Let me begin by drawing attention to my entry in the Register of Members' Interests.

I welcome the Secretary of State for Transport to the debate. My thoughts turned to him this morning as the District line ground to a halt. I thought, "We now have a parliamentary occasion when I can tell the Secretary of State how dreadful it still is." I am sure that he will want to comment.

I welcome the Secretary of State to the debate for another reason. I remember that, years ago, he and I used to debate tax and benefits when he was Secretary of State for Social Security. He may wonder whether the benefits system, the tax system and some of the other issues that we used to debate all those years ago are any different now. I can assure him that absolutely nothing has changed: everything that he used to say, and all the problems with which he was familiar, are still with us. I remember him saying back in 1999:

"I don't want to be remembered as another Secretary of State who tinkered with the system, patched and mended before handing it on to somebody else to do the same."

We have just seen the latest report from the Social Security Advisory Committee, which says:

"Complexity . . . characterises the entire benefits system, and the addition of tax credits, with different rules, merely makes the whole structure more opaque to its customers."

In October 1998 the Secretary of State—the very Secretary of State who is sitting on the Front Bench today—proposed a "fundamental reform" of incapacity benefit. Since then the number of people on incapacity benefit has risen by a further 100,000. In October 1999, the Secretary of State said:

"Incapacity Benefit has strayed from its real role of helping people who have lost their income when they were forced to stop work by illness or disability. It is increasingly being claimed by people who have been unemployed—sometimes for years.

Half the current caseload of IB came onto benefit from unemployment, not from work."

Indeed, the Budget contains proposals to get people off incapacity benefit and into work. I must tell the Secretary of State, however, that since he made that statement in October 1999 the number of new incapacity benefit claimants coming from unemployment has risen from 46 per cent. in 1997–98 to 60 per cent. now. This is yet another problem that the Secretary of State will find—sadly—is, if anything, worse than it was when he left the Department. We now have a scandalous 75 per cent. of young people coming straight from unemployment on to incapacity benefit.

We heard a good deal about pensions in yesterday's Budget statement. I remember the Secretary of State, in July 1998, summoning his full rhetorical powers and saying:

"The time for talking and discussing is coming to an end."

He went on—this is as close to Henry V as he gets—

"We now actually need to implement our programmes".

But what do we have now? What have we had from the Department for Work and Pensions in the past few weeks? "The Principles for Reform: The National Pensions Debate". We have had more debating, more talking, more discussing, six principles, and still no action. The Secretary of State need not worry: everything that he was talking about then still applies today.

It is very good to see the Secretary of State here for this debate. Perhaps the real reason for his presence was revealed in a comment from a Labour strategist in The Times this morning. He is quoted as saying:

"We're putting Alistair Darling up to talk about Tory cuts because he is someone trusted by both sides."

In the old days "both sides" meant both sides of industry, trade unions and management—fortunately those days of conflict are over—or perhaps both sides in the House of Commons. But by "both sides" this Labour strategist meant both sides of the Labour party. That is why we have the Secretary of State here.

Of course, the central fissure or divide between the followers of the Chancellor and the followers of the Prime Minister is at the heart of the flaws that run through this Budget. This Budget is a kind of compromise between the Brownites and the Blairites. The Brownite bit is the eye-boggling detail of it all, and the Blairite bit is the emptiness when it comes to any sense of practical measures to make the world a better place. The Budget is Brownite in its detail, and Blairite in its vacuity. I suppose that that is why the Secretary of State can indeed speak for both sides.

Can my hon. Friend recall, during his parliamentary career, a Budget debate that has started, at any rate, without a single Labour Back Bencher being present in the Chamber? We welcome Mr. O'Neill, who has just arrived, but he is the first to do so.

I am not sure whether that was a point of order, Mr. Speaker. I received a green card from a constituent and went out, but I was here for the opening remarks of Mr. Willetts. The right hon. Gentleman may not have been present then, but that is another matter.

My right hon. Friend has made an important point. The Government Benches do seem strangely depleted. It does not look to me as though there is a passionate endorsement of the Budget there. They seem rather tepid in their willingness to come along and support the Government today.

Let me turn to the central Budget judgment, and begin by recognising a point that the Chancellor has made over and over again. The Chancellor's forecasts for economic growth have indeed turned out to be much more accurate than those of outside City forecasters. The Treasury's forecasts of economic growth in the economy have indeed been more accurate than many of the external forecasts. The Treasury says that, because of the performance of the British economy, it is operating close to capacity and growing at about its trend rate. Let us accept that. Let us accept that the Chancellor's forecasts for economic growth have proved more accurate than those of many outsiders.

The question that that raises is: if the Chancellor's economic growth forecasts have done so well, why do we have a budget deficit that, in the latest estimates, is put at £34 billion? The great paradox at the heart of the Budget is that, despite the Chancellor's accuracy in forecasting the growth rate of the economy, he has been hopeless at predicting the size of the deficit in the public finances. The budget deficit deteriorates year after year even as his growth forecasts come in on target.

It is illuminating to look at what has happened to the Chancellor's forecasts for Government borrowing in 2004–05, the financial year that is just coming to an end. In the 2001 Budget, he forecast that, this year, the budget deficit would be £11 billion. In the 2002 Budget, it was forecast to be £13 billion. By the 2003 Budget, the Chancellor's estimate of the financial deficit in 2004–05 rose to £24 billion. In the 2004 Budget, the deterioration carried on and the deficit was up to £33 billion. The latest figure in yesterday's Budget is that public sector borrowing in the year coming to an end is £34.4 billion.

That gets to the heart of our challenge to the Chancellor and his Treasury team about the way they have managed the public finances despite achieving—[Interruption.] I welcome the Chancellor to this debate. It is good to see him. He has decided to endorse his own Budget. He missed me congratulating the Treasury on the fact that its economic forecasts for growth had proved to be more accurate than those of the City, but reminding the House that, even while the growth forecasts were being proved correct, the budget deficit year after year was deteriorating. Therefore, this is a Chancellor who is losing control of the public finances. The fact that we are running such a large deficit when, as he always reminds us, we have enjoyed many successive quarters of growth, is the central problem facing the management of the economy and the public finances.

It is not just the Conservative party that is saying that. It is what all outside experts are warning, too. The International Monetary Fund said earlier this month that

"steps are now needed to accelerate the pace of fiscal consolidation to meet the government's budgetary objectives over the course of the next economic cycle".

When the IMF talks about fiscal consolidation, we know what it means: there will have to be either public expenditure cuts or tax increases. The Institute for Fiscal Studies put out a press release today saying that

"to continue to meet the rule"— that is, the golden rule—

"with as much confidence as the last Budget—would require him"— the Chancellor—

"to raise taxes or cut spending by £11bn a year during the next economic cycle which the Treasury believes will begin in April 2006."

That is the central question: why is it that the Chancellor is endlessly caught out with his budget deficit forecasts despite predicting accurately the growth of the economy?

The Chancellor says that he does not need to raise taxes but, if we look at the Red Book, it is clear that the Chancellor and the Treasury team are expecting to raise taxes. All we have to do is turn to page 254 of the Red Book. When the Chancellor publishes the Red Book, a good guide is to start at the back—the interesting stuff is all at the back. The first 100 pages do not really say anything; between pages 100 and 200 he is warming up, but some of the tables at the back are quite informative.

Tables C9 and C10 on page 254 show that the Chancellor is expecting his receipts from tax and national insurance contributions to rise from 36.3 per cent. of GDP in the current year to 38.5 per cent. by 2008–09. The Chancellor is expecting his revenues to grow by more than 2 per cent. of the entire national income within five years. He is, of course, expecting an incredible rate of growth in his tax revenues but he thinks that he can achieve that without putting up tax rates. He thinks that that is achieved by some extraordinary process of levitation in which he just collects more and more revenues. It is not so much new Labour as the Natural Law party when it comes to managing the public finances. No one believes that the sort of increases in tax revenues that he shows in his Red Book can be achieved without his having to raise taxes.

What we would like to hear from the Chancellor, even if he will not accept that, is an answer to the following question. He likes talking about prudence, although we notice that there was a little less about it in the Budget yesterday. If he believes in prudence and contingency planning, just assume that he found that that miraculous 2 per cent. of GDP surge in tax receipts was not coming through. Many people outside are sceptical. What would he do then? What would be his response to the failure of tax revenues to match his forecasts? Would he raise tax rates? Would he cut public expenditure? If he believes in maintaining long-term confidence and stability, he has to show what he would do if those extraordinarily optimistic forecasts for tax revenues did not come to pass.

We have very clear plans about what should happen to the path of public expenditure. At the moment, public expenditure in 2005–06 is forecast to be £520 billion. The Chancellor plans to increase that by £180 billion by 2011–12. We plan to increase it by £145 billion by 2011–12, so underneath all the hysterical allegations about all teachers and nurses being sacked, which is complete rubbish, what we are talking about is that, whereas for him public expenditure in cash terms grows by 5 per cent. of GDP, under us it grows by 4 per cent.

Will the hon. Gentleman confirm, since there seems to be some confusion on the part of some of his other colleagues who are not here, that the difference between the two spending plans by 2011 would be £35 billion?

We are talking about growth that is £180 billion under the Chancellor and £145 billion under us, and the debate is entirely about how rapidly public expenditure should grow. That is indeed the difference between us.

I wonder why the hon. Gentleman cannot use the figure £35 billion, because I think that that is actually the difference. Will he confirm that the difference is £35 billion, as the shadow Chancellor has said?

The growth that the Chancellor plans in public expenditure is £35 billion higher than the growth that we plan in public expenditure. There is a difference because he is planning to increase it by £180 billion and we are planning to increase it by £145 billion. The difference between those two sums is indeed £35 billion.

At long last. It is like pulling teeth. Does the hon. Gentleman also agree with the analysis provided by the shadow Chancellor on Sunday morning's "Breakfast with Frost"? As he described it, the difference was vast.

The difference is the difference between a growth rate of 5 per cent. under Labour and of 4 per cent. under us. The difference is that under us public expenditure will grow by £145 billion and under Labour's plans it will grow by £180 billion, so there is a very substantial increase in public expenditure under us, but it is not as enormous as the growth of public expenditure under the Chancellor.

The plans were set out clearly last year, but we have observed with some fascination that the Government have made heavy weather of working out what they are. On 9 November, we had a Labour denunciation of a Conservative plan for an immediate £20 billion cut in spending on vital public services. By 1 December, the Chancellor was saying:

"If a Conservative Administration were in power tomorrow, they would be looking for a total of £70 billion of efficiency savings."—[Hansard, 1 December 2004; Vol. 428, c. 654.]

By 2 December, the Labour party website was announcing that it would be publishing analysis showing that the Tories were planning cuts of "a massive £50 billion." By 16 December, it was down to £35 billion. They have changed their rebuttal of our spending plans so often, one wonders whether the exercise was managed by the Chancellor of the Duchy of Lancaster. There is a gap of £35 billion between the increases that we plan in public spending by 2011–12 and those planned by the Government.

The hon. Gentleman referred to the plans that were published by the shadow Chancellor last November. Will he confirm that apart from health and education those plans also included a cash freeze in all other departmental expenditure?

No, they did not include a cash freeze in every other Department. Those were not the plans, although it is true that we have fully protected health and education. The right hon. Gentleman is welcome to intervene again on this point, but we have observed three different things that the Government say about our economic plans. They cannot all be true. One thing they say is that there is no black hole in their public finances; there is no problem and no deficit to be plugged. The second is that the Conservatives are going to deliver horrifying reductions in public expenditure. The third is that the Conservatives are not going to cut taxes. Not all three can be true, and they have to decide what they are accusing us of. If the Secretary of State would like to illuminate us about the central critique, we would find that very helpful.

I will expand on those matters at some length later, but I am looking at the announcement made by the shadow Chancellor in the autumn when he said that there would be zero per cent. growth in the first two years followed by 2 per cent growth for the remaining years for the period covered by the strategy. That sounds to me like a cash freeze. Does the hon. Gentleman agree with the shadow Chancellor?

The shadow Chancellor was referring to the envelope within which total public expenditure outside of health and education would be managed. It was not a Department by Department cash freeze. That was never intended—

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If I can just finish my sentence, I will give way to the Jack-in-the-box opposite. We never intended it to be Department by Department—we were referring to the envelope within which public spending would be made.

I am most grateful to the hon. Gentleman; I think that we are making progress. For the sake of completeness, I should quote the entire paragraph. The shadow Chancellor said:

"I have agreed with my shadow Cabinet colleagues that the baseline for spending across all of these departmental budgets— outside the NHS and schools budgets— will be 0 per cent growth for the first two years."

To me, zero per cent. sounds something like a freeze.

My right hon. Friend did not mean that. He meant the total, and not Department by Department. That is the difference between us. He was referring to the totality within which public expenditure is found.

I agree with the Secretary of State that we are indeed making progress. We are planning increases in public expenditure; he is planning even greater increases. By 2011, the gap between the two will be £35 billion. We are planning increases of £145 billion and he is planning increases of £180 billion. He cannot maintain that this is equivalent to the end of civilisation as we know it, as he is trying to imply.

Let me turn to the specific decisions of the Budget, on which I wish to ask some questions. If the Secretary of State cannot respond to those specific questions immediately, perhaps the Paymaster General will do so when she winds up.

On saving, there was an extraordinary moment when the Chancellor boasted that the household savings ratio is now 5.6 per cent., four times that of the United States of America and Canada. Despite his taste for long historical sweeps when it comes to economic statistics—we have heard about the 50 quarters of growth and about growth since 1701—he did not say that he is expecting the longest period of low saving that Britain has seen for at least 45 years. He expects the savings ratio to stay below 6 per cent. from 2004 until 2007. As always with these statistics, they are at the back; it is on page 232. We have never previously had a period in which the savings ratio has been below 6 per cent. for more than two years back to back. We are heading for a low-saving society, but a society that will depend on high levels of welfare.

The reasons why we are saving so little are complicated, but we would be grateful if Treasury Ministers explained in detail the announcement in Inland Revenue press release 21 yesterday, which has caused considerable concern among life insurance companies, and appeared to confirm that the Treasury will be imposing a corporation tax rate on all the with-profits funds run by life insurance companies. It would be helpful if Treasury Ministers explained that.

We would like to hear more from Ministers about what is happening to rates of employment. We have young people still suffering high rates of economic inactivity. When the Government came to office there were 1.082 million young people neither working nor studying nor training—a scandalous figure. The latest figures, out this week, show that the figure is now 1.108 million. The number of young people neither working nor studying nor training is higher than it was when Labour came to office. That is simply not good enough, and we would like to hear what Ministers are doing about it.

As always with this Government, they have set a target— an "ambitious target", as they describe it—of an employment rate of 80 per cent. It is indeed ambitious. The Secretary of State for Work and Pensions said the other day that their aspiration was to increase the 75 per cent. employment rate to a record 80 per cent. The only trouble is that the Government have not decided how they will measure the target, as they say that they need to consider whether the current definition of the employment rate will remain the most appropriate for the future. Some employment rate will be at 80 per cent., but they do not know which one. Perhaps the Secretary of State could explain that to us.

We heard a lot about pensioners in the Budget. Despite the Chancellor's so-called assistance for pensioners with their council tax, we see on page 186 that that is financed for only one year. There is £800 million of expenditure in 2005–06, with nothing in subsequent years. We will have the extraordinary position of pensioners seeing their benefit incomes falling in 2006–07 compared with 2005–06. I should be grateful if the Secretary of State or the Chancellor confirmed the following figures. In 2005–06, pensioners under 80 will have a winter fuel payment of £200 and a council tax refund of £200, adding up to £400 in 2005–06, which may just be an election year. In 2006–07, there is a winter fuel payment of £150, not £200, and a council tax refund of nothing. That adds up to £150 in 2006–07 as against £400 in 2005–06. If I may say so, that amounts to a £250 cut in the annual income of pensioners, which is equal to a fall of £5 per week. Is that what the Chancellor is proposing—a fall in benefits for pensioners of £5 per week in the year after the election? On what basis—

What of Tory cuts?

Let me make it absolutely clear in response to that sedentary remark that we are not proposing to take away from pensioners the winter fuel payment or what was announced on council tax. We endorse those policies, but we will in addition increase the value of the basic state pension and help pensioners with their council tax bills. Our proposals will stick with pensioners year after year.

The hon. Gentleman is telling us that he hopes to do more for pensioners, so let me come back to the shadow Chancellor's fascinating speech. The next paragraph is as revealing as the previous one that I mentioned. He said:

"I fully accept that holding programme spending within departmental expenditure limits other than the NHS and schools to a zero increase for the first two years and to what amounts to a zero real terms increase thereafter is a tough constraint."

How, then, is the hon. Gentleman going to do all that he says he will under those "tough constraints"? His difficulty is that he does not have the money to do what he wants to do, and what the shadow Chancellor said rather bears that out.

We have set out clearly how we will finance our pension proposals, and I am happy to debate them with Ministers. We have said that we will abolish the new deal for young people and other new deal programmes, which we believe are ineffective. That is why I pointed out that the number of young people who are not studying, working or training is higher than when Labour came to office in 1997. The new deal is not working, and the Government are failing to make any progress on bringing down unemployment.

I shall refer to Labour Market Trends of December 2004 and quote the statisticians from the Office for National Statistics, who argued that

"while employment levels have generally been increasing over the past four years, the rate of increase has been no more than in line with population growth, leaving the trend in the employment rate largely flat since 2000, following stronger growth through much of the 1990s".

For all the huffing and puffing, all the welfare to work schemes, tough work-focused interviews and changes to the welfare system, all we have had in the past five years is an increase in employment growth essentially in line with trend. That is all that the Government have been able to achieve. We believe that we can do better by introducing programmes that are much more effective than the new deal.

Is my hon. Friend aware of Blair's forgotten millions? There are 1.1 million 16 to 24-year-olds who are neither in full-time education nor in work. Is not that a shocking waste of the energy and talent of some of the youngsters in this country?

My hon. Friend is quite right. We now have one of the most extraordinary pieces of evidence about how serious the problem is: there are now more young people under 25 on incapacity benefit than on the new deal. Sadly, the figures went up yet again in yesterday's statistics, and there are now more than 160,000 young people under 25 on incapacity benefit—an increase of more than 50 per cent. since 1997. We know what has happened: many of these people are now moving off the new deal on to incapacity benefit, so the new deal has become a revolving door to being on benefits, not off them.

