even run their party efficiently, let alone the Government. As some hon. Members know, I was born and raised in Wolverhampton. There are only two Marrises in the phone book in Wolverhampton. One is my mother, who lives in a village outside the city, and the other is me. I am the only person of that name in Wolverhampton, and I represent the constituency. Yet I got telephone canvassed by the Conservative party and asked to support it in the general election. A message was left on my answerphone, and I can assure Conservative Members who are present that I am not "doubtful", and that I shall vote Labour in my constituency, where I live.

A month later—again, hon. Members should bear in mind the fact that I am the only registered elector in the whole of Wolverhampton with the surname Marris—I got a letter from the Leader of the Opposition asking me to support the Conservative party in the general election, whenever it might be. That is one example of a political party that aspires to govern and claims that it will to do so more efficiently, yet cannot run itself efficiently enough not to canvass Labour Members of Parliament who, like me—and my right hon. Friend the Paymaster General—have distinctive surnames.

Photo of John Baron John Baron Shadow Minister (Health) 6:38 pm, 16th March 2005

No Budget is all bad or all good, and this Budget is no exception. However, the electorate, especially in Essex, will soon realise that it is a vote now, pay later Budget.

The Budget confirms that tax increases are inevitable should Labour win the next election. Most economic experts, including the International Monetary Fund, the Organisation for Economic Co-operation and Development and the Confederation of British Industry, say that the Prime Minister is spending, wasting and borrowing too much. That makes tax increases even more inevitable.

Even if one ignores the tax increases that are factored in, the burden of taxation is set to rise to 38.5 per cent. of GDP—the highest for 25 years. That is a worrying trend, because it affects our competitiveness. The Chancellor was right to focus on the competitive challenge from countries such as China and India. It is widely accepted that those countries are becoming global powerhouses and will prove a greater competitive threat to us in the years ahead. However, the Government's response, with higher taxes and spending, is the wrong way to face that challenge.

Britain needs lower taxes and less regulation if it is to compete effectively. However, our productivity is being undermined by a Government who continue to raise taxes, and this Budget has done nothing to put that right. It is little wonder that our position in the world competitiveness league table has slipped from something like fourth to 11th in recent years.

We are storing up trouble for ourselves in the years to come, and it is no good the Chancellor comparing our growth rate with that of the eurozone, which is suffering from very sluggish growth rates for a whole host of reasons, including its membership of the euro. The Chancellor should look instead to the better performing economies around the world for a comparison. We shall maintain our economic position and standard of living for our citizens only if we keep up with the best, rather than comparing ourselves with the mediocre.

The tax increases that have been introduced in recent years, which this Budget has done nothing to correct, will also ultimately hinder our ability to help the disadvantaged and vulnerable in the longer term. Despite promises to the contrary, we have had something like 66 tax increases since 1997, and the Government's total tax receipts have increased from about £270 billion in 1997 to about £400 billion last year.

Another way of illustrating that is to look at our tax freedom day. This measures when Britons start working for themselves and stop working for the Treasury. This year, tax freedom day in this country fell on 30 May. In 1964, by contrast, it fell on St. George's day, 23 April. By 1970 it had advanced to 26 May, and it stayed around that date until the latter days of the last Conservative Administration in 1997, when it fell by a few days. Since then, under Labour, it has risen by six days and is set to rise further. The situation in the eurozone is even worse. Average citizens there must work right through to the end of June before they start to work for themselves.

In America, by contrast, tax freedom day this year fell on 11 April, the earliest for 37 years. It should be noted that—contrary to what Rob Marris said—the US has some of the lowest taxes and unemployment rates of all the industrialised countries. Growth there is about 4.5 per cent., while in the eurozone, which has some of the highest levels of unemployment and taxes, growth is about 1.5 per cent. Growth in the eurozone has been consistently lower over the years. Britain is, as we know, somewhere in the middle. These figures confirm to me—and, I hope, to the hon. Gentleman—that there is indeed a link between lower taxes and greater prosperity. The greater our prosperity, the more we shall be able to fund our public services and look after the disadvantaged in our society over the longer term.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Is the hon. Gentleman seriously suggesting that we should emulate the USA economy, with its huge federal deficit spiralling out of control? Is he, in fact, suggesting that we should return to the policies that his Government espoused between 1992 and 1997 when they doubled the national debt? If he is, my constituents would like to know about it.

Photo of John Baron John Baron Shadow Minister (Health)

Not at all. After all, the Chancellor's debt is already big enough; we do not need to add to it. The point that I am making is that there is a causal link between lower taxation and higher growth. Tax freedom day is one way of illustrating that. If we compare what is happening in the eurozone with what is happening in the United States, there is no doubt that growth rates are higher in the US, in large part because taxes there are lower. That link cannot be denied. If we keep increasing taxes, over the longer term we shall stifle our prosperity and our ability to help those who are most in need.

Photo of John Baron John Baron Shadow Minister (Health)

May I make some progress? I shall allow the hon. Gentleman to intervene if I make sufficient progress, but I am conscious that at least one other hon. Member wishes to speak before we finish.