I want to question Treasury Ministers on what they say about tax credits. Once again, we need to look at the small print in order to establish the reality of what is being proposed. Page 193 of the Red Book reveals that the family element of the child tax credit is frozen for a further year at £535. That means no increase in the support that most families get from the tax credit system. The increase is in the child element of the child tax credit, which is means-tested, so the majority of families will not be helped. Will the Chancellor confirm, despite what he said yesterday, that of the 4.25 million families receiving child tax credit, about a half—more than 2 million—will receive only the family element and therefore no assistance? The Chancellor is putting his money into complicated means tests, not into the general payment.

The Chancellor sets great store by the child tax credit, but I hope that we will hear from the Minister who is responsible for the system something about what is really going on with tax credits. [Interruption.] Many families have found themselves in financial distress, after being chased—[Interruption.]

Order. Let me make it clear to Government Front Benchers that if they want to intervene, they should stand up and do so in the customary way. The continual chuntering is not helpful.

I would welcome the Chancellor telling us about the child tax credit. I believe that its implementation is one of the main causes of financial distress to many families in our country.

Is the hon. Gentleman for or against the tax credits?

We are not proposing to abolish the child tax credit, but we have a sensible proposal to tackle the problem. First, I would like to describe the problem briefly, and then I will tell the Chancellor and the Secretary of State how we propose to tackle it. The problem is that many families now find themselves in great financial distress because of the way in which the Inland Revenue first overpaid tax credits and subsequently tried to recover them. That is the problem, and if the Chancellor were at all concerned about the reality of the lives of many British families, he would do something about it.

I received on my desk only this week a report by One Parent Families on the new tax credit system. Let me quote the foreword by the chief executive of that organisation, who argued that the

"delivery of the new tax credits has been problematic. Not only the well-publicised early computer difficulties, but also ongoing difficulties with the administration of a complex system mean that many one-parent families have experienced problems with their tax credit award—28 per cent. of those in our study had experienced an overpayment. These problems risk frustrating the original aims of the tax credit system. Our research found that more than three-quarters of respondents repaying overpayments experienced financial difficulties as a result of reduced tax credit awards."

For most of us in our surgeries over the past few weeks, one of the top five problems has been families who were overpaid tax credits, often through no fault of their own, now facing rates of recovery that have become one of the biggest financial problems that they face. That is the reality of life for many families—

indicated dissent.

It is no good the Paymaster General shaking her head. That is what those families experienced. I do not understand why she continues to shake her head—[Interruption.] It is the practical experience of many families.

I am interested in the hon. Gentleman's comments about surgeries. My impression is that Havant is a fairly prosperous part of England, whereas I represent one of the disadvantaged parts of Scotland. There are about 6,000 families in receipt of child tax credit there, and I have to say that I receive very few complaints nowadays, so perhaps Labour seats are treated more favourably than Tory seats. I wonder how many families and people in his constituency are in receipt of tax credits and how many of them have faced difficulties.

I do not particularly want to get into a competition with the hon. Gentleman over poverty and incomes in our constituencies. However, my constituency has an income below the national average, and my constituents' earnings are significantly below the national average. I tackle many social problems in my constituency, and I am speaking from direct personal experience. Sadly, there are high rates of pensioner dependency on pension credit and of family dependency on child tax credit. I know of many cases in my constituency where families have problems with their tax credits and have to manage on very low incomes. I am referring to their experiences, and I know that many of my hon. Friends—and, I suspect, Labour Members—have had similar problems. A lone parent came to my surgery the other week who had just £5 to help her and her child through the weekend. They had to manage on bread and milk because the tax credit payments had already been stopped. Those are the experiences that many families face.

Of course, the Inland Revenue statistics are scandalously inadequate—I hope that the Paymaster General will tell us a little bit about what is going on—but the reality is that the tax credits are not working. Surely all hon. Members on both sides of the House can accept that, because it is what the Citizens Advice Bureau has written to me about this week, it is what the report is about and it is what the Child Poverty Action Group talks about.

The problem is that overpayments were often made as a result of mistakes by the Inland Revenue, which the families questioned at the time. They were told, "No, you can pocket the money. Don't worry, it is accurate," and the Inland Revenue suddenly come along, six or nine months later, and say, "We are now going to take all this money off you." So a family that is struggling to make ends meet may well find that its income falls very dramatically.

We have a practical proposal, which has been put by other organisations, too, and it does not involve abolishing the child tax credit: we say there should be an amnesty on overpayments in the last financial year. We think that trying to do that adjustment after the financial year is a classic design of the Chancellor. What has happened is his fault; his design is the source of these problems and it is ironic—as he is sincere about wishing to tackle child poverty—that it is his attempt to use the annualised systems of paying child tax credits that has itself become one of the main sources of child poverty today.

The solution is an amnesty on year 1—to write off the situation in year 1—and at least try to make the system work from now on. Otherwise, there is a danger that the system could spiral into a Child Support Agency-type disaster. That is a practical proposal; it would help to make the system work; it is what many outside bodies have called for; and I am happy to have this opportunity to press it on those on the Treasury Bench yet again today. I hope that eventually they will see sense and do something about it, because otherwise they will find it very hard to make the system work. We look forward to tackling the problem.

The Budget, despite all the rhetoric, involves tiny changes in the benefits system for one year, which will not be sustained—it is vote now and pay later. What the Chancellor is offering is taxing oil companies to make a one-off payment for pensioners, after which their incomes will fall by £5 a week, as he takes away the benefits that he announced with such a flourish.

We Conservatives have sustained proposals that will increase pensioners' incomes. We are going to help them by cutting their council tax bills; we are going to boost their pensions and help families by offering them an amnesty from the tax credit mess in which the Chancellor has trapped all too many of them. That is why we oppose the Budget judgment.

I, too, welcome the opportunity to return to old pastures. It is some years since I last debated across the Floor of the House with Mr. Willetts. Some of the things he referred to bring back happy memories. In the olden days, it might have been thought that the shadow Chancellor would open the Budget debate on behalf of the Opposition—that is certainly what used to happen—but, during the last election, I recall that when it became clear from a leak to the Financial Times that the shadow Chancellor, Mr. Letwin wanted to cut £16 billion off public expenditure, he disappeared for virtually the rest of the election campaign.

Will the Secretary of State give way?

I certainly will in a moment.

Obviously, the shadow Chancellor now advocates cuts worth £35 billion, but it is like pulling teeth to get any Conservative Front-Bench spokesman to confirm that. Perhaps the hon. Member for Havant is aware that, throughout London today, it is difficult to find any Conservative Front-Bench spokesman who can bring himself to admit that their policy is to cut £35 billion from public spending. That is probably why the shadow Chancellor has vanished and is not here today.

Will the Secretary of State give way?

I promised to give way to the right hon. Gentleman, and I will. None the less, I shall then very happily debate with the hon. Member for Havant, not least because he raises a number of matters from our past that I would certainly like to touch on before turning to the Budget debate generally.

Does the Secretary of State recollect how Budget debates have changed? The convention used to be that the Chancellor would respond to the points made in the Budget debate. The only Chancellor, certainly in my experience, who has not done that is the current Chancellor, who is not that good at engaging in debate—what he likes to do is come here and roar; responding to the debate is not his strong point.

My recollection is that the right hon. Gentleman was one of the many Conservative Members who shadowed my right hon. Friend the Chancellor, and I seem to remember that his predictions were wrong on each and every occasion that he made them. My right hon. Friend the Chancellor has just said to me how much he recalls and relishes those days, when he used to debate with the right hon. Gentleman. In fact, I seem to recall that the right hon. Gentleman predicted a recession—a recession that never came—although he now says that he did not do so. My right hon. Friend is happy to debate such matters with anyone. What is more important is that his record bears very close examination, compared with the predictions made by the Conservative party, including those made by the right hon. Gentleman.

The Secretary of State says that the Chancellor is keen to debate, but, as I say, every Chancellor before him used to respond to the Budget debate—this Chancellor has never done so. As we know, he never really wanted to be Chancellor; he regarded the job as a waiting room for becoming Prime Minister. Just for the sake of pure historical accuracy, I never predicted a recession; I predicted a downturn, which took place, and a manufacturing recession, which also took place.

My recollection is that the right hon. Gentleman was one of a number of Conservatives who kept going on about recessions made in Downing street—recessions that never materialised.

rose—

I will give way again later, but there is a difference between a debate and a conversation. I know that the Government are in favour of big conversations and I promise the right hon. Gentleman that I will let him intervene again, but I wish to make the point that the hon. Member for Havant, who opened the debate on behalf of the Conservatives, was good enough right at the start to commend the Chancellor for being right on so many of his predictions. We much appreciate that acknowledgement.

The hon. Member for Havant mentions pensions, but I recall from our last meeting that he was passionately opposed to restoring the earnings link. In particular, I remember him saying on television:

"I know how many campaigning pensioners would like to see the earnings link restored . . . it is not affordable and it would not be well targeted."

In reply to a point made by our absent friend Mr. Webb in a debate in the House on 8 June 2000, the hon. Gentleman said that restoring the earnings link was

"a wild and uncosted policy".—[Hansard, 8 June 2000; Vol. 351, c. 440.]

I was somewhat surprised therefore to read a few months ago that he now thinks that it is a jolly good idea to restore the earnings link—but only for four years because he knows that he would not have the money to sustain such a policy after that time.

I also remember the time when the hon. Gentleman said that he wanted to abolish the winter fuel payment and was met by universal opposition, not least from Conservative Back Benchers. Moreover, when they started to look at his pension policy, he had to do a rapid U-turn and change things. His pensions policy has not worked, but it is great pity in relation to his proposals on the new deal that he does not recognise—although he has studied such things and he is generally pretty fair- minded—that the new deal has helped more than 1 million into work. On any view, unemployment is a fraction of what it was 10 or 20 years ago. Youth unemployment, to which he referred, is down as well. We have only to go around our constituencies to see the difference, which is shown by not just statistics, but the evidence. We can see in every constituency that unemployment has fallen.

To listen to the hon. Gentleman, we might think that we were living in a time of mass unemployment. In fact, 2 million more jobs have been created in the past eight years, despite the Leader of the Opposition's predictions about the minimum wage. The hon. Gentleman proposes to get rid of the new deal now, but it would be a tragedy if the new deal were scrapped at the very time when, yes, some people are still finding it difficult to get into the labour market—for example, people on incapacity benefit. My right hon. Friend the Secretary of State for Work and Pensions has made proposals to remedy such problems.

The hon. Gentleman proposes the Australian model, as I understand it, whereby the process of getting people into work is largely privatised. I have visited Australia—no doubt he has done so, too—and I would say two things about that model: first, it is not cost-free, because there is still a cost to the state, even if someone else is paid to put people into work; and, secondly, that model has not been as successful as ours in getting people into work. If we go were to back to higher unemployment, it would inevitably involve higher benefit payments. I remind him that one of the most telling things that my right hon. Friend the Chancellor said yesterday is that, 10 years ago, 75 per cent. of all new expenditure went on servicing debt or social security—the bills of failure—but the position today is completely the opposite. Getting rid of the new deal, which one of the hon. Gentleman's fellow Front-Bench spokesman described as being painful—so much for cuts not making a difference—would be a tragedy for many people in this country.

On winter fuel payments, does my right hon. Friend recall, as I do, the years when we campaigned for the wind chill factor to be taken into account? Pensioners had to freeze in their homes for days on end just to get £10, which, in fact, they very rarely got. The Tories said that they would not put VAT on fuel, and then did so. Does he agree that pensioners will not trust the Tories to keep their promise to retain winter heating payments?

My hon. Friend is right. I remember in the previous Parliament that the hon. Member for Havant announced a plan to get rid of concessions such as the winter fuel payments and free television licences, which he said were bitty and inappropriate. He had an alternative, but he had to abandon it because his colleagues thought that it would be unpopular. He said that restoring the earnings link was "not affordable" and that it would not be "well targeted", but he has performed a complete U-turn and now accepts the policy. It is possibly no wonder that he has been taken off the case when it comes to writing the Tory party manifesto, but that change of heart is curious, to say the least.

The hon. Member for Havant is also strongly against the state second pension, introduced when I made the reforms to which he referred. It has benefited 18 million people, most of them women and people with broken work records such as carers, but he wants to scrap it. If that happened, 18 million people would be worse off.

First, I want to confirm that we have no plans to change winter fuel payments, which will continue. The Government intend to reduce the amount in 2005–06 and 2006–07, but we propose no changes to the regime. Secondly, I want to help the Secretary of State in respect of our policy on the basic pension and the pension credit. What has changed as a result of Government policy is that pension credit means that we now have the mass means-testing of pensioners. As the basic state pension rises in value, fewer pensioners will need to claim the pension credit. Therefore, the case for an increase in the basic state pension is much stronger when so many pensioners are trapped in means-testing. We propose a practical way of tackling a problem faced by many pensioners today.

The hon. Gentleman knows about these things, so he must be aware that we have spent about £10 billion more in pension provision, nearly half of which has gone to the poorest third of pensioners. I am pretty sure that he agreed some years ago that helping pensioners on low incomes and getting them out of poverty meant that more money must be targeted at them. An across-the-board, earnings-linked increase does not help pensioners at the lower end of the income scale. That is why we introduced the pension credit, which has helped to lift pensioners out of poverty.

The Conservatives are entitled to say that that is the wrong policy, but there is no doubt that the pension credit helps something like 3 million pensioners now, and that many of them receive as much as £40 a week extra as a result of all of the things that we are doing. That must be right, given that one of the Government's policy objectives is to get pensioners out of poverty.

We too are keen to help pensioners who are entitled to the pension credit but who do not claim it. We estimate that there are more than 1,000 such pensioners in the Secretary of State's constituency who would be helped by our policy.

The right hon. Gentleman talks about means-testing versus universality. That is a real debate: we have discussed the matter many times in the past and no doubt will do so again. However, the Government have announced a variety of special payments, such as the council tax rebate, which are not means-tested. Those payments are universal, so it is very odd for him to denounce us for a policy that helps all pensioners.

It has always been the Government's policy to have a mix when it comes to payments to pensioners. Some, like the winter fuel payment, are universal: some, like the minimum income guarantee, are more targeted; and others, like the pension credit, are designed to help pensioners with modest savings. The hon. Gentleman has referred to administrative problems, but he has given the House the distinct impression that he is against tax credits of any kind. Over the past eight years, I have never heard a Conservative Member speak with any enthusiasm about the extra help offered by tax credits to families, to people going into work and thus moving off benefit, or to pensioners. Whenever Conservative Members talk about this matter, one's distinct impression is that something will have to give when it comes to the tough and painful decisions that must be taken to secure £35 billion in savings, and it is just possible that that something could be the tax credits.

On that point, would the Secretary of State advise people on low incomes to save through a stakeholder pension, given that any benefits from that pension would be lost as a result of the extensive means-testing that pervades the system?

That is not right. I advise anyone who can save to do so, but the pension credit was designed specifically to change the crazy benefits system that we inherited. Under that system, after a certain point people found that every pound that they earned was docked from their benefit. The right hon. Gentleman's analysis would be correct were it applied to the old social security system. The pension credit was designed to ensure that people knew that they would get a reward for saving. Many people in receipt of the pension credit accept that it has made a big difference. Whatever else the Tories do, I hope that they do not go back to the old-fashioned means test, which trapped people in a way that was grossly unfair and very bad for the long-term interests of the country.

Does my right hon. Friend agree that the Opposition have not said how much it will cost pensioners to take out insurance policies to pay for their NHS operations? That would be a huge burden, and pensioners who could not afford such policies would end up at the bottom of future waiting lists.

Again, my hon. Friend is absolutely right. It is interesting that, whenever one confronts Conservative Members with their party's policies, they emit howls of protest. Yesterday, my right hon. Friend the Chancellor mentioned in passing that the Conservatives propose to make £35 billion in cuts. Their reaction suggested that the Government were making that claim, whereas it is what the shadow Chancellor has promised.

My hon. Friend Mr. Henderson refers to Conservative plans to pay half the cost of an NHS operation when a person goes private, but that is not the same as half the cost charged by BUPA, for example. The Opposition's policy would take more than £1 billion out of the health service, but my hon. Friend will have noticed the reaction among Conservative Members when he mentioned that. It was not justified outrage so much as worry that they had been found out. Over the next few weeks, I expect that we will be talking about Conservative policies—the £35 billion in cuts, for instance, or their plans for private health—in every constituency in the country. No doubt, the Opposition will want to justify what they propose.

What about transport?

I shall be very happy to talk about transport, and to point out to pensioners the new free travel provisions announced yesterday, which I think that they will greatly appreciate. I shall also make the fundamental point that we must take the shadow Chancellor at his word and that a cash freeze will be imposed on all Departments, apart from the two that he mentioned. As a result, transport will be one of the victims, because the one thing that it does not need is an expenditure cut.

Does my right hon. Friend agree that people will be very sceptical about the Opposition's claim to provide a better deal for pensioners and transport, for example, given that both sectors were in decline for 18 years? Does he agree also that people will compare our package for pensioners since 1997 with what happened under the previous Conservative Government?

Yes, and that brings me neatly to my next point: people have to make a choice and a judgment in this matter. They can look at what happened in the 18 years up to 1997, or they can consider what has happened in the past eight years. As far as the economy is concerned, I am sure that people remember very well the very high interest rates and mortgage rates that characterised those 18 years, as well as the repossessions and the huge levels of debt. The hon. Member for Havant said that my right hon. Friend the Chancellor's predictions had been wrong, but people will recall that they have been right. His critics have been wrong, year after year.

The Conservatives talk about borrowing. There are two points to make. As my right hon. Friend the Chancellor said yesterday, borrowing is set to reduce. When we compare the amount of borrowing in this country with the borrowing in our competitor countries, our record is very good because we have far less of it. Conservative Members might want to reflect on the fact that 10 years ago—it is curious that none of them mentioned this—their equivalent borrowing was £90 billion. [Interruption.] Mr. Goodman mutters, but people are entitled to reach a judgment as to whose stewardship of the economy would be better for them. They will choose between a Government who have had eight years of stability and 50 quarters of growth, and who have increased investment in public services, and the Conservative party, whose entire economic policy collapsed in ruins in 1992. Again, I remind the House that when the Conservatives were in power, 75 per cent. of all new expenditure went on debt and the cost of unemployment. Not much more needs to be said about their record.

The Chancellor set out our Budget choice, which is to lock in stability—not to put it at risk—and strike the right balance between affordable tax cuts and the essential long-term investment that this country needs. As our economy is strong and continues to grow, he could do more to help hard-working families and pensioners. At the same time, in response to the huge challenges we face, in common with other countries, from the developing economies in China and elsewhere, he has provided additional investment in education, skills and science.

That is our choice and what we are laying before the country. There is another choice, of course, which is to repeat the mistakes made by past Conservative Governments—the same mistakes that the Opposition propose today. Far from investing, they have promised—this is not a claim—to cut £35 billion over the next six years. Worse than that, they have promised to spend money they have not got and to give tax cuts they cannot afford. Inevitably, that would lead to more spending cuts, increased borrowing and higher interest and mortgage rates. That is the indictment against them. They would undermine the stability that we have built up over the past eight years that is enabling us to help people while investing in education and infrastructure, which we need for the future of this country.

The contrast between the two parties has never been so great. We have given more help for pensioners. To listen to the hon. Member for Havant talk, people would think that we had done nothing for pensioners. We have increased the money that is going to them. In 1997, I think they got £69 a week. By 2007, that will be £119, which is in addition to the winter fuel payment and other payments. Equally, we are giving money to families who need support. Again, the Chancellor set out clearly how, with the money available, he could do more through the tax credit system to raise the effective rate of income tax for many low-income or middle-income families, which must be in their interests as well as the interests of people in the country as a whole.

Will the Secretary of State confirm that the winter fuel payment will be £200 in 2005–06 and £150 in 2006–07, and that the council tax payment is £200 in 2005–06 and zero in 2006–07? Are those the Government's figures and plans?

The hon. Gentleman well knows that announcements on the winter fuel payment and council tax benefit are made annually, as, indeed, are announcements on many payments. In contrast to what the Conservatives say, it is pretty clear that we have a long record of giving additional help to pensioners. We have made clear our position on the winter fuel payment and on help with council tax. The Tory party's policy and record is poor on such things. He promises to restore the earnings link for just four years. Then it stops. What happens after that? Perhaps he does not know, but if he can tell me, I will share that knowledge with the country.

The right hon. Gentleman has set out plans that show a payment on council tax for only 2005–06, after which the figures for subsequent years are zero, zero. The help does not carry on beyond the first year. We have proposed an increase in the pension linked to earnings, not prices, throughout the lifetime of the next Parliament. Provided that we can carry on identifying savings, we will keep on increasing the basic pension by the rate of increase in earnings.

That brings us to the heart of the matter. The Conservatives have promised money to some pensioners—not all—who are paying the council tax, but they cannot afford to do that because they do not have the money to finance the tax cut. They are promising to produce the money immediately after an election, when they could not possibly have identified any savings. In any event, as we have shown, the savings that they have identified in the James report do not stand up. Some £21 billion—two thirds—of them are already banked and spent elsewhere. One measure, which relates to my Department, is to privatise the theory part of the driving test, but the Conservatives actually privatised that in 1996. They cannot privatise it twice.

Does my right hon. Friend agree that it is hard to believe that the Conservatives will restore the link, because they decided to do away with it? They kept it for, I think, four years and then scrapped it. Any pledge that they make for four years is likely to be scrapped and pensioners would be worse off. Will he also address the problem of the poorest and oldest pensioners—something that the Conservatives have not mentioned in anything that I have seen? As I understand it, the Tory plans would plunge the oldest and poorest pensioners into poverty again.

My hon. Friend makes two points. The announcement yesterday of our proposals to help pensioners is fairer, better and benefits far more of them. What is more, if the measures are put in place and carried through, as we fully intend them to be, pensioners will know that, in addition to the £200 winter fuel payment, there will also be £200 by way of the council tax rebate. We have a clear record on that over the past few years. He is right to say that the Tory record on helping pensioners is patchy and, in some cases, worse than that.

We have been retuning to the same point on and off. When the shadow Chancellor says:

"I fully accept that holding programme spending within departmental expenditure limits other than the NHS and schools to a zero increase for the first two years and to what amounts to a zero real terms increase thereafter is a tough constraint", we have to wonder how, at the same time, Conservative spokesmen can say that they will spend money here, there and everywhere—leaving aside the spending commitments that we know about. As I said, the shadow Chancellor said last Sunday that the difference between us was not small, as the hon. Member for Havant tried to say, but vast. If it is vast, that implies he knows that it will have some effect.

The shadow Defence Secretary has expressed concern about some of the payments. Others have described them as "painful", with regard to getting rid of the new deal, and, last November, as "tough." They cannot have it both ways. Either the reductions do not matter, as the Conservatives try to pretend, or they do. The truth is, as anyone who has ever looked at the consequences of such things knows, if expenditure is frozen, it is necessary to cut back from day one. That is the problem facing the Conservatives, which is probably why so many of them run away from the policies when we remind them of them.

Time and time again, the shadow Chancellor has said that he intends to hold down spending, resulting in—it is worth spelling this out so that people understand it—a reduction of £7.5 billion in 2006–07, followed by a reduction of £16 billion, £22 billion and £27.5 billion, rising to a reduction of £35 billion. No one is going to tell me that that would not make a difference.

As Secretary of State for Transport, I know that, if a Chancellor came to me and said that our expenditure was to be frozen, steps would have to be taken immediately to start laying people off or cutting programme expenditure. It is disingenuous for the Conservatives to suggest that their policy somehow does not matter. One wonders why, as recently as Sunday—surely the policy must still be in force—the shadow Chancellor was able to describe the reductions as vast. How does that square with what the hon. Member for Havant said today? We should be grateful to him, because he confirmed that the difference is £35 billion, which some Conservatives are trying to deny. In addition, the Conservatives have uncosted commitments of about £15 billion. It would be interesting to take a tour around the country to discover what they would do. Presumably those commitments would have to be paid for by more cuts in expenditure, but no one should be in any doubt that they would make a big difference.

Is my right hon. Friend not being a little unfair to the Opposition, as they also have plans for selling off national assets that have not yet been recorded in his Domesday book? For example, is it not the case that the trust ports, on which recommendations are made in the James report, have yet to be pulled out of the hat?

My hon. Friend is right. I have missed out that aspect of Conservative policy. Mr. Yeo, the Conservative transport spokesman, will correct me if I am wrong, but I believe that he went to Dover and said that his party would sell off the trust port. The last time that the Conservatives broached that idea they had a spot of bother in the town, and my hon. Friend Mr. Prosser is very grateful for that intervention.

rose—

No doubt Mr. Yeo will confirm that it is Conservative policy to sell off the trust ports, particularly Dover.

I am happy to confirm that that is our policy and that the proceeds, which are expected to be well in excess of £100 million, will be invested exclusively in improving the road and railway infrastructure around Dover. The Government, of course, cannot match that promise.

The hon. Gentleman must face up to the fact that, according to the shadow Chancellor, his budget is frozen. He will not have any money to spend on those things. The shadow Chancellor has made it abundantly clear that his budget is frozen. As a result, the hon. Gentleman will find that he will have to make cuts to all aspects of transport spending. The amount of the freeze is equivalent to what we have spent on strategic roads over the past three years. He says, however, that he will make it up by selling off the trust port in Dover.

For the avoidance of doubt, we shall make it clear to every single voter in Dover—indeed, as we speak, my future colleague, Mr. Paul Watkins, is engaged in that very task—that we will invest the proceeds from the sale of the trust port for the benefit of the people of Dover in infrastructure improvements, which are outwith the transport budget that we will inherit. The Secretary of State has just confirmed that the Government do not have any plans to spend any money upgrading Dover's infrastructure.

I am pleased to hear that the Conservatives intend to go around Dover promising to sell off the trust port, as that will be music to ears of my hon. Friend the Member for Dover. As I said, the Conservatives had a spot of bother with that policy last time around. I noticed that the hon. Gentleman did not deny that he has a frozen budget—[Interruption.] We have dealt with that already. Is he saying that the shadow Chancellor made a dreadful mistake and has changed his mind? I remind him that the shadow Chancellor said that he had agreed with his shadow Cabinet colleagues, including the hon. Gentleman, that

"the baseline for spending across all of these departmental budgets"— they do not include the NHS or schools, but do include transport—

"will be zero per cent. growth for the first two years."

That amounts to a freeze. I can see that the hon. Member for South Suffolk is consulting to see whether or not it does. If budgets are frozen, cuts must be made as surely as night follows day. Opposition Members all have the same problem, as they have signed up to a policy that means cuts in public services.

I do not have that problem at all. It is perfectly clear that the shadow Chancellor was referring to the overall total across all Departments. I shadow two Departments—the Department for Environment, Food and Rural Affairs and the Department for Transport. I have accepted a cut for DEFRA, but the transport budget is protected. The shadow Chancellor was referring to the overall total: the budgets of some Departments will go down, but other budgets, including health and education, are maintained and we will match the Government's expenditure on transport. However, I acknowledge that I have accepted a cut in DEFRA's budget.

I sympathise with the hon. Gentleman, because when one confronts any Conservative spokesman about the shadow Chancellor's freeze for all Departments they all say, "It applies to everyone else except me." There is a point at which that policy does not stand up.

Has the right hon. Gentleman read James?

I have read the James report all right. Before I even opened it and read the first page, I had the pleasure of listening to the Leader of the Opposition, who told Mr. David Frost that £21 billion was already committed to continue work being done by the Government. Even before the Conservatives get going, they must find £21 billion extra. I refer again to an oddity of Conservative policy and their plan to privatise something that has already been privatised. It is not clear that one can privatise things twice but, if one can, where on earth would the savings come from?

Does my right hon. Friend agree that Mr. Yeo must be terrified? Last time that the Tories sold off an asset—the railways—they had to spend the next few years bailing out the system and putting billions of pounds of taxpayers' money back into the system to make it work.

My hon. Friend is right. The Conservatives' record on transport is not good, but their record on the railways was appalling. The country paid a high price in both transport and cost terms as a result of privatisation. I do not want to misrepresent the hon. Member for Havant, but I believe that he said a couple of years ago that his party's privatisation of the railways was not one of its finest moments. The country as a whole takes a dim view of it. Railtrack must be one of the most monumentally expensive failures in the history of the railways.

Like the poll tax.

Indeed, that was another unhappy time for the Conservative party. We have a strong economy, but what concerns me and ought to concern every hon. Member and citizen of this country is that we face huge challenges in future. There are huge developments on the other side of the world. Unless we prepare for the future and improve our education, science, skills and infrastructure the country will not be able to maintain its competitive position. That is why maintaining public expenditure and essential investment are important and, at the same time, we should do everything that we can to help families in this country, which is what we are doing. As I said, there are two approaches—first, a strong economy, stability and helping families or, secondly, the Tory cuts, the undermining of stability, and a return to the boom and bust of the 1990s. To my mind, the choice is clear, which is why I believe that most people, not just in the House but in the country, will support the Budget of my right hon. Friend the Chancellor.

I have listened with great interest to the debate, particularly the part on helping pensioners. I was also interested in the exchange about help for working families. The Paymaster General is in the Chamber, and she will know from the lengthy correspondence that we have had regarding a number of my constituents that, whatever the rights or wrongs of the credits system, there are serious problems with its administration. A number of my constituents have received large sums of money and have thought that that was the answer to their prayers and difficulties. Naturally, they proceeded to spend that money, only to find that they have been asked to return it six months later. It is quite shameful that some of the most disadvantaged people—in many parts of my constituency there is serious deprivation and poverty—should be given money only for the Government to demand its return with a series of threatening letters from the Inland Revenue. I very much hope that the Paymaster General will look into the cases that I sent to her.

Turning to pensioners, there are two measures that the Government could introduce that would have an immediate benefit for pensioners throughout the country. First, they should not tinker with council tax but scrap it altogether and replace it with local income tax, based on the ability to pay. That would be of great advantage to many of the worst-off pensioners and to many other people, who would be relieved of that tax burden.

Perhaps the hon. Gentleman can help us. How much does he expect income tax to rise as a result of that proposal?

The top rate of tax will go up to 50 per cent. for those earning £100,000 or more. I believe—I say this from memory—the amount of income tax is equivalent to 3.75p, but I might be a little bit out. On that basis, over 70 per cent. of households in Britain will be better off.

Is it not the case that under the hon. Gentleman's proposals, some of the richest people in Britain would pay no local tax at all?

Not as far as I am aware. Anybody who owns a property—I imagine that the richer people own larger properties—will fall within the ambit of the tax.

Is there not a large group of rich people who do not pay income tax and who, under a local income tax-based system, would pay nothing towards the cost of local services?

As far as I am aware, anybody who earns an income in this country is taxed on it. If the hon. Gentleman knows of a method of legally avoiding such tax, I would be grateful if he would pass it on to me.

I am grateful to the hon. Gentleman for giving way again. There are thousands of rich people who live off the assets from their capital and who do not pay income tax, but pay capital gains tax or capital tax. Under the Liberal Democrats' proposals, those people would not pay any contribution to local services. I understood that those on the hon. Gentleman's Front Bench accepted that.

Anybody who lives purely on asset disposals will not have an income and—the hon. Gentleman is right—it will not be taxed, but the number of people who fall into that category is extremely small.

The second change that would help our pensioners is a move to a residence-based pension, removing the link to national insurance. Above all, that would help to deal with the discrimination that exists against women pensioners, which is one of the most disgraceful aspects of our current pensions policy.

I, too, welcome the presence of the Secretary of State for Transport, not that I have ever had the opportunity of debating with him anything other than the two portfolios that we share—transport and Scotland. I welcome him today in his capacity as Secretary of State for Transport. Very often, transport is seen as one of the political also-rans. It is one of the issues that does not get up the polling agenda, so I am grateful to see the right hon. Gentleman at the Dispatch Box today.

Since I took on the transport brief nearly two years ago, one of the comments that I have frequently received—I heard it again this week when I attended the transport committee of the CBI—is a desire expressed by both business and ordinary people for matters of transport policy to be sorted out in Parliament. They want a system that is reliable, safe and affordable, and that works, and they cannot see why we spend so much time arguing about it on a party basis, instead of arriving at common-sense solutions. I therefore intend to use this afternoon to speak about transport matters, rather than other matters that have been raised. It is an extremely important issue—I believe the right hon. Gentleman and I share that view—and one that needs to be taken seriously.

As is often the case with the Chancellor's Budgets, he kept back a little gem till the end. We are getting used to that. Just when he has gone through the difficult bits with all the numbers, there is a little sparkle in one of the last paragraphs. In yesterday's statement it was in the penultimate paragraph, when the Chancellor announced free local travel on buses for pensioners and disabled people, which I warmly welcome. It has been Liberal Democrat policy for four years, it was in our last manifesto and it was a pledge made in our pre-manifesto document published last autumn, so I am delighted to see that the Government have adopted it. The Liberal Democrat Transport Minister in Scotland has already enacted it, and it is nice to see the rest of the United Kingdom catching up.

I am not surprised to see the policy popping up as a Government commitment. There is a long tradition of the Government adopting Liberal Democrat policy. It began—let me get this out of the way—in 1997, when in his first announcement the Chancellor said that he was giving independence to the Bank of England—a policy that had been in our manifesto for that election and upon which we had fought, and on which there was not a word in the Labour party's manifesto. It was an extremely sound move and one that we were happily able to applaud.

I am grateful to the hon. Gentleman for giving way once again. May I inform him that free bus travel for pensioners was not a Liberal Democrat idea? Labour-controlled Merseyside has had a free bus service for pensioners for some years, and when the Liberal Democrats took over Liverpool, they suggested that it should be scrapped.

Ours was the first party to adopt the policy as national policy, and the first party to implement it in national government in Scotland. We are delighted that the Government have followed that lead and will now be introducing it for the rest of the country.

The hon. Gentleman and those on the Government Front Bench indulge in an orgy of self-congratulation about the provision of free bus travel at peak times. It is all very well for free bus passes to be made available, but there needs to be an adequate supply of buses, which there may be in urban areas. All too often, to the damning indictment of the Secretary of State for Transport, that is not the case in rural constituencies such as mine.

The hon. Gentleman makes a fair point. One of our policies is to do everything possible to continue to support rural transport. There are areas of the country that are extremely poorly served, and I shall come to that a little later in my remarks.

A striking example of transport policy is the concept of the not-for-profit company to run the railways. We proposed in our manifesto at the last election that Railtrack should be made a not-for-profit company. Around that time, my right hon. Friend Mr. Kennedy asked the Prime Minister at Prime Minister's questions about that concept, and the Prime Minister replied:

"I do not know what the right hon. Gentleman means by a not-for-profit organisation"—[Hansard, 14 February 2001; Vol. 363, c. 308.]

Lo and behold, eight months later Railtrack was gone and we had Network Rail which, as far as I can see, is a not-for-profit company. I look forward confidently to further Liberal Democrat policies being adopted by the Government.

In the magnanimous spirit in which I started this afternoon, let me welcome the announcement in the Chancellor's Budget statement that Mr. Rod Eddington has been charged with drawing up a long-term strategy—according to The Times today, post-2015—for our roads, railways and air travel. As I have often said in the House and outside, it is abundantly clear that one of the most critical tasks for Government is to draw up a long-term strategy for transport. Good transport links are vital to the success of our economy, and it is our economy that drives our transport requirements.

The days when each mode could grow in isolation on a purely predict-and-provide model must be over. Such a strategy is both wasteful of resources and doomed to fail. What we need now is integration and a wise use of resources. Perhaps most important of all is the contribution that long-term strategic planning can make to our climate change goals and to our emission reduction targets. Carbon emissions are a resource that must be used wisely. With transport responsible for about a quarter of the UK's emissions, there is real scope for reduction through long-term strategic planning.