My other concern about the Budget is that the Chancellor is committing himself to ever higher spending on essentially unreformed public services. The fact that they are largely unreformed is a key reason why taxpayers have seen too little benefit for their public services, considering the extent of the increase in spending. For example, recorded crime figures in Essex show that crime in general has risen by about 40 per cent. during the course of the past five years, while violent crime has soared by 150 per cent. Meanwhile, too many parents—certainly in my constituency, and I suspect in others—cannot get their children into their first choice school.

For me, the aspect that perhaps causes most concern is the health service. Despite the hard work and dedication of staff—I accept that there have been some improvements—the performance of the NHS falls well short of what could so easily be achieved if the Government just stepped back, stopped interfering and allowed the medical professionals to get on with the job.

The Department of Health's own figures, for example, show that average waiting times, despite all the money that has been put into the NHS, have lengthened by five days since 1998. The increase is from 90 days to 95. Those figures cannot be disputed, because they are the Department of Health's own.

The problem is not a shortage of money, but the fact that not a lot of the money has reached front-line services. The reason for that is that the Government have bombarded the NHS with hundreds of targets, which not only can and do distort clinical priorities, but soak up a lot of the new money because they need monitoring. Again, it is no coincidence that the Department of Health's own figures show that the number of managers has increased at three times the rate of the number of new doctors and nurses. That is not to deny that we have new doctors and nurses, but that rate of increase for managers is a key reason why a lot of the money does not reach front-line services.

We would replace those targets with a set of clinical guidelines and entitlements drawn up by the National Institute for Clinical Excellence for all conditions. That would ensure that, for the first time, all patients were treated according to their clinical condition, not whether they were on a targeted list of some sort. One advantage of that would be that those suffering from long-term conditions would no longer be considered second-class citizens.

I said at the beginning of my speech that no Budgets are all bad. There are some good elements in this Budget, but too few, I am afraid. One thing that I welcome, as do all Conservative Members, is the additional help for pensioners, although I must concur with my hon. Friend Mr. Evans: given that council tax increases have soaked up at least a third of the state pension increases over the last five or six years, and about 50 per cent. of all pensioners are on a means-tested benefit of some sort, while 1.5 million pensioners are not even claiming the pension credit to which they are entitled, the promised one-off payment of £200 is derisory.

That promise falls well short of our promise to halve the council tax bill up to a maximum of £500 and, perhaps most importantly for pensioners, to re-link the state pension to earnings and break the link with inflation, which, over the longer term, will be far more beneficial to those pensioners than one-offs such as the Chancellor has given today.

The Budget is a missed opportunity to reverse the many tax increases of recent years and ensure that taxpayers' money is wisely spent on our public services. Therefore, it is a missed opportunity for the Government. I certainly believe that taxpayers across the country are increasingly getting irritated by the extent of the tax increases and the fact that they are not seeing enough improvement in their public services for the money that is being spent. I think they will realise very quickly that, because of those frustrations and missed opportunities, this is a vote now, pay later Budget.

Photo of Andrew Tyrie Andrew Tyrie Shadow Paymaster General 6:48 pm, 16th March 2005

On a point of order, Madam Deputy Speaker. I have before me a copy of the Evening Standard, which was bought at midday—well before the Chancellor stood up to make his Budget speech. It contains a large chunk of the Budget, with a large number of measures apparently having been leaked. This is the latest in a long line of discourtesies to the House, but, far worse, it is also a serious breach of Treasury confidentiality before a Budget.

I can only hope that this is unintentional. If it were planned, of course, it would be a very grave matter indeed: a previous Labour Chancellor resigned after he leaked the Budget. Given the apparent seriousness of this matter, are you prepared to allow a Treasury Minister—there are some on the Treasury Bench—to make a statement immediately to say what action will be taken to explain how this happened?

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

Further to that point of order, Madam Deputy Speaker. I have seen the same article in the Evening Standard, and the hon. Gentleman is right that it pre-announced a number of items announced in the Budget that could not possibly have been known to anyone outside the Treasury. That is in the context of an article that claims to have an exclusive interview with the Chancellor of the Exchequer, today, I presume. This is a serious matter, and it has been taken seriously by the House previously when Chancellors have, on occasion, resigned for leaking Budget secrets. Would it be appropriate for you to ask the Leader of the House to make a statement on this issue tomorrow?

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

The matter that has been brought to my attention is obviously one of concern, but I cannot immediately do anything about it. Members of the Treasury Bench are present, it has been brought to their attention, and it will be brought to the attention of Mr. Speaker.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington 6:50 pm, 16th March 2005

May I thank Mr. Baron for the brevity of his speech, which has allowed me to contribute?

The debate has ranged from Confucius to Adam Smith to Karl Marx. It has ranged over China, India and various other areas of the world—

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington

Indeed. The debate has considered the long-term prospects of the global economic system, the environment and a range of other matters. In the limited time that I have, I want to concentrate on the next few weeks.