Here again perhaps Liberal Democrat policy can help the Government and Mr. Eddington. The biggest single issue that we face that will have a major impact on the country's finances is the fact that transport lacks capacity. Whether on roads, rail or air, we will need both to manage existing capacity and to create new capacity.

I am listening carefully to the hon. Gentleman, and on the question of capacity, the Liberal Democrats pride themselves, in their words, on being an effective Opposition. I am delighted to see him joined by his hon. Friend Mr. Burnett, but where are the rest of his party to support his policies this afternoon?

I believe that they are all out in the field effectively opposing as hard as they can.

Let me finish the point that I was making before the hon. Lady intervened. The key must be that resources are used wisely so that modes complement each other rather than compete as they have done in the past. To take the example of the railways, it is estimated that capacity on the east coast main line will run out around 2014. The Liberal Democrats have committed to the principle of a dedicated high-speed rail network, beginning with a north-south route. Such a link frees capacity on the existing network for more freight and local services.

I saw that commitment. How much will it cost and how will the Liberal Democrats pay for it?

That is a fair question, to which I shall come in a moment. As I said, such a link frees capacity on the existing network for more freight and local services, but very importantly it also provides time-competitive journeys as an alternative to domestic aviation, freeing slots at airports.

I have noted with interest that in a number of speeches that he has made outside this place the Secretary of State has started to talk quite seriously about that proposal, and I am delighted that he is taking the concept seriously. He rightly puts his finger on the critical point, which is: how much will it cost and how can the finance be raised? In order to arrive at the answer to both those questions, a period of due diligence and a feasibility study must clearly be undertaken. The Atkins report, which I am grateful to the right hon. Gentleman for putting into the Library, is a sound beginning, but much further work remains to be done. It would be pointless to say that it will cost £8 billion, £80 billion or £800 billion, when one simply does not have a relevant idea. My question to the right hon. Gentleman is that, given that he has now begun to take it seriously outside Parliament, what resources will his Department put into that feasibility study to find out what the benefits are and examine the quite sound business case that is evolving for such a link?

The hon. Gentleman is right that I have said on a number of occasions—I said it at lunchtime today—that successive Governments have spent a long time fixing the transport problems of the past and we now need to fix the problems that we face in the future, which is one reason why I have asked Rod Eddington to help. He has a lot of experience in this area in different parts of the world. Of course we will devote adequate resources to that, but the point on which I want to press the hon. Gentleman is that some of his Liberal colleagues in Edinburgh have erroneously given the impression that the Liberal party has signed up to build this link. As I listen to the hon. Gentleman, his policy and mine do not seem dissimilar. Both of us say that we need to consider the matter, but a lot more work needs to be done before we can sign any contract.

I have committed to what was in our motion at the Liberal Democrat party conference last autumn, which is the principle of a high-speed line and to undertaking the necessary due diligence. It would be quite irresponsible for anyone, on any infrastructure investment, to stand up and say, before they know how much it will cost and what the benefits will be, that they will go ahead with it. I am sure that the right hon. Gentleman will agree that had proper studies been done on the Eurotunnel or the west coast main line we might have had better answers.

There is a Liberal-sponsored plan to have a railway from Edinburgh to Galashiels, which I understand is about 30-odd miles long and single track. That will cost £150 million of taxpayers' money at present-day prices. Simple arithmetic would suggest that it would be almost as cheap to try to get a rocket to the moon as build a two-line track going 400 miles for trains travelling at far higher speeds.

The hon. Gentleman should know that simple mathematics are not always a help in such circumstances. Very different costs can be arrived at for building TGV track, depending on the basis used for the analysis. I see no reason why sound British engineering companies that we are all proud of cannot at least rival if not improve on the costs in France.

The Secretary of State rightly made the point that we need to be looking at the long term, and he and I broadly agree on that. He also mentioned having fixed some of the short-term problems, but one such problem that really does need to be fixed is the fit-out of the Thameslink box. To have that station fitted out at a cost of £60 million or £70 million—a pretty small investment—would be a tremendous advantage for those who have had to put up with the blockade of that line for the last year or two. That short-term fix would be well worth it.

Does the hon. Gentleman agree that many hon. Members could come forward with major transport schemes that they would like to see in principle, but one of the problems is that we do not have the resources to build them? Does he further agree that one major reason why a system can be built in France much more cheaply than in Britain is the planning process there? Are the Liberal Democrats suggesting that we adopt the French planning process, which basically says that because a scheme is in the national interest it will be built without any public inquiry?

One thing that always impressed me about the French system is that it makes it clear that anyone affected by a scheme is compensated well above the market price. We might well learn a lesson from that, because if we could save a couple of years by paying people reasonable compensation, we might develop our infrastructure faster.

Let me get off the railways and have a chunter down the road for a bit. I hope that Mr. Eddington will consider replacing our antiquated system of fuel duty and vehicle excise duty with distance-based charging. I notice that one of the resolutions on the Order Paper today is a procedure and money resolution for the lorry road-user charge. I believe that it is the Government's intention to bring this in within the next two years. It must be right to consider distance-based charging, not in addition to fuel tax but as a replacement for fuel tax for motoring. In my constituency the cost of motoring is up to 15p a litre more than in the south because of the price of petrol and diesel. We have no alternatives and we have no congestion. Why do my constituents have this unfair taxation when it could be replaced by a much simpler system? I very much hope that progress will be made on that point.

In particular, I hope that the Secretary of State will ask Mr. Eddington to consider freight movement—a matter that has already been discussed this afternoon. We lack capacity in our ports and on our roads, and we can create some capacity on our railways. We need an integrated strategy to bring those together. Integrated rail freight stations are a key part of the mix.

I have welcomed free travel for the elderly and disabled, and the commitment to long-term planning—both Liberal Democrat commitments—and I want now to touch on one or two points of detail of the Budget as it relates to transport. Rather as my right hon. Friend the Member for Ross, Skye and Inverness, West said in his Budget response, this is a bit of a sticking-plaster Budget. Instead of promoting long-term solutions, it has looked at the short term. For example, I welcome the announcement that more environmentally friendly vehicles will benefit from relatively low vehicle excise duty, but it does not go far enough. Why was the opportunity not taken to put a real division between the big gas guzzlers and the more environmentally friendly vehicles? At a time when the real cost of motoring has fallen by 6 per cent. in real terms since 1997, why not take the opportunity to make that difference?

I regret the Government's decision to freeze air passenger duty, which is, in effect, a cut in real terms. I regret even more the fact that they did not take the opportunity to move away from APD, which was conceived not as an environmental tax, but simply to fill a hole in a Conservative Budget, and introduce an airport tax.

On fuel duty for cars, I believe that the Government have got it right. The current high price of oil is helping to achieve the environmental aims. While that oil price remains high, there should be no reason to increase those duty rates. I am very concerned, however, that the Chancellor should have chosen to put a whopping 23 per cent. increase on red diesel. That is a major cost increase for farmers and crofters, many of whom are in the process of digesting the changes brought about in structural funds. Such an increase is a cost burden that they could well do without. Incidentally, red diesel is also used by trains, so the cost of our railways will also increase.

In conclusion, the detail of this Budget is short term. It is about votes and not solutions, and it will be seen as a missed opportunity. The challenge for us all in this place is to deliver long-term sustainability and good planning for transport. The Liberal Democrats are ready to engage in that process and deliver it for Britain.

A pre-election Budget is always going to be very thin in content for the simple reason that, if there is to be an election in spring or early summer, there will never be time to deal with the matters that the Government might want to include in a Finance Bill. Those of us who have laboured on Finance Bill Standing Committees will know that that is one of the good things about pre-election Budgets, as the Finance Bill will necessarily be very short, although I am not offering myself as a volunteer for such a Committee at this stage in my parliamentary life.

I was thinking today that the first Budget announcement that I listened to, unfortunately from the Opposition Benches, came at a time when I had won a seat from the Scottish nationalists. I was sitting with my right hon. Friend Mr. Foulkes, who had got rid of an Independent Labour candidate, and the pair of us still believed that we had won the election in a manner of speaking. It was only when Lord Howe got to the part of his Budget speech where VAT was increased to 17.5 per cent.—[Interruption.] I am sorry, it was increased to 15 per cent. at that time, although it went up to 17.5 per cent. in another Tory crisis. Nevertheless, it went up from a relatively small amount to 15 per cent., while we saw income tax being cut and interest rates rising. There was a sharp intake of breath on the Labour Benches; we began to realise that the other side had won the election, and our delusions were over in that respect.

This Budget has been rather different. The fact that it is the ninth Budget of a Labour Chancellor is itself something of a novelty. That period has been characterised by the stability of the British economy; it has to be said that Labour Chancellors have not always presided over periods of stability. One can recall in respect of the Budgets of the 1960s and 1970s that, after much-promised and lauded largesse in the first 18 months after an election, there followed periods of stricture, cuts and political heart rending. Eventually, an almost giveaway period followed before an election. Indeed, those of us who are old enough will remember the big debate that took place in March 1970, and continued for years afterwards, about whether Roy Jenkins destroyed his chances of the premiership by having too conservative a Budget and being too restrictive with the public funds after the two years' hard pounding that he had been given since devaluation.

It is interesting that, on this occasion, the Chancellor is being attacked not because of the rate of inflation or economic growth, but because he has somehow not been successful enough in forecasting the rate of deficit. He has been successful enough in that he has kept within the parameters that he has laid down and been able to defy his critics. We have gone through a pre-Budget ritual in which we have been told by people such as those in the ITEM—independent Treasury economic model—group that the forecasts are way out of line. We have been told by others—I am not talking here about the forecasting institutions or bodies—that the Chancellor is lying and that the fiscal gap will be too high, so taxes must rise.

Yet, when the Chancellor stands up and gives the figures with the authority of the Treasury, people begin to retreat. I know that there are those who would like to believe that the Treasury will tell lies at the behest of a Chancellor. If that were the case, confidence in the City of London and UK financial institutions would be in large measure destroyed. People who have argued that there should be independent assessments or audits of Treasury statistics at the time of the autumn statement should begin to realise the import of such suggestions. I realise that the "Thomas the Tank Engine" school of economics that we have just had to hear about is not too interested in such an approach to economics, but there are some on the Liberal Benches who question the integrity of Treasury Ministers and the Treasury itself.

If anyone were to pay any attention to those people, there would be a serious detrimental effect on the British economy. Their enthusiasm for the euro, for example, has never created a sense of caution about the fact that it might be dangerous to think out loud about monetary policy and the value of the pound against the euro. I realise that Labour Members are perhaps partly to blame for the decision to go into the exchange rate mechanism at the level at which the Conservatives entered it, wrongly in my view, in the late 1980s. At that time, if we had argued the point and sought divisions in the UK political consensus in favour of joining, it would have been to the detriment of the country. It was therefore correct that we bit our lip and chose not to express any public fears about the figure at which we entered, as we believed that it might still be possible to have some kind of managed devaluation at a later date.

I am listening carefully to the hon. Gentleman's thoughtful and reflective speech. Does he recollect that, whatever the interest rate at the time, successive shadow Chancellors always called for it to be 0.5 per cent. lower?

I take the right hon. Gentleman's point. We can arm-wrestle over interest rates, but we should not speculate about currency. Although the two are linked, they are not inextricably intertwined in the context of political debate. The point that I am trying to make is that it is easy for peripheral parties to talk flippantly about aspects of economic and monetary policy, because nobody gives a damn about what they say or pays any attention to them. It is dangerous continually to carp at and criticise the way economic forecasting is done, particularly as the general thrust of these forecasts seemed, by and large, to be accurate.

I entirely accept the hon. Gentleman's view that it would be wrong to suggest that there was dishonesty on the part of the Treasury, and I hope that no sensible commentators in the House would do so. However, he will accept that much of this is down to interpretation, and the Chancellor's interpretation is that there will be substantial growth rates in the years ahead. He has been proved right about growth rates in the past, just as many of us have been proved wrong. Equally, does the hon. Gentleman accept our concern that if the economy were to continue growing as it has in recent years over the next three or four years, along the lines that he has suggested, that makes a mockery of the interpretation, or perhaps misinterpretation, of the so-called £35 billion of spending cuts that would need to be made according to the projections in our own economic outlook?

On growth rates, we have been successful in growing at a time when the growth rates of most of our trading partners and competitors have not been as good, although they are beginning to improve at an encouraging rate. That tends to suggest that growth rates, coming from a firmer base, will reflect a healthier European and world economy in which we will be able to play a substantial role. In that sense, we contend that our figures are feasible within the constraints that we have. The hon. Gentleman and I are both talking about guestimates, but he is using conservative figures, with a small "c" and a large "C". We were able to extract from Mr. Willetts today the fact that spending would be in the order of £35 billion less than what we would do in the way of increases over the suggested period.

rose—

rose—

I will take an intervention from Mr. Fallon and then I had better try to make some progress, although I know I have plenty of time.

I am grateful to the hon. Gentleman, and we are enjoying his speech. He is right to say that one should not carp where the Chancellor has been proved to be right—and he has been right on economic growth. However, there is one matter on which he has been consistently wrong for more than four years, and we have wrestled with it on the Treasury Committee—his forecast for tax revenues. We are not accusing him of dishonesty, but if he is wrong because he is overly optimistic or because he has been ill advised, it is a very serious matter that, four years in a row, the tax revenues have not come in as high as he has forecast.

They have not. As Robert Burns would say:

"But facts are chiels that winna ding,

An' downa be disputed".

I suppose that I shall have to write that out in longhand for the Hansard writers.

I take the hon. Gentleman's point. We must recognise, however, that, for example, there was a late surge in tax revenues in this financial year, that such things are sometimes difficult to forecast, and that, as the Chancellor said yesterday and as has been repeated fairly widely in the press, one advantage that the Inland Revenue has over most of the rest of us is that it has inside knowledge of the operation of companies, and there does seem to be a healthier mood. The figures offered by bodies such as the Engineering Employers Federation, the banks and the energy players tell us that many major contributors to revenues are showing far bigger prospective returns than they have done for some time. Therefore, in the next 18 months to two years, there is every prospect of sustaining this growth. Whether we can go beyond that, I do not know, and it would be a very rash person who tried to do so. All that I am saying is that so far we have had growth.

We have not had spot-on figures on tax revenues in every year, but equally we have not had anything like the deficits that occurred prior to 1997. As I am sure the hon. Member for Sevenoaks is aware, those would have been of the order of £90 billion in 1997.

I am sorry that the hon. Gentleman is standing down at the general election; it was a great privilege for me to serve under his excellent chairmanship of the Select Committee on Trade and Industry in the last Parliament.

Given the growth rates of which the hon. Gentleman is inordinately proud and the point that we have reached in the economic cycle, does not he think that it is a matter for concern that the Government are sharply overshooting on public borrowing, and that that is all the more serious in light of the Chancellor's worst policy decision, his best being the independence of the Bank of England—the decimation of the British savings industry?

I thank the hon. Gentleman for his compliment. I enjoyed working with him on the Select Committee, where he was an assiduous colleague and, in the non-partisan atmosphere, followed the evidence—something that he does not always do when he is cast in a partisan role on the Conservative Benches.

We are not yet at the point of overshoot; we are still within the parameters. Let us not paint too gloomy a picture. We may be hanging on by a thread, but hanging on we are, and that must be taken account of.

rose—

Did the hon. Gentleman make a second point?

I am grateful for the opportunity to repeat it. I asked whether the hon. Gentleman accepts that the treatment of the British savings industry, in the form of the abolition of the tax credit on dividends, was the Chancellor's single worst decision.

Well, it has not harmed the profitability of some of the major banks, and it has added considerably to Government revenues at a time when it had been argued that there was a gap—

rose—

I do not intend to sustain this debate, because I am talking about the 2005 Budget, not the 1997 Budget. All I would say is that this was an area in which the taxman's hands had never been dirtied, and the Government chose to go into it. It was associated with other difficulties in the pensions industry. It could be argued that the cap on pension contributions was an equally significant factor in the medium to long term, in that companies may have made contributions to works pension schemes and the like that they did not have to make, because although the funds were oversubscribed, the cap was probably sustained for an unduly long period. But I do not want to spend too much time drilling down into the last decade of British economic history.

We are under no illusions that our trading partners and competitors have not been buying from us in the way that we should like. Britain has been at a disadvantage among players in the international economy as a result of the world recession, yet we have been able to keep reducing unemployment and to keep growing, with the prospect of future improvements. However, those are no grounds for pre-election largesse on a scale that Governments of all parties have previously indulged in.

One matter in which we can take some pride is our unwillingness to increase direct taxation. I know that there have been stealth taxes, but before 1997, the then Chancellor raised them to an art form from which my right hon. Friend the Chancellor learned some lessons. However, there are occasions when taxes, even stealth taxes, must be mitigated, and the handling of the council tax for pensioner households this year is a significant and helpful advance. More than 10,000 pensioner households in my constituency will benefit.

The grey vote is an element of the electorate that frustrates all politicians because we cannot satisfy it. At a recent council election in my constituency I was talking to a retired man who told me that he was paying more in council tax than he had paid in mortgage repayments prior to clearing his mortgage. In some ways that is a meaningless statistic, but it is important to him and an important fiscal concept. I was not slow in telling my colleagues about that. They lost control of the council at the election, but have since regained it and are doing rather well. They took account of the cavalier approach to local taxation of some local authorities, which, if the Government say they can increase it by 5 per cent., shamelessly increase it by 4.9 per cent., regardless of the consequences. That is dangerous, and more astute and prudent councils are learning to avoid doing that. There is a pressing social problem of elderly people on fixed incomes paying a disproportionate amount of their income in council tax, so the Chancellor's move is welcome and I hope that it will be sustained.

When the Government addressed fuel poverty, they continued to honour their commitment and increased the winter fuel payment. I hope that that will happen with council tax. However, it is understandable that no Chancellor will commit himself to unlimited consequences. Historically, social security payment rises are announced in the autumn statement, so we must wait until then to find out whether it will continue.

I am pleased that the winter fuel payment has been sustained at £200, and I hope that the £150 will be subject to adjustment. Some of us question the profits made by British oil and gas companies, but it is difficult to establish how much of those profits comes from activities in the North sea, and whether there is a case for a windfall tax. The early payment of corporation tax by those companies will make an impression on their budgets and should provide elbow room for the Government to help the fuel poor.

I am not sure about the terms of the scheme for free bus travel for pensioners. The Liberal Democrats introduced that in Scotland, but the scheme there is half-baked. Having reached the age of 60 a few weeks ago, I obtained my over-60s bus pass, but travel is free only after 9.30 in the morning. I am not sure whether the largesse of the Scottish Executive extends to funding it beyond that, but the scheme keeps buses on the road for the whole day. I wish that more over-60s went to discos and late-night drinking facilities in Edinburgh, because we might then have buses after 7 o'clock at night. One problem with the scheme is that it is fine during the day, but buses after 7 o'clock at night are not as frequent as we want. Perhaps I am being unreasonable and perhaps the grey vote element is coming out in my thinking. However, for those areas of the country that do not have concessionary fare schemes for the elderly, the Chancellor's announcement is particularly worth while.

It is interesting that after more then 30 years we are beginning to consider raising the school-leaving age. The Chancellor did not expressly refer to that yesterday, but his attempts to provide financial support and assistance for young people who stay at school after 16 suggests that the ground is being prepared for raising the school-leaving age. I do not want the position here to be like that in Germany, where youngsters go to school at the age of 6 or 7, leave at the age of 19, spend five, six or seven years acquiring a degree and a diploma, eventually join the labour force at 29 and expect to retire within 30 years. That has been a problem for the German economy, but we ignore at our cost the possibility of extending education provision in this country. One of the great achievements of the past eight years has been the extension of nursery care and pre-school facilities and the inventiveness with which we have considered how to accommodate and educate our teenagers. However, there are difficulties. I was a teacher when the school-leaving age was raised in the early 1970s. It was done speedily and thoughtlessly, although it was well intentioned. It did not carry the teaching profession with it and there were not sufficient resources. It improved the life chances of some youngsters but caused problems in the education system. The rather cautious way in which the Government are approaching the matter now—providing money for financial assistance and changing course content and the nature of the education—is important. The way in which we educate our young people will enable us to take advantage of the real economy.

One problem for the Treasury is that we tend to spend a lot of time on the fine detail of tax and spend but not on the generation of revenue. It is important to give proper weight to the requirements of a knowledge-driven economy, and it is encouraging that the Budget gives proper weight to technology transfer. That has been a vexed question. The Government made a bold stab at trying to get good ideas out of the laboratory and into the workshop and production plant, but the definition of a profitable business and the treatment of capital gains on the shares that were created by spin-off companies were not successful. I welcome what I hope will be the last, and a successful, stab at getting it right.

We have lost out during the past year or 18 months in the number of spin-offs that we could have had. We have the frustrating situation in the United Kingdom of publishing more accredited research papers than almost any other developed industrial nation. Excluding the United States, our higher education system provides more serious research than any other, and often at lower cost. That research is rarely taken on to the patent stage, so we miss out in several areas of the knowledge-driven economy. Therefore, it is important that the Chancellor has looked again at the issue to get the structure right. If we can create the right climate for biotech work and stem cell research, and if we can develop new drugs and promote medical advances, that will form one of the economic cornerstones of our future prosperity.

I welcome the way in which the Budget was presented, and the balance that it struck. I listened with ill-disguised incredulity, therefore, to the hon. Member for Havant going on and on about the problems with the child tax credit. Some difficulties were experienced at the beginning, and they were dealt with in a ham-fisted way, but in my constituency there has been a sizeable reduction in the problems with overpayment followed by clumsy retrieval. I welcome the fact that my right hon. and hon. Friends on the Front Bench have not lost heart and have continued to improve the child tax credit. At one time, my constituency had a long-term unemployment rate of 20 per cent., so it is pleasing to see how many families have experienced a dramatic change in their circumstances as a consequence of encouragement through the tax and benefit system to take up employment.

If Bill Clinton said anything that is worth repeating, it is that we should give people a hand up, rather than a handout. The reward for employment is directed at those who are in the most accessible, and therefore most poorly paid jobs, and they are the ones we have to keep faith with and keep encouraging to stay in work. The kind of work they do is often interrupted, because it is cyclical. At some times of the year, they are incredibly busy, and at other times rewards are scant. That leads to difficulties with the child tax credit, so we need to make it clear that greater sensitivity should be shown by the tax authorities. They need to take a more relaxed attitude towards repayment. We need not go as far as writing off overpayments, as has been suggested, but we could extend the period of repayment and retrieve the money more gently. The problem often affects people who have incredible difficulties making ends meet and organising their lives. For them, getting the kids fed and to school and then getting to work are three major tasks before they even start work. We have to persist with the child tax credit and improve it for far more people.

Pension credit also has to be continued. Those who wish to modify it or get rid of it must have been deaf to the stories that I used to hear from people with a nugatory pension from a badly paid job, or from those who had saved a wee bit, or had been made redundant at age 63, or who had bought their council house. By their lights, they had been careful and astute in handling their money, and they resented being penalised by the benefits system. Those people felt hard done by and isolated by the brutal cut-off of the poverty trap, and we have attempted to change that. The issue has not been resolved completely, but we should encourage the Government in the right direction, not expose them to the carping criticism that we heard from the hon. Member for Havant this afternoon. He is an agreeable man, and he always tries to sugar the pill, but he cannot resist the political dig. I always feel that he is trying to take us back to the dark days of the 1980s, when the leaderene—his goddess—was in charge.

I am coming to the end of my speech, because I realise that many of my colleagues wish to speak—at least, on the other side of the House. However, this will almost certainly be the last speech I shall make in a Budget debate, so I shall share a memory of the dark days of opposition. I used to sit, often late at night, with John Smith and my right hon. Friend the Chancellor. John Smith would bang on about the responsibility of a Labour Government to combine economic efficiency with social justice. It has been a great source of pride for me as a Member of Parliament that we have been able to fulfil John's ambition. Over the past eight years, we can take great pride in the reduction in unemployment, the maintenance of low price inflation, the sustaining of economic growth and the ability to distribute the rewards of those efforts to achieve more justice and fairness in our society, which were missing in large measure for a long period before. We can commend my right hon. Friend the Chancellor on this Budget and previous ones, which have helped to achieve those objectives, and we can use this Budget as a springboard to another period of Labour government after the election, whenever it is held. It may be only a few Thursdays from now.

It is a pleasure and privilege to follow Mr. O'Neill. I do not know whether that was his last speech—in this place, at any rate—but he distinguished himself and we shall miss him. I liked two aspects of his speech in particular. One was his horror at the suggestion that my hon. Friend Mr. Willetts might have made a political point, which is of course an abhorrent idea to Members of Parliament, especially Front Benchers. I share the hon. Gentleman's concern about such a development. I also relished the reflective, calm and measured way in which he addressed the subject, because that is the spirit in which Budget debates should take place, even those on the likely eve of a general election. I wish to make my observations about the Budget in a similar spirit.

I start by declaring my interests as they appear in the register. I was intrigued by the way in which the Budget was delivered. We are all connoisseurs now of the Chancellor's manner and style, and I faced him across the Dispatch Box on several occasions in the last Parliament. I do not know if I was the only one to sense that some of the Chancellor's élan, verve and enthusiasm had gone. We saw a bit of the old bombast and braggadocio—not to mention plenty of hubris—but I sensed that nemesis might not be far away.

In a strange way, it was significant that he got it over and done with as quickly as he did. It was almost the shortest Budget speech that there has been. It was almost as though the right hon. Gentleman could not wait to get out and away, and away out of No. 11 as well as away from the House of Commons, which he is generally so keen to do.

In the early days of the right hon. Gentleman's chancellorship, there was always the sense that he conveyed that he had magically discovered the secret of perpetual motion—that he was the first Chancellor who had discovered that we could somehow abolish the business cycle, that we could have everything and that it would all be fine. I sensed yesterday that the right hon. Gentleman is now beginning to understand that perpetual motion does not exist, that there are balances in an economy and that we cannot achieve everything all the time.

I think that we all enjoyed the Chancellor's pleasure, not very well concealed, at the fact that he has presided over—or was at the Dispatch Box and in No. 11 when they came around—50 quarters of uninterrupted growth. The right hon. Gentleman slightly glossed over the fact that the first 20 or so of those 50 quarters took place before he got anywhere near No. 11. Even if he takes the credit for the quarter in which he moved to No. 11—the second quarter of 1997—I think that possibly even his own sense of self-regard might cavil at such a claim. Surely the right hon. Gentleman can claim credit for only 31 of the 50 quarters.

It is worth reflecting a little on the record of growth in the 20 or so quarters and the 30 following those. Was it better or worse before the following 30? I am not seeking to make a partisan point. As far as one can make sense of the numbers—it is not easy to do so—it seems that the situation is about the same. There is roughly the same level of annual growth before and after the right hon. Gentleman's chancellorship. It can be argued that it was slightly higher before, but I do not want to rest on that.

We must consider the Chancellor's main boast that he has "locked in" low inflation and low interest rates. It is right that we should give the right hon. Gentleman full credit for the decision to make the Bank of England independent. That move was overdue and, with hindsight, we should have done it a long time ago. There is no doubt that that decision has delivered lower interest rates than we had before, albeit that that has happened during a period when interest rates globally have fallen. I do not think that the Chancellor would take credit for all of that. However, we are now in an environment of much lower interest rates.

In such an environment, lower interest rates, and the expectation that the market certainly has that lower interest rates will continue into the future, should surely have delivered higher growth, not growth at the same level that existed before such an important decision on the Bank of England was made. The lower interest rates following on from that decision should have delivered higher productivity growth because the cost of capital for businesses was reduced. Therefore the ability to invest in higher productivity should have been increased. We should now be in a virtuous cycle in which the trend rate of growth has decisively risen, but that is not so. The trend rate of growth is roughly the same.

Early on in the right hon. Gentleman's chancellorship, mainly to make his public finance figures work, he claimed that the trend rate of growth had risen by a quarter of a per cent. He has quietly dropped that assertion in this Budget because it was manifestly not true. The trend rate of growth is roughly the same as it was before. Why, given a much better and more benign interest rate environment, have we not seen the trend rate of growth rise? Is it that circumstances in the world economy—the world economic environment—were decisively more favourable before 1997? I do not think so. My assessment, reading the OECD figures, is that the average by which UK growth exceeded the OECD average from 1993 to 1996, when the period of uninterrupted growth began, was about 0.5 per cent. The UK outperformed the OECD average by half a percentage point, on average, during that period. Since 1997, the UK has still exceeded the OECD average, but only by 0.1 per cent. There was certainly not a more favourable external environment before 1997—if anything, the reverse.

It is important for us, in a calm and measured way, to reflect a little on what is the difference that, since 1997, has more than outweighed the clear benefits to the economy and to business—the wealth-producing and wealth-creating sector of the economy—of systemically lower interest rates. I suggest that the answer is that other things have changed in that time and have actively restrained growth.

We have seen much more regulation. I do not claim for a second that previous Governments were guiltless in increasing regulation. Indeed, I say that as a Minister who was responsible for deregulation for some of my time. We all know that there is an inevitable tendency for Governments of all colours and in all circumstances to have an in-built tendency to do things that involve spending more public money and to regulate more. That is because of the desire to do something to show that we have responded to something. We are all conscious of that tendency and it has to be guarded against. A responsible Government have to guard against the tendency to allow public spending, along with regulation, to be ever increasing.

I welcome what the Chancellor said yesterday about his intention to curb the growth in regulation, but I do not think that it amounted to more than curbing it. However, we should acknowledge, and the right hon. Gentleman should acknowledge, that a belated attempt is being made to alleviate the damage that has been caused to the wealth-creating sector by the constant accretion and the constant increment of regulation and more regulation.

There is some sensible reason for having most regulations and there are not many that are completely stupid and pointless, but it is their cumulative effect that is so damaging. It is the lack of proportion in the way in which they are conceived, executed, implemented and enforced that causes the damage.

My hon. Friend is right to point to the cumulative impact rather than the individual significance of each regulation. Does he agree that one of the problems to which the Government seem insensitive is that the impact of regulation is especially damaging to small and medium-sized enterprises, which cannot bear the cost so readily as larger organisations? Would not Ministers be wise to follow the example of the United States, where the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act exercise some brake on the tendency to increase regulation?

My hon. Friend makes a good point and I am grateful to him for doing so. It is worth reflecting on what he says being a possibility. It is right that regulation bears disproportionately hard on small businesses, which tend not to respond to consultations because they are getting on with running their business. Before the 1997 election, when I was out of Parliament, I chaired the deregulation taskforce. My hon. Friend Mr. Norman, who similarly was out of Parliament, was also a member of the taskforce, and so was my hon. Friend Mr. Fallon. We are all in our places today. It is deregulation day today. There is a gathering, a reunion. One of our recommendations was that, instead of having a reactive consultation programme on new regulations, the Government should go out and actively research the views of small businesses.

Big businesses are set up to respond to consultation; they have consultation departments. Indeed, there is often an almost deadening conspiracy between Whitehall and the public affairs departments of big businesses, in which one lot will produce a consultation paper and the other lot respond to it. I sense that many big businesses are quite content with high levels of regulation because they increase the barriers to entry and the threshold for competitors.

I have not yet had the opportunity to study the recommendations produced by David Arculus and what is now called the Better Regulation Task Force—the successor to the body on which we sat—or the report by Philip Hampton. I gather, however, that they revisit some of the recommendations that we urged on the Major Government eight years ago—recommendations that I freely confess sometimes fell on deaf ears.

I have been listening carefully to the right hon. Gentleman, and I acknowledge the cumulative effect of regulation. Most regulation is about inspection. I presume, therefore, that he would agree with the proposal that—in looking at regulation, at the inspection behind it, and at the impact of regulation—using a risk-based analysis is a far better way to proceed, in terms of having contact with business when necessary. Does he also agree that there needs to be a full discussion on this issue, with business as well, as has been suggested by Digby Jones?

I do not dissent from the principles that the right hon. Lady sets out. Her analysis is broadly right, but I would enter certain caveats. This is a matter of great concern, and I hope that we shall be able to pursue it in this debate. One caveat is that, while it is certainly helpful for a business to be visited by only one inspector rather than 10, we know from experience that inspectors often require businesses to do conflicting things. For instance, a building regulations inspector might tell a business to put a door in, only for a fire inspector to come along and tell it to take it out again. The one-stop shop has benefits, but I would counsel caution in that regard. When we combine inspectorates, it is very easy for them simply to become a much bigger, more treacly bureaucracy with higher costs. The tendency for inspectorates and enforcement agencies to become self-financing means that the fees and costs to business will then multiply. So I do not disagree with the right hon. Lady, but I urge caution in relation to that proposal.

On risk-based assessments, does my right hon. Friend agree that the regulations governing business pop up not only in the Department of Trade and Industry and the European Union but all over the government machine? One example is the risk-based assessment involved in the provisions of the Licensing Act 2003. Circuses will have to comply with the Act, but fairgrounds will not. Where is the greater risk of public disorder—at a fairground or at a circus? Circuses could be destroyed by the Act's requirement for a licence for every circus and every venue, while fairgrounds will get off scot-free. The Government talk the talk, but they do not always walk the walk.

That is a very fair point. My hon. Friend asks a good question, but I do not have the answer.

I do not want to dwell on regulation, but the Chancellor seems to have had a bit of a deathbed conversion on the issue. Having done very little to stem the flow of regulation over the past eight years, he has suddenly spotted the fact that it is a bit of a problem. My concern is that the state is beginning steadily to take an ever-larger share of the nation's income to spend on the nation's behalf, and to intrude more into the nation's life. Regulation is one important aspect of that, in regard to wealth creation.

I have been listening to the right hon. Gentleman's analysis of the impact of regulation on economic growth. Are there any other areas that he is proposing to explore? I would have thought that the damage done by the low value of the euro against the pound for about two and a half years retarded a lot of our manufacturing capability, and that that would have been a major contributory factor to the lower level of growth in 2001, 2002 and 2003.

There is no evidence to show that the reversal of that has contributed to a huge manufacturing revival. Manufacturing industry—indeed, any exporting industry—in any country has to cope with the vicissitudes of exchange rates. It has often been said that the huge growth in Japanese exporting took place at a time of steady appreciation in the value of the yen against world currencies.

My point is about the general tendency for the state's take from, intrusion into and share of national income to increase. Its share of national income is 45 per cent. this year—up 8 per cent. from its low point and still rising. That has an impact on Britain's competitiveness. It has been well trawled and often repeated that Britain has fallen from No. 4 to No. 11 in the world competitiveness league. That reflects something real that is going on: businesses now experience more difficulties in creating jobs and wealth here than they did previously. There is clearly some correlation between the larger state and slower growth. That is not absolutely iron-clad but it is generally true.

Let us consider the United States, Australia, and, closer to home, Ireland. In all those countries the state's percentage share of national income is in the mid-30s. Those three countries have significantly higher growth than Britain. It is not difficult to explain why. The wealth-creating sector here has to work harder to create the wealth and the jobs to grow further.

After inflicting such constraints on the economy, the Chancellor now comes along and says that he will alleviate them. After giving us the headache, he now offers an aspirin. Although that is welcome—deathbed conversion is better than none—it is late in the day and there are anxieties about whether the current rate of economic growth can continue.

The Labour party made much of productivity when in opposition. Labour Members said that they were determined to increase it, but that has not happened. As I understand it, productivity is rising at about half the rate at which it was increasing when the Government came to office. That should not be the case because we are in a much more benign interest rate environment for investing in productivity and improving plant and process.

It is always interesting to note what is not mentioned in the Budget papers. One has to look hard to find any figures that relate to productivity in this year's papers. What is called the Red Book, because it used to be red, includes a large chapter entitled, "Meeting the Productivity Challenge". There is therefore at least a recognition that a problem exists. However, the Government have not recognised that they are part of the problem and of the reason for the fall in productivity growth, which is so important to consider, since they came to office.

My central point is that there is no bigger prize for the economy than steadily getting an extra 0.5 per cent. of economic growth, year after year. If the trend rate of growth increases, the Government are enabled to do much more. All the arguments about whether the Conservatives will spend £35 billion less than Labour pale into insignificance compared with that. They become academic if there is 0.5 per cent. or 0.25 per cent. growth.