Today's Budget contains much that is to be welcomed. The statement included commitments to the eradication of poverty, which the Chancellor has taken to the next stage by introducing additional benefits, especially for pensioners, such as the winter fuel allowance and council tax refund, and the welcome development of free bus travel for pensioners.

My concern is that if this Budget is intended to motivate Labour voters to come out and vote for the Government, which I hope that it is and I welcome it in that respect, it does not go far enough. We need to go further to make clear to the traditional supporters of this Government what is needed and what a Labour Government can do to represent their interests. We are faced with an election in which the lowest turnout in the political history of this country is a prospect, and traditional Labour supporters might comprise the largest stay-at-home element. From pensioners to students, to the low-paid, to public sector workers, large sections of Labour's traditional heartland and base have been alienated from the electoral process, such as workers who have lost their pensions as a result of activities under the previous Government. My view is that we need to mobilise those latent Labour supporters before the election, and we should do it with a real Labour Budget.

I therefore want to set out some of the things that we should be doing to build on the Chancellor's stated aims. In expenditure terms, we should raise the state pension to the guaranteed credit level—£105 for a single pensioner and £160 for a couple. We should restore the link with earnings. The total costing for that is £7.3 billion, increasing over the next few years to more than £9 billion.

Because of those people who have lost their pension security, because of the exploitation, I think, of the private pensions industry, and because many employers have mismanaged schemes over the years and taken pension holidays, resulting in schemes that can no longer support the pension promised to those workers, we need to strengthen the financial assistance scheme that the Government introduced, which was a superb measure to which we committed ourselves at the previous election. We now know, however, that the £400 million set aside to protect and compensate those workers is insufficient. On current estimates, if we are to protect workers who have lost their pensions as a result of insolvency, the cost could be in the region of £2.5 billion. In the run-up to the general election, we should make the commitment to cover that cost. We should also promise students that we will abolish tuition fees and restore the maintenance grant—at a cost of what? At a cost of £1.3 billion. The total of that expenditure is £11.1 billion.We could go further in tackling poverty if we increased the minimum wage to the level requested by the TUC—£6.60—which is not exactly extravagant compared with what some of our constituents earn.

We are asked how we will pay for all this. My view is fairly straightforward. We could introduce a package of measures which I think would be popular. First, we could introduce a windfall tax on bank and oil profits. So far this year, the banks have reported global annual profits of £28.6 billion, and estimated annual profits of £19.1 billion subject to UK corporation tax. The oil companies have reported profits of £38.3 billion globally, and £10.6 billion subject to UK corporation tax. A total profit of £29.7 billion has been made this year by banks and oil companies. A windfall tax of, say, £2.5 billion would cover the cost of a one-off cash injection into the financial assistance scheme for pensioners. We could go further, and increase it to cover any future costs resulting from further insolvencies. A new tax band at 50 per cent. for incomes above £100,000 would bring in £5.2 billion, covering the cost of the abolition of tuition fees and the restoration of maintenance grants.

We should also consider where expenditure has been growing. In recent years, there has been a massive increase in defence expenditure. By 2007–08, we shall be spending £7.2 billion more on defence than we did in 2002, in real terms. We are doubling our defence expenditure under this Government. What we need to do now is at least return to the levels of 2002. If we did that, we would save £3.5 billion. Those measures alone would cover the costs of the raising of the pension, the restoring of the pensions link, the one-off cash injection, the abolition of tuition fees and the restoration of the maintenance grant.

I welcome the Chancellor's reforms. I welcome the measures to tackle poverty, especially those targeted at children and pensioners. What we also need, however, is a Budget that motivates Labour supporters and fills them with enthusiasm to vote for the return of a Labour Government. That requires a real Labour Budget, based on tackling poverty and securing peace rather than expenditure on weapons, and benefits that are readily available rather than those which, unfortunately plunge more and more people into means tests and increase the costs of their administration.

Some of today's debate has seemed not to be part of the real world that we inhabit in our constituencies. Over the past seven or eight years, the Government have lifted many families out of poverty. We have tackled unemployment. Many of us remember the early 1990s, when in street after street houses were repossessed because people were in negative equity. In many of our constituencies, unemployment reached 20 or 25 per cent. Poverty was rife. I compliment the Chancellor on the progress that he has made; but there is a long way to go—which, I believe, means focusing our energies on securing peace, investing in tackling poverty among pensioners and investing in our education system. We must remove any disincentive for students to stay on at university, and that means the abolition of tuition fees and the restoration of the maintenance grant.

We need to consider other elements of public expenditure. The money wasted on privatisation proposals means that we are not gaining the best from the money being invested in our public services overall. Debate after debate—on the probation and prison services, the railway industry or whatever—means that we are wasting resources on privatisation rather than direct investment. I therefore urge the Government not to listen to the arguments put forward about Gershon reviews and so on and the cutting of 100,000 civil service jobs, but to recognise that civil servants are delivering our manifesto commitments with dedication and commitment, and that they deserve our support.

Debate adjourned.—[Ms Bridget Prentice.]

Debate to be resumed tomorrow.