The difference between the parties is that we believe that public spending should increase by a little less than the speed at which the economy is growing and the Labour party is content for public spending to increase, year after year, by a little more than the economy. That is a malign development for the economy and is likely to depress the trend rate of growth, no matter to what the rest of the economic environment points.

Our approach is likely to increase the trend rate of growth, and that is the biggest prize that there is for the country and the Government. Much has to be done to enable that to happen. The state has to be restrained in its spending and regulations. Savings must increase, but the savings ratio has halved since the Government came to office. What is happening? We all know about the raid on pensions and the reduction in the real value of individual savings accounts. The hon. Member for Ochil declined to be drawn into a discussion about the effect of the raid on pension funds in the first Budget that the Chancellor introduced. It may be just coincidence that the acknowledged deficit in pension funding today is roughly equivalent to the accumulated tax take from pension funds introduced at that time, but it does not strike most people as coincidental. There is a real penalty there. The savings ratio has fallen, and nothing in the Budget will increase it.

My hon. Friend the Member for Havant referred to the deficit, and a number of my hon. Friends and others have talked about the fallibility of the Chancellor's forecasts for borrowing. He might just squeak into compliance with the golden rule within the cycle, but as it is up to him to decide when the cycle begins and ends, that is pretty meaningless. If he is right in his predictions of growth in the economy, we are still in the upturn of the economic cycle. It is very worrying that there should be such a large structural deficit in the public finances at this stage in the cycle.

Why has this come about? Not because taxes have not risen; they have risen, and continue to rise. The Chancellor had the idea that he had somehow discovered the secret of perpetual motion—that he could keep the economy growing by endlessly throwing taxpayers' money into the machine. He is rather like the man on the fender of the steam engine desperately shovelling coal into the boiler to keep the engine going. The coal that he is throwing into the boiler is, of course, public money—taxpayers' money. It is public spending, ever increasing. Week in, week out, the public sector jobs supplement in The Guardian becomes larger. It is not possible to go on increasing the burden of the state that the wealth-creating sector must carry.

One of the damaging things that the Government have done—this too results from their belief that they have discovered the secret of perpetual motion—arises from their declared intention, before the 1997 election, not to raise taxes. As the hon. Member for Ochil pointed out, that led to a tendency to impose stealth taxes, which in turn led directly to a huge increase in the complexity of the UK tax system. Furtive attempts are made to hide the taxes that have been imposed, which creates that complexity. The annual Finance Act was not a slim volume when I was a Treasury Minister all those years ago—or, let us admit, an enjoyable read—but it was very much thinner than it is nowadays.

The complexity makes life more difficult for the wealth-creating sector. It creates jobs, yes, but for tax lawyers and tax accountants. That is not to the good of the economy, although it is to the good of their economy, perhaps. The Inland Revenue's budget for administering the system has more than doubled in real terms in the last five years. Capital gains tax has become easily the most complicated tax: the Inland Revenue itself could not work out how to implement it. There is a huge amount of confusion.

That is partly to do with the Chancellor's obsessive tinkering with detail—his delight in micro-engineering. But, as I have said, it was also driven by a constant need to raise taxes by stealth. There is also a further implication to consider. There was an exchange earlier about the lack of buoyancy in tax revenues, and the fact that the Chancellor's revenues had consistently under-delivered. I think that that too has something to do with complexity. A good tax system is simple, transparent and open, with low tax rates.

And compulsory.

Absolutely. If there are low tax rates and simplicity, people do not object so much to paying, and in a transparent system it is much less easy to avoid paying. The only people who suffer as a result of that are those in the tax avoidance industry. The economy benefits because people do not mind paying tax, and will bring wealth-creating activity here. The system is easier to administer, so there is less of a cost burden.

The Government's revenues are more buoyant. It is a benign cycle, but complexity now permeates. It is shot right through the tax system. It is one of the reasons that tax revenues are consistently under-delivering, which is compounding the Government's problems.

My last point flows from that. It is about honesty in politics. A huge number of people feel alienated from the political process. That is commonplace now. They react against the hysterical exaggeration in which we tend to indulge in this place, and outside. In truth, there is a relatively slight divergence in the trajectory of the public spending that the Labour party project and that we commit to, but it reflects a difference in the underlying character of a Government, who are defined by the aggregation of all the small decisions day by day.

Labour wishes to convey the sense that the Conservatives have a slash-and-burn approach to public services, which is manifestly not the case. When I was an Opposition Front Bencher debating the pre-Budget report of 1999, I said in terms that the Conservatives supported the increases in health and education spending. Half an hour later, the Chancellor said precisely the reverse—180 degrees, black and white. It is difficult to conduct serious political discourse in a way that the public can engage with and respect if a reluctance to engage with the truth and to respect opponents pervades the system. I also remember the Government's dogged refusal to accept that the tax burden was rising until the Prime Minister let that out inadvertently.

In the interests of democracy I urge that the argument be conducted on an honest basis, without exaggeration or hysteria, so that we can offer the country a civilized, sensible choice, not a choice between extremes. This is certainly the Chancellor's last Budget. It is a fundamentally dishonest one because he has not come clean about the state of the public finances. At the risk of relapsing into soundbitery, I have to say that if people vote for the Budget in the House and in the country, they will pay later.

I draw hon. Members' attention to my declaration in the Register of Members' Interests.

I arrived in the House about eight years ago. About the time of the then Budget, I made my maiden speech on the subject of enterprise and competitiveness to an audience of about the same number of hon. Members as I find in the House today. In fact, I rather flatter myself that, over the eight years, I may have picked up an extra hon. Friend or two to listen to what I have to say.

It is a great pleasure to follow my great friend, my right hon. Friend Mr. Maude, and Mr. O'Neill, both of whom made thoughtful and measured speeches. Overall, this is a fairly unimpactful Budget full of comparatively superficial measures. The hon. Gentleman described it as thin in content.

Perhaps that lack of impact explains the lack of Labour Back Benchers in the Chamber.

That is a good point. I imagine that the lack of Labour Members reflects their enthusiasm for the Budget. Perhaps the Minister would like to comment on that when she sums up.

I assume that Labour Members are taking the good message out to the constituencies and that the lack of Members on the Conservative Benches indicates that they feel that there is nothing to criticise in the Budget.

I am not sure whether we can fruitfully pursue this subject. The numbers on either side reflect the strength of feeling about the Budget, which will be reflected in the debate. As the hon. Member for Ochil said, the Budget is thin in content, as is perhaps unsurprising immediately before an election. It is unusual in that it does produce a slight increase in taxation; I think the Chancellor described it as "fiscal tightening." Much of that increase in the burden is borne by the business community, which again reflects on competitiveness.

The Budget continues the Chancellor's relentless theme of the strength of the economy and the importance of maintaining and building national competitiveness. We see in the public finances how his plans for public expenditure absolutely depend on improvements in competitiveness, because it is only thereby, from corporate revenues and profits, that the revenue will be generated to pay for the continued growth in public spending. As the hon. Member for Ochil said, in a very statesmanlike way, the public finances are hanging by a thread—his words not mine.

Over the past eight years, according to the World Economic Forum, we have fallen from fourth place in the world competitiveness league table to 11th. My right hon. Friend the Member for Horsham has said that, in terms of annual productivity growth, the average under the last Conservative Government was 2 per cent. per annum. Over the last seven years, the average has been 1.5 per cent. during a period when, if anything—because of the stage of the economic cycle—productivity growth should have been higher, not lower.

The pillars of the Chancellor's argument about competitiveness revolve around education, research and development, science, investment in public infrastructure and the regulatory burden. I want to concentrate on those pillars in my speech. They reflect the way in which the argument is laid out in the Red Book.

Both sides of the House support the continued investment in education, which is fundamental to our future competitiveness. There were many aspects of what the Chancellor said that we welcome, including, in my case, the investment in Sure Start, which has been beneficial. I am interested in the allusion that he made to extending the school-leaving age, if that ever proved to be affordable. I welcome the investment in capital spending in further education colleges after some years of decline. The performance of FE colleges is mixed and the numbers in further education workplace learning have declined in the last few years.

Digby Jones of the CBI has pointed out that there is a decline in the commitment to science in schools and that the numbers of children taking science-based subjects after 16 has declined. In addition, pass rates and standards in mathematics in schools have declined and we are witnessing a decline in the performance of most of our universities in the world league table. It is hard to conclude that there is anything in the Budget, or anything happening more broadly, that will lead to significant improvements in competitiveness.

On the second major item identified in the Red Book as related to competitiveness—research and development—the poor record of this country in that area continues. I recognise entirely that that is not a trend that started with this Government—it preceded them—but there has been no tangible reversal in the underspend of British industry on it compared with what happens in other countries. Last year, according to the Red Book, we invested 1.9 per cent. of GDP in research and development, which represents a decline as a percentage of GDP against the previous period. The Red Book anticipates that it will grow by 2 per cent. less than the rate of GDP, so we expect research and development to continue to decline against GDP in total and against our major competitors. We start from a position where our research and development expenditure is lower than that of most of our major competitors including France, Germany and the United States. The position is not strong and is getting worse, yet the Government say on page 63 of the Red Book that investment in research and development must rise if we are to improve our competitiveness. The score card on R and D is depressing, though I recognise that it is not an easy problem to solve. I support the position taken on research credits, but R and D is a serious problem that must be tackled more seriously than it has been in the Budget.

The third subject that I want to deal with is public services and the public sector balance, to which my right hon. Friend the Member for Horsham referred. My particular theme is public sector absorption of resources. The Chancellor's projections on the growth of the economy and his views on the anatomy of that growth are very clear. However, rather than seeing an enterprise and business-led recovery in economic growth, we are seeing the reverse. GDP growth is not being led by business, but driven by a growth in consumption and an increase in Government expenditure.

In fact, on the Government's own projections in the Red Book, consumption is intended to account for about a third of the future growth in GDP—incidentally, a rate that almost certainly means continued dissaving by private individuals and a further diminution in the amount that private individuals put aside for their retirement and the future. Of the 3 per cent. annual GDP growth, only 0.5 per cent. is the result of business investment. The Chancellor is seeking to create a future growth pattern in which the public sector continues to grow, private individuals continue to dissave and business sector growth is comparably slight. That is why so many people are worried about the future generation of tax revenues from corporate profitability.

As a percentage of GDP in this country, business investment is either declining or static and growing far more slowly than Government investment in capital. According to page 71 of the Red Book, the lack of business investment in comparison with Government investment is a cause of Britain's low productivity growth. Much of the analysis in the Red Book is right, but the problem is that nothing in the Budget will deal with it. The public sector absorption of resources is such that there will come a time when even a Labour Chancellor must assess the right balance and question the extent of continued growth in the state sector of the economy and in state employment.

At the moment, the vast bulk of new jobs created in the economy are driven by the Government, and more and more employment is based in the Government state-run sector. According to most estimates, it currently accounts for about 25 per cent. of all jobs—both direct and indirect. According to the Red Book, it will inevitably grow further, despite the Gershon efficiency savings that the Chancellor mentioned, because they will be completely overwhelmed by the number of new public sector employees. Yet that sector of the economy is associated not just with the lowest rate of productivity growth, but with declining productivity, so it acts as a drag on the economy.

I venture to suggest that the public sector also accounts for the worst employment practices and the lowest work force morale. It is by far the weakest management sector and has by far the highest trade union membership, which may or may not be a measure of the state of morale and management practices in that sector. More than half of all trade union members in Britain are in the public sector. Presumably, that is why the Chancellor wants to shove £65 million into an absurd union academy, which should be paid for by the unions and their officials, not by other taxpayers, most of whom are hard-working people who have chosen not to join a union.

There is nothing in the Red Book or the Chancellor's measures to address the problem of the declining productivity of the public sector or to deal with the weakness of the management and stewardship of our major public services. I want to make it clear that I am not an opponent of public service management or public servants. Neither am I dismissive of the challenge to make public services better run, better places to work and a better means of servicing our citizens, but we cannot tackle that unless more serious attention is given to public sector productivity and unless we are more measured about how much money and future employment goes into the public sector. Otherwise, the sector will act as a considerable drag on productivity in the economy as a whole.

As long as we continue to drive the economy using public sector investment and employment and private consumption, it is inevitable that, in addition, the trade deficit will go up—it is now £57 billion—because those are very import-intensive ways of spending money. In aggregate, the pattern—the anatomy—of economic growth as forecast and intended by the Chancellor is, if anything, weakening our future competitiveness.

That brings me to the last pillar of the competitiveness strategy: the regulatory burden. I confess that I was thrown into consternation by the Chancellor's speech because he appears, as my right hon. Friend the Member for Horsham suggested, to have embarked on a damascene conversion of monumental proportions immediately before the general election, by announcing that he is going to adopt the Hampton report—in full, I believe—and the Arculus report, both of which are good, comprehensive and far-reaching in their consequences. I am tempted to assume that it is an attempt to convince the business and enterprise sector that the Chancellor has seen the light, given that this is, in all probability, his last Budget. I hesitate to suggest that there is an element of shallow electioneering involved, but we have heard quite a lot of it before in Budget speeches—the Chancellor talking about the number of regulations he is going to withdraw and how he is going to turn back the tide of regulation, but in reality we see nothing but the reverse.

It is interesting that the Hampton and Arculus reports, both of which the Chancellor has apparently accepted in full, reflect the extent of the regulatory mess that we have got into. Indeed, the Hampton report refers to 674 bodies now administering regulations for enterprise in Britain, and to 600,000 inspections by 63 different national regulators affecting British business. It refers to 2.5 million forms filled out by small businesses on regulatory matters and 2.5 million further forms that they have to fill out to appease the local authority inspectors. That is an absolute torrent of paperwork, which is a tax on business time and, as my right hon. Friend the Member for Horsham said, it is particularly penal for small businesses and detrimental to innovation and creativity, to business change and to new business start-ups.

The chambers of commerce calculate the cost of regulation as £34 billion in aggregate. That figure is endorsed by the Arculus report and it has arisen under this Government. The Arculus report makes the point that, if we take the figure of £34 billion, then for a relatively modest investment and if it is possible to roll back these measures, there would be a 1 per cent. dividend benefit to gross domestic product by reducing the very regulation that the Government have imposed. By adopting the two reports, the Chancellor is talking about the most amazing revolution in thinking and behaviour by a Government who have shown absolutely no such inclination to date.

The two reports are not just general in their recommendations but also very specific. Perhaps when the Paymaster General sums up the debate, she will tell us whether the Chancellor has discussed the issue with his ministerial colleagues. I shall be interested to know whether they, too, are as committed as he is to implementing the reports, both of which have timetables for implementation. I should be interested to hear whether that includes not just the principles but the timetables, including actions that are scheduled later this year, in the event of the Government being re-elected, as well as the Bills that the Arculus report calls for, which have to be introduced in Parliament.

One of the Arculus report's central recommendations is the principle of one in, one out, so that for every new regulation that the Government produce, including all the benign proposals for better maternity and paternity benefits and so on, one should be withdrawn. Many Conservative Members will be very interested to hear what is on the Chancellor's shopping list of regulations to be withdrawn to compensate for those already planned for inclusion in the Labour manifesto.

Arculus also calls for a new Bill on deregulation orders to be brought in this year. I should be very interested to know whether that will be delivered, and to hear how progress will be measured. The two reports use rather statesmanlike language to make it clear that progress on reducing regulation of business and thereby improving competitiveness has been negligible to date.

I wholeheartedly welcome what the Chancellor had to say on deregulation, but I hope that the House will forgive me a degree of scepticism about whether anything will happen. I suspect that if the Chancellor moves from No. 11, as is widely expected, the content of both reports will vaporise, and we will hear no more of them.

In summary, the Budget is fairly thin in content but it is fair to say that, over the eight years that I have been in the House and the Chancellor has been in post, there has been a continued decline in competitiveness. I do not want to overstate that, as Britain is still a good place to do business and its economy is still performing reasonably well, but the biggest factor in that decline has been the growth in regulation. Although there appears to be an intention to reverse that, most people are, like me, extremely sceptical about whether anything will happen. The growth in the public sector is a growing drag on the economy, in terms of productivity and employment practice.

I hope that the next Budget, whoever the next Chancellor may be, will take much more serious steps to implement the recommendations from Arculus and Hampton, and will adhere to the timetable set out in those reports. The challenge is to restore competitiveness through education, investment in science, deregulation and an improvement in public sector performance. That challenge must be taken a great deal more seriously than is the case with this Budget.

It is a great privilege to follow my hon. Friend Mr. Norman, and Mr. O'Neill, who spoke a little earlier. Over the years, I have heard many maiden speeches in this Chamber, but those were the first more or less valedictory speeches that I have heard. They were both elegantly constructed, and they constitute an important contribution to the debate. Those who made them will have cause to remember them with pride if they have to leave this place in the next few weeks.

I was pretty disappointed by the Budget speech. It seemed to be an undignified shopping list of proposals, whose aim was more to upstage the Chancellor's Cabinet colleagues than to offer a serious contribution on the economy. I welcome the announcement that a memorial to the Queen Mother will be raised using funds from the sale of a commemorative coin. It is a good idea, but I am not sure that it was appropriate for a Budget speech.

In addition, the Chancellor announced the establishment of the sporting academy. That initiative will grab the sub-headlines, but the funding allocated for the academy is substantially less than the amount robbed from the sports lottery fund to pay for health and education initiatives that should be paid for by the taxpayer. Sports have been short-changed by this Government and this Chancellor, and nothing announced yesterday changes that.

I applaud what has been said by other Opposition Members about the honesty of the Chancellor and the Government. It is right and proper that the differences between the parties should be expressed robustly in this place, but those differences should not be caricatured. I do not agree with what the Government have said about Conservative policies. The impression that they have given is profoundly wrong and the exact opposite of the truth, as my hon. Friend the Member for Tunbridge Wells said. That is unhelpful for good political debate.

It is absolutely, totally and completely wrong for the Government to claim that Conservative policies would lead to £35 billion in cuts in public services. The Government know full well that of the money we plan to save, £23 billion will be reinvested in those self-same public services. It would still be disingenuous and wrong for them to claim that £12 billion—the difference—is to be cut from front-line public services. But it is utterly, totally and completely wrong to cite the £35 billion figure. There is no intellectual, moral or political justification for that whatsoever. There are words I could use to describe what the Chancellor of the Exchequer said on the "Today" programme this morning about that, but you would not allow me to use them, Mr. Deputy Speaker. I think that the House knows what I mean. The claim is untrue. No Labour Member who wants to earn the respect of his or her voters at the coming election should dream of using that figure.

Conservative spending plans would increase by 4 per cent. compared with Labour's 5 per cent. So we are talking about increases. The more interesting intellectual criticism by some commentators is whether the cuts are sufficiently robust to measure up to the international challenges posed by developing low-tax and low-wage economies, such as China and India. That is a much more interesting argument. I happen to think that we have got the balance right, but I would take that criticism and explore it. Instead of that, Labour Members rely on something that is simply not true.

Is it not a fact that the hon. Gentleman's Front-Bench spokesmen argue that real-terms spending will be down £35 billion? On "The Daily Politics" show on BBC 2 on 18 January, the shadow Chancellor said:

"Our plans provide for us to continue growing public spending a per cent. slower each year than Labour and by the end of the" economic cycle

"we'll be spending . . . £35 billion less than Labour."

Where will the money come from if not from the health service and other services from which people in my constituency have benefited in the past eight years?

I am glad I gave way. The hon. Gentleman's comments form a natural introduction to the next section of my speech. We can happily trade quotes. The chairman of the Conservative party said this morning:

"We have made clear in our spending plans for 2007–08 we have identified £35 billion of savings, we will re-invest £23 billion in priority services, the NHS, police, schools, transport and we will save money by cutting waste. It is all very explicit."

Some services would be cut, some of which the Prime Minister often names in Prime Minister's questions. Some £666 million would be saved from the new deal. That is the right thing to do. Youth unemployment was falling faster under the Major Government than it has under this Government. The new deal is not value for money. The Small Business Service will be scrapped, saving £496 million. Good, I say. I go around manufacturing, engineering and service sector businesses in my constituency, and no one has a good word to say about most of the Department of Trade and Industry's services. There are a couple of exceptions to that. The manufacturing advisory service is valued and will be kept. Those services that do not deliver value for money, however, will go. We are not cutting valuable front-line public services. We are making sensible economies to ensure that taxpayers' money is spent well.

We would save £18 million by scrapping the regional chambers. Not many of my constituents would cry into their beer about that, because the regional chambers are a complete waste of money. I have a list, ranging from £3 million saved from the budget for the judicial appointment commission, £45 million from the Department for Culture, Media and Sport "Culture Online" website project, and £98 million from ending the over-30-month scheme, to £1 billion saved from the Office of the Deputy Prime Minister by abolishing the intrusive local government inspection regimes. Those schemes are nothing but micro-management of local government from Whitehall. They do not improve public service delivery, but harm it. They are the opposite of what we should be doing, which is driving power down to local communities. The cost of enforcing the Deputy Prime Minister's will on local authorities and overriding local will is £1 billon a year.

At the risk of encouraging my hon. Friend to continue his enormous list, may I tell him that one of the most important cuts for most Londoners would be at the Office of the Deputy Prime Minister? Over the past five years, there has been a ludicrous duplication of roles, with a large number of employees at the Greater London assembly considering strategic London issues under the auspices of the Mayor of London, and an increase in the number of employees and expenditure in the ODPM in the form of the Government office for London. I can assure Mr. Jones that there will be no loss of front-line services for Londoners.

My hon. Friend's intervention speaks for itself, and I agree with him.

rose—

I am happy to give way to the hon. Gentleman, although he has not been here for much of the debate. Before I do so, however, there is one serious risk for a politician—believing one's own propaganda. He should not believe the propaganda that he has brought with him to the Chamber.

I choose to believe in the fact that youth unemployment in my constituency has gone down by 85 per cent. since the Government came to power. May I tell the hon. Gentleman that I have not been in the Chamber this afternoon because I have been attending a Committee considering delegated legislation? The hon. Gentleman listed a number of organisations. My maths is not brilliant, but the total was less than £2 billion. He needs to account for about £33 billion. Can he explain how he will reach that figure?

I am tempted to do so, as I have brought the list to the Chamber. It would, however, be rather tedious to go through it, and I would prefer to dip in and out and select illustrations. I am happy to share the whole list with the hon. Gentleman after our debate. It is not a state secret, as it is on the party's website, so he can look at it if he wants to. I shall give a few more examples: strategic health authorities will go, saving £617 million. The role of primary care trusts will be changed radically, saving £637 million. The number of quangos at the Department of Health is a scandal, and £651 million can be saved by slimming them down. That is a saving of roughly £1.9 billion, which can be used to pay for the salaries of doctors and nurses. I therefore advise the hon. Gentleman against pursuing that argument because he will lose it if he engages in it honestly. It is only by refusing to engage in it honestly that he has a chance of winning it, but I do not think that he will succeed even then.

On the subject of honesty, I listened carefully to the Chancellor yesterday, and I was disappointed. Sometimes, he is capable of being gracious and courteous. For example, on international debt and development, he has often paid tribute to his Conservative predecessors for their role in creating consensus on those important matters, and I welcome that. However, when it comes to the golden economic legacy, he is less than generous.

When I go home in a couple of hours, I shall get off the train at Worcester Shrub Hill station and I will see a Labour party poster showing the faces of Lady Thatcher, John Major and my right hon. and learned Friend the Leader of the Opposition. Under the pictures of Lady Thatcher and John Major appears the word, "recession", and under the picture of my right hon. and learned Friend appears a simple question mark. That is about as disingenuous as it gets, because an honest Labour party poster would say under the photograph of Lady Thatcher, "Cured the sick man of Europe". Under John Major's face, it would say, "Created the golden economic legacy that the Government inherited". Under my right hon. and learned Friend's picture it would say, "Building the better Britain we deserve". That would be the correct poster to display outside Worcester Shrub Hill station. [Interruption.] Labour Members may jeer, but that is another example of them believing their own propaganda.

My right hon. and learned Friend the Leader of the Opposition, in his excellent reply to the Budget statement yesterday, cited Tom Bower's biography of Gordon Brown, which was published by HarperCollins in 2004. Mr. Bower describes a meeting in the Treasury shortly after the election:

"'These are fantastically good figures', the official concluded. '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?'"

That is a nice idea, but those figures have underpinned many of the good things that the Government have done. I accept that they have done good things, although they have also done monstrous things, outrageous things and silly things. The golden economic legacy, however, has enabled the Government to proceed.

The Chancellor conveys the impression—and did so again yesterday—that he inherited a dreadful economic situation in 1997. In her excellent pamphlet, "Whatever happened to the golden legacy?", Ruth Lea says that

"he likes to give the impression the country was floundering in a swamp of economic chaos prior to 1997. Nothing could have been further from the truth."

More importantly, she goes on to say that

"the economy is not currently performing as well as it did when it was under the Major Government. This is because the current Government's policies have hindered rather than helped business and have undermined competitiveness."

That thesis underlies Ruth Lea's excellent paper. She says that there are two main reasons for the economy's strength. First, the supply-side reforms introduced in the 1980s, including trade union reform, privatisation of the utilities and the reform of the tax system under Lady Thatcher, underpin our new economic success.

The second reason, which is perhaps more interesting for Labour Members, is

"the post-ERM transformation in macro-economic policy designed to deliver low inflation and economic stability."

Many of us were wrong about that. We believed in the exchange rate mechanism and thought it was a good idea. I remember that I did—[Interruption.] My hon. Friend Mr. Fallon is right to say, "What?". I freely confess, it is on the record, and I now admit that I was wrong. I wish the Labour party would admit that it was wrong and abandon its still lingering love affair with the single European currency, although I was interested to hear the Chancellor say yesterday that he would not be revisiting the five tests. That, at least, is something.

Growth was higher on average over the Major years than it has been under the present Government. The balance of payments was roughly in balance by 1997 and is now in catastrophic deficit. Unemployment was falling faster than it has under the present Government and productivity growth was higher than under this Government. Inflation was brought under control by the previous Government. The Chancellor was particularly outrageous on the "Today" programme this morning when he said that inflation was built into the system when he inherited it. That is simply not true.

What about interest rates?

If the Whip on duty wants to know about interest rates, I am happy to quote from Ruth Lea's pamphlet, which states that

"interest rates were falling quickly—the official base rate was down to 6 per cent. by May 1997. And yields on long-dated gilts were already beginning to fall in response to the lower short-term interest rates and the lower inflationary expectations."

Perhaps most worrying of all is our slide down the competitiveness table. The World Economic Forum and the Institute of Management Development show that we have transformed one of the most competitive economies in the world into one that now languishes a long way down the league table. It is a scandal that that has been allowed to happen. Crucially, the public finances are nowhere near as strong as they were. It is common wisdom—we all know, on both sides of the House—that a massive black hole is opening up.

The list of bodies that believe that is enormous. The Institute for Fiscal Studies, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the ITEM Club, the National Institute of Economic and Social Research and the Centre for Economic and Business Research all say that there will be a big problem with the public finances after the coming election. It genuinely is a vote now, pay later Budget, and it is about time the Chancellor was more honest about that.

There is one thing that the Government did right, and they will be remembered for it. When the history of the Government is written, as it will be in a few weeks, it will become clear that the independence of the Bank of England was the defining moment. By that one move the Chancellor of the Exchequer succeeded in—to use his words—locking in the legacy that he had inherited. But it is an interesting question how well the Bank of England managed the policy. We do not know. Although the Bank appears proficient at the process, it has not been the most taxing time to conduct the analysis.

Sir Alan Budd, who was a member of the Monetary Policy Committee between 1997 and 1999, judged the policy development as follows:

"After the election of May 1997 we saw the establishment of the Monetary Policy Committee with the responsibility for controlling inflation and with the power to set interest rates for that purpose. That has been a brilliant success, but I want to repeat my point it was able to build on a very good foundation."

What an important point that is.

Briefly—because at least two of my hon. Friends want to contribute to the debate, although I notice no one on the Government Benches wants to do so, which is interesting—on council tax, a £200 one-off election year bribe is not good enough. Some changes to the system to provide long-term security for pensioner households is needed. I was hugely amused by what the Chancellor said about buses in the penultimate paragraph of his peroration in the Budget. He said:

"It is now time with the resources available to legislate so that in every community of the United Kingdom there is, from next year, free local bus travel for every pensioner and every disabled person too."—[Hansard, 16 March 2005; Vol. 432, c.269.]

As always with the Chancellor, it is the small print that matters.

The Red Book states:

"Budget 2005"— that rather ugly modern wording—

"continues this policy"— that is, pensioners sharing in national prosperity—

"by announcing free off peak local area bus travel for those aged over 60".

The words "off peak" did not feature in the Chancellor's conclusion of his Budget, but it is an important qualification. If a pensioner's hospital appointment or doctor's appointment is at 9 am, tough. They will have to pay just the same, in the Chancellor of the Exchequer's nirvana. What does "local area" mean? Moreover, the measure does not come into effect immediately but in a year's time. Who will pay for this? A city council such as Worcester, which I know well, will find it extremely difficult to find the money to fund the scheme. It is already monstrously short-changed by the Government.

Finally, the Chancellor refers to

"every community of the United Kingdom".

I have news for the Chancellor: many communities in my constituency have no buses. What good is free bus travel if there are no buses to catch? That is the real scandal. The money should have been used instead to develop innovative, community-based transport schemes that would benefit all elderly people without access to cars and the young people in rural England who are caught without proper transport.

I suspect that I have spoken almost long enough—[Interruption.] I am grateful to my hon. Friends for their encouragement. Perhaps they will spare me two or three more minutes on the subject of schools. I disagree about the desirability of starting school at the age of three. Yesterday in his speech the Chancellor trumpeted a 15-year compulsory education system, but I think that he is wrong to do so. The experience of Scandinavia shows that starting school later can be better for the intellectual development of children. We should be discussing raising the school starting age to six, not lowering it to three. I accept that for working mothers proper child care provision is important, but the idea that some kind of academic process begins at a very young age is outrageous. Bribing young people to stay on at school when they want to leave and get out into the work force is equally wrong. I do not share this great love affair for the 15-year compulsory education system.

Will the hon. Gentleman give way?

I give way to a Minister whom I greatly admire.

I am speechless. The hon. Gentleman read from what he claimed was source material on the economy. Given the points that he has just made about children's access to nursery education, has he ever studied any of the British or international research showing the huge benefits of nursery education to the development of young children through their entire school education, which must be good for raising skill levels? Why does he choose to ignore that bit of evidence?

I have studied some of the evidence about which the very able and talented Minister speaks. The loss of play in the early years of children's development is a matter of great concern. Children need to go to school—playschools, playgroups and other pre-school arrangements—to learn to socialise and play, and the way in which academic pressures are being forced down to a very young age group is profoundly disruptive. Academic studies in Scandinavia show that beginning the academic process later is better for children's development. Those studies are there too and I invite the Minister to look at them.

I must conclude by making a point about school funding. The Chancellor made great play of this yesterday in his speech. He spoke about the extra money that he is giving to head teachers in primary and secondary schools, and I am glad that he is finding a bit of money here and there. How much better if he had used that money to narrow the growing monstrous and unfair funding gaps between shire counties in particular and the national average. I do not deny that Worcestershire county council has had real-terms increases in school funding, but those increases are significantly lower than those of its neighbours and significantly lower than the national average, and the gap is growing.

My constituent Helen Donovan has written an excellent letter to the Prime Minister that he should have received by now. She met him during a visit that he made to Worcestershire. He was not terribly keen to meet her, but she persuaded him to do so using her own very particular charm, and she has written him this excellent letter since. She says:

"You quoted the increased figure of £680 per pupil per year for Worcestershire children since New Labour came to office. For the same period Warwickshire has received £910, Gloucestershire £800, Herefordshire £850 and Birmingham £1,170 per pupil per year increases. Worcestershire has again fallen further behind our neighbours as well as the Shires Average payment."

She points out:

"There are many cases of Worcestershire schools bordering their Birmingham counterparts, (some only 1 mile apart), who receive £750 per child less per year in funding, and yet who have a large percentage of their pupils who actually live in Birmingham. So they live in an LEA who receives the extra funding, but go to school in an authority that doesn't."

How much better it would have been if that money, which was used to get cheap headlines yesterday, had instead been used to address that fundamental unfairness.

There is no doubt this Budget is deeply flawed in its detail and in its strategy. It is indeed a vote now, pay later Budget.

I draw the attention of the House to the interests recorded in the Register of Members' Interests.

There is something of a valedictory air about today's debate. I pay tribute to Mr. O'Neill, who I think is leaving us shortly, and to my hon. Friend Mr. Norman; they made statesmanlike contributions that I shall certainly not attempt to follow. There was also an almost valedictory air—I think that my right hon. Friend Mr. Maude picked it up—about the Chancellor's speech yesterday, a slight sense that this is as good as it gets and is about the best that he can do.

That is important, because the structural imbalances at the heart of the public finances are now clear for all to see. Public spending is rising faster than growth in the economy as a whole. For five years—four years and this year—the Chancellor has been wrong, because he has been over-optimistic about the tax revenues that he seeks to generate. The deficit itself keeps on growing, which spells danger and trouble ahead. It seems to me that borrowing and taxation must inevitably rise. We are therefore justified in focusing yet again on the rules that the Chancellor has set himself and the point at which the cycle must end.

It may well be that this Budget is the last in the present cycle and that the Chancellor will claim definitively that he has kept his golden rule. I would like to enter three strong caveats. First, at the moment, it is for the Chancellor to measure the start and end of the economic cycle. I think that that is wrong; he should not set his rule and be master of where the cycle ends. It is as though Sir Alex Ferguson can decide when a match ends. Many other Budget assumptions are independently audited by the National Audit Office, and I think that this particular assumption should be measured independently, although I make no judgment as to whether the NAO is the right body to do it.There is already some dispute about when the cycle is ending. The Bank of England clearly believes that it is ending a little earlier than the Chancellor thinks, and the matter should be established definitively and independently.

Secondly, there is now a great deal of evidence that the rule itself is being fudged. I was suspicious right back in the early days, when we suddenly saw some money for nurses' training lifted out of the Community Fund. I was certainly a lot more suspicious a few weeks ago, when suddenly, happily, the Office for National Statistics rebranded some £3 billion-worth of roads maintenance and declared it to be capital investment. I do not think that that does any service to the ONS. It simply strengthens the case already made by my right hon. Friend the shadow Chancellor for making the office truly independent of the Treasury, which currently funds and controls it.

Intriguingly, the Treasury was able to get the right answer out of the ONS on roads maintenance, but it has not yet got the wrong answer out of it on the question of the classification of Network Rail. You may recall, Mr. Deputy Speaker, that we have raised that matter before in the House. The preliminary position of the ONS was that the new arrangements for Network Rail did not change its view of Network Rail's status. However, I shall quote an e-mail from the ONS dated 14 February, which was sent to me as Chairman of the Treasury Sub-Committee, the scrutiny body for the office:

"HM Treasury and Department for Transport have yet to finalise the new arrangements for Network Rail and associated bodies and so we are not yet in a position to be able to review our classification decision."

We are talking here not about £3 billion of roads investment, but about some £20 billion that might be moved inside the public accounts. Where such large sums are concerned, it is extraordinarily important that the basis on which they are dealt with is as independent as possible. That is why the ONS needs urgently to be moved out of the sphere of Treasury control and established independently.

I should also like to see a closed period similar to those that companies operate for the making of adjustments in the run-up to the end of the financial year. Those of us who follow these matters are bound to be suspicious of the serendipity involved in this sudden announcement. This morning, the Statistics Commission confirmed that the ONS had been considering roads maintenance for a couple of years, yet was suddenly able, just as we approached a Budget and the end of the financial year, to move £3 billion across. The hon. Member for Ochil said that we had got within the golden rule, but were hanging by a thread, by the skin of our teeth, or whatever. The gap is £6 billion, and £3 billion of that is down to the decision by the ONS. That is how close we have come. In the private sector, decisions on matters such as moving something out of the profit and loss account, the extent to which one depreciates capital, and the extent to which one capitalises new items and classes them as new rather than replacement have to be signed off properly by an independent auditor whose professional judgment is on the line. That is not happening in the case of the public accounts, and I would like to see such matters dealt with more openly.

The two bigger issues that still hang over our public accounts are the remaining private finance initiative liabilities, which represent a formidable sum of money, and public sector pensions. On PFI liabilities, you will know, Mr. Deputy Speaker, that the Treasury Committee has repeatedly called for those to be properly listed—not tucked away in some supplementary statement to the estimates or the Consolidated Fund, but listed here and now in the Red Book so that we can see the liabilities for the years ahead. We still have only the table of the payments that may have to be made, not the full extent of the liabilities; and of course those future commitments are building all the time.

I would apply the same argument to public sector pensions. I know that there are arguments for keeping the liability for public sector pensions off the public balance sheets, and that that is done in other countries. However, it seems to me that the commitment is there and that it is compulsory, whether in relation to a local authority or one of the mainstream public services or other public bodies. As the private sector has had to accept these new reporting obligations on pension liabilities, we shall have to look again at the way in which pension liabilities in the public sector are taken on board in the public accounts.

I turn to regulation. As a keen student of Hansard, Mr. Deputy Speaker, you will recall the speech that I made exactly one year ago, on 17 March 2004, in which I called for a 25 per cent. cut in Government regulation. That was not my idea—it was the result of the Treasury Sub-Committee's research into the administrative costs of tax compliance and our visit to the Netherlands, where the Government had set themselves a target of reducing the burden of administrative compliance by 25 per cent. over four years and had introduced a model for measuring the actual costs for every kind of business in every sector—small, medium and large, agricultural, industrial, distribution and so on.

Yesterday, we witnessed what my hon. Friend the Member for Tunbridge Wells called a damascene conversion—in terms of words, but not quite in terms of a commitment. The Hampton review, which, like the Arculus review, I welcome, suggests that the number of forms that regulators send out could be reduced by "perhaps 25 per cent." That is not a ringing commitment to slash this particular burden. Nevertheless, it seems that there is finally an awakening to the seriousness of the problem. I should tell the Paymaster General and the Chancellor that, as my right hon. Friend the Member for Horsham said, other Ministers and ex-Ministers have wrestled with the problem. It is not enough to publish good intentions and targets. Deregulation will not work unless it becomes part of the culture of Government, which is why the suggestion of regulatory budgeting introducing new regulations only if old ones can be replaced—is so important. It is also important to engrain throughout Whitehall the culture of seeking alternatives to regulation and to drive the process at a senior level in Government.

Plato wrote in "The Republic" that lawmakers are too often unaware that they are slashing away at a kind of hydra and that for every head they chop off, another appears. That is what we have with the Arculus review. The Chancellor wants a new Bill to deregulate faster. He wants to put more on the statute book to get rid of more from the statute book. We are bound to observe who created the additional burden of regulation, who helped to unleash the flood of European Union directives by signing up to the social chapter that we resisted, and who set up all the inspectorates and regulatory bodies that will magically be merged or will suddenly be found to be unnecessary. We wish the Government well in that task.

One of my criticisms of the Chancellor's approach to spending is that, although the adoption of three-year spending reviews was welcome, they never turned out to be that. First, they were every two years, and additional spending decisions have been announced in the pre-Budget report and the Budget almost every year since the introduction of comprehensive spending reviews. Yesterday was no exception. Suddenly, extra funding was made available to schools; extra funding was made available for council tax; extra funding was made available to the health service. Spending was settled back in July at the time of the last CSR, but suddenly those areas are found to be in urgent need of additional public finance. That depresses me because the process should have been more established and permanent.

Throughout the Government's spending patterns, we hear the refrain that additional resources should be accompanied by real reform. I see no signs of that real reform in the delivery of public services. I shall give the House some examples. Eight years after the Government came to power, we still have the disgrace of mixed-sex wards at Kent and Sussex hospital—eight years after a manifesto commitment to abolish them. At exactly the same time as a constituent complained to me about being pushed on to a mixed-sex ward at that hospital, I spotted in The Sunday Times of 9 January an advertisement by the Kent and Medway strategic health authority for a director of future work force at a salary of £90,000 a year. On one hand, there are not enough nurses on the front line and there are still mixed-sex wards; on the other, more and more money is going into back-office salaries, unnecessary bureaucracy and the bloated remuneration and pensions of the bureaucrats behind the front line.

I shall give a second example. The House will recall the grim days of the fire service strike two and a half years ago. It concerned the Government's necessary proposals to rationalise the fire control centres. There were some 44 centres, which were separate from the police and ambulance control centres. The Government appointed a commission to consider the matter and it was decided that the centres should be rationalised, with only eight regional control centres across the country. It was a classic example of more money being put into the fire and rescue service, accompanied by reform and rationalisation. How many of those eight regional control centres are operational today, two and a half years after the dispute ended? None. How many are being built? Again, the answer is none. I am informed by Property Week for 4 March that the very first site—the site only—is believed to have been chosen in the north-east of England. None will be operational, even with a fair wind, this year. So real reform has not accompanied the additional resources.

My third example is public sector pay. We were told, and have been told for two years, that it will have a regional and local dimension. Public sector pay will, we were told, properly reflect local labour markets. I have seen no evidence of that yet; indeed, plenty of evidence points in the opposite direction.

The fourth example is education reform. A great work force reform was promised to ensure that teachers had more time to prepare their lessons and more time away from their pupils. That has been promised for some eight years, but the National Union of Teachers has still not agreed the contract, and this morning we read that the National Association of Head Teachers has walked away from that contract.

The professionals—the doctors, the teachers, the nurses and the police commanders—desperately need reform. They are in favour of reform. The reform that they want is to be allowed to get on and deliver the job, with the help of the extra resources that have been put in. They want the Government to start keeping their side of the bargain.

We heard bits about taxation yesterday, but we did not hear about the greatest stealth tax of all. The failure to index allowances has dragged more and more people into tax. Indeed, more and more people have been dragged up from the lower band into the higher band. That has had a huge fiscal effect, and the Chancellor should have recognised and promulgated that fact. He prefers to pretend that the tax burden has remained the same, but fiscal drag has spread and deepened the burden across hard-working families so that more of them end up paying more. That is the answer to the question posed by my hon. Friend Mr. Willetts, when he wondered how the tax revenues could take a greater proportion of GDP in four years' time without taxes rising. The Government assume that they can continue to play the same trick of moving people up the tax bands.

There were a few give-aways in the Budget. Some were real give-aways that told us far more about the problem they sought to solve. There was the announcement of the sudden subsidy of council tax. Why should the Government suddenly want to help people pay their council tax? It is because this Government have put up council tax. Of all the local authorities in England—district councils, county councils and police authorities—Sevenoaks district council has had the worst settlements over the past seven years. In fact, it is one of six out of 424 authorities that have had no increase at all—the settlement has actually been cut. The amount per head has been reduced from £56 in 1997 to £54 in the current year. As a result, Sevenoaks district council, which raised £2.8 million back in 1996–97, has this year had to raise £6.3 million. That is almost a threefold increase. That is the second biggest stealth tax of all. Council tax has increased enormously. It is no use now the Chancellor trying to delude people into thinking that he is tackling the problem by a sudden handout. That sort of deception applies particularly to pensioners.

Pensioners have lived through many Governments and many pre-election give-aways. They will know that the £200 payment is a one-off payment. It is an election payment. There is no guarantee that it will ever be repeated. They have evidence on which to base that view. We all remember in this place that taxes were reduced slightly just before the 2001 election. We know also, for a certainty, what happened after that election, when taxes were increased again. The second principal tax on earnings, national insurance, was increased without warning. Why look at the crystal ball when we can simply read the Red Book? As my right hon. and hon. Friends have said—I make no apology for repeating this—this is a vote now, pay later Budget.

The spectre of an imminent general election ensures that this will not be a Budget for the economic purists—but which Budgets can be truly described as economic rather than simply political? To be honest, the combined economic horsepower of this place would perhaps be insufficient to warrant a one-day Budget debate at the best of times if that were the case. It is right, therefore, as my right hon. and hon. Friends have done, to focus on the politics of the Budget. To a large extent, it is a stand-still Budget. It is a make-weight Budget before, presumably, a further Budget or financial statement after the general election, whatever the result of that contest.

Twelve months ago, when I last spoke in a Budget debate, I focused my comments on the emergence of China and India as economic superpowers of the future. Rather like my hon. Friend Mr. Fallon, I wonder whether we should not give too much credit to the Chancellor's new-found enthusiasm for taking on board a number of our own ideas. However, his enthusiasm is rather welcome. I slightly regret my party's reluctance to embrace the much more important aspects of the global economy in considering economic and related matters over recent years.

It is right to look forward to Britain's place in a fast-changing global economy in 20 or 30 years' time. We should also examine the issue of relative competitiveness, where the Chancellor's record has been considerably less positive. I would echo the comments of a number of my right hon. and hon. Friends, and particularly those of my right hon. Friend Mr. Maude and my hon. Friend Mr. Norman.

We must look back at some of the lessons that were learned from the economic management of the 1980s and the early 1990s. Regrettably, the Government and the Treasury have never fully acknowledged or recognised them.

I return to commenting on China and India. The Chancellor has only recently returned from a trip to China. It is almost impossible to go to that country now and fail to be inspired and excited by what is happening there. It is a country with 1.3 billion people. There are 23 cities that are larger by population than London. It takes up about 40 per cent. of the world's cement and a third of the world's steel. We have seen only this morning the profits, for the first time in almost a decade, of Corus. That is largely the result of an explosive expansion in demand for steel from China.

I was a member of a parliamentary delegation that visited China about six months ago. It was truly awesome to see in Beijing the power of the English language. I had envisaged that most of the shop signs would be in Cantonese or perhaps Mandarin. Nothing could have been further from the truth. More than two thirds of shops in Beijing had English signs all over them. All schoolchildren in those 23 cities that are larger than London learn the English language from the age of seven. We in this country have an enormous advantage, in that the native language here is the world language, and we must ensure that we maximise that advantage in relation to the growth of China in the next 20 or 30 years.

My hon. Friend Mr. Tyrie, who is on the Front Bench today, went with me on a parliamentary delegation to India about 18 months ago. He is a great friend and fan of India from his student days, or so he told us on that visit. The sheer energy of the place is almost infectious. Our economy benefits from the institutions that were created there under British rule, including the passion for private property, the notion of the rule of law and the idea of the sanctity of contract. All those institutions, along with the power of the English language, give us an important competitive advantage over so many other countries in the G8. Above all, there is the capacity, the willingness and the ability of so many of India's 1.1 billion people to work hard and make their way. Representing the City of London, I look with great pride on the trading links that have existed between us and China and India over recent centuries. Because of them, and because of the cultural and language links that I have described, we should be looking towards those countries as the future, and I respect the fact that the Chancellor also raises his sights in that direction.

Depressingly, we often regard the global economy as a threat, rather than focusing on the opportunities to which I have referred. I regard the emergence of China and India, and the continued dominance of the United States of America for the foreseeable future, as a great opportunity for this country, but we must also face some stark economic facts. As several of my hon. Friends have pointed out, one thing that was missing from the Budget statement was the facing of such realities. It was inevitably a stand-still Budget, a vote now, pay later Budget, but it should also have been a Budget that had an eye towards the future. This country will succeed in a global economy only if we become increasingly competitive.

Our massively unfavourable cost base—compared with that of the developing world—means that manufacturing in this country will continue to decline, save only in those sectors with high value-added, highly skilled jobs. It is no use Labour Members moaning about the precipitate collapse of our manufacturing base while supporting the notion of a 35-hour week, an ever rising minimum wage, 12 months' maternity leave and a vastly expanded public sector. They need to realise that these are different sides of the same coin.

We must assess what we need to do for the future. I appreciate that the Chancellor spoke in great detail about education yesterday, as did my hon. Friends the Members for Mid-Worcestershire (Mr. Luff) and for Sevenoaks earlier today. In looking at the whole issue of education, the focus seems to be on either school education, which is important, or higher education. There seems to be a debate about whether 35 or 50 per cent. of those in their late teens should go to university.

However, the real debate should be about further education and lifelong learning. The idea of a job for life has certainly gone for ever, but for that quartile of the population who will never go to university—and who will perhaps never aspire to do so—to be safe in some sort of employment for the rest of their lives and therefore have full economic opportunities, there must be significant investment in, and a realisation of the importance of, lifelong learning and further education. I predict that it will be the norm for people to have three, four or perhaps five careers during the course of their normal working life. That will also apply to university-educated folk.

As pensions have been mentioned, I emphasise that a normal working life is likely to extend well into people's 60s and possibly beyond. Education does not end at 18 or 21. It may well be every bit as relevant to people in their 50s, and indeed their 60s, as they retrain for a new career because their most recent career has been outsourced to a developing country. I accept that my party is equally to blame for the lack of such debate, but it should be the education debate of the future.

The debate about university education is important, because without fully fledged independence for many of our universities, we run the risk of an increasing brain drain starting at 18. My most worrying conversation in 2004 was with the warden of Dulwich college after I had spoken briefly to that highly esteemed school's political society. He said at that juncture that a small trickle of boys leaving school at 18 were going straight to American universities. He reckoned that the trickle would become a flood in the next few years. His great worry was that the competitive advantages of the great universities—Oxford, Cambridge, Imperial college and the London School of Economics—was diminishing compared with that of the United States of America.

We need to have an open and honest debate about education if we are not to experience great disadvantage. It would be a tragedy for some of the brightest and best to leave our shores, not—as perhaps happened in the past—in their 20s and 30s, to find fortune abroad, but, in our global economy, in their teens, never to return. I hope that we will have a much more open debate on such matters. I suspect that that will not happen in the next seven weeks in the run-up to a likely general election. Whatever happens in the election, those issues are crucial for us in the decades ahead.

The watchwords for our economy should be flexibility, dynamism and global reach. I accept that the Chancellor, at least in his words, recognises their importance. However, I fear that the Government's policies are set to impair private sector productivity and relative competitiveness, which are so important. The great boom in competitiveness in the United States contrasts sadly with events in this country in the past three or four years. Even the decline in the relative competitiveness of the lamentable French and German economies since 1997 happened at a lesser rate than ours. My hon. Friends bandied several figures about earlier. It was said that we had slumped from fourth to 11th in the international competitiveness league.

They are facts.

My hon. Friend rightly upbraids me—they are important facts. The public sector in this country is fast expanding—there have been some 583,000 new jobs in the past seven years, according to the Office for National Statistics. I confess that I do not believe everything that I hear from the Office for National Statistics—my local authority in Westminster has fought an ongoing battle, which it has almost won, about that body's census figures—but there is little doubt that the large-scale explosion in public sector jobs has led to an increased tax take that cannot be the right way forward. That growth of the public sector appears incompatible with the goals that the Chancellor of the Exchequer set out.

In my capacity as shadow London spokesman, I want to refer to transport, which is one of the set subjects of today's debate. Although I have always supported the notion of Crossrail through the capital, there remains no indication about the source of the funding for it. That is all the more depressing because Second Reading of the Crossrail Bill is likely to take place before an election is called. Although I have some concerns about aspects of the route that have a constituency relevance, I have supported the idea, and it is therefore depressing that, when London is the most important economic base in the country and a global capital of which we can rightly be proud, we are starved of important investment when we desperately need it.

I appreciate that we are running out of time and that Mr. Jones wants to say a few words, but I want briefly to mention the African economy. I know that we will expand on the subject in the months and years ahead. The Chancellor seems partly to have taken over the international development portfolio on top of all his other responsibilities. As well as emphasising the importance of aid to Africa, we need to encourage trade. We need to persuade both the United States and our partners in the European Union of the key importance of opening up our agricultural markets, among others.

Debates here make this clear, but there is a growing public consciousness, which is almost at fever pitch, that our blithe failure to put action where our will is cannot be tolerated much longer. We talk about trying to help developing countries, and about debt cancellation and aid, but we really need to build up trading links. That will be an important part of the Treasury's function in the years ahead.

I welcome some aspects of the Budget, but I agree that it is a stand-still Budget. Debt has been mentioned by several of my hon. Friends, and I think there are worrying times ahead. Growth has been on target in recent years but revenues have not, which suggests that difficult decisions will have to be made immediately after the general election, whatever the result.

I approve of the positive and international outlook that was at the heart of some of what the Chancellor said, but we must set right the direction of our own economy if that is to be more than a mere aspiration. We must look beyond the shores of not just this country but the European Union. The European debate may or may not rage on the stump over the next seven weeks, but in my book the real worry is not that there are too many little Englanders in this country but that there may be too many little Europeaners. We live in a global world, in which we should be proud to play our part as a traditional trading nation.

I apologise for not being here at the beginning of the debate. I have been on two statutory instrument Committees. The Whips clearly want to keep me busy, on the basis that the devil makes work for idle hands.

I have heard some thoughtful speeches. As usual, Mr. Field made a very thoughtful contribution, which did not deal with the issues in this Budget alone. I agreed entirely with what he said about some of the broader issues relating to the global economy. Unfortunately, we sometimes see the British economy as a goldfish bowl with the rest of the world outside. I should like to hear more thoughtful speeches like the hon. Gentleman's from other Conservative Members.

I also listened carefully to Mr. Luff, who described what I can only term the Tory Valhalla that existed in the 1980s. I must disabuse him of that view: in my constituency and many other northern constituencies it was no Valhalla, but a nightmare. The local economy was ripped out of the region by a Government who were hellbent on revenge—certainly in the case of the Durham coalfield, because of the defeats that it had inflicted on them in the 1970s. That had a dramatic effect not just on the economies of northern constituencies such as mine, but on daily life. The fabric and the basic structure of many villages and communities were ripped out overnight as their main employment base disappeared, with no prospect of anything to replace it.

Not content with the insecurity suffered by people who were losing their jobs, the Government were ensuring that people lost their homes as well. Interest rates were sky-high in the 1980s and 1990s. In my constituency, unemployment—especially youth unemployment—rose to unacceptable levels. I intend to remind people—although those in North Durham will not need much reminding—of the effects that the last Tory Government had on many former mining communities.

Investment is now making a real difference in constituencies like mine. When I was elected in 2001, Chester-le-Street hospital was located in the old workhouse. It was a damned disgrace that in 2001 the health service was provided from an old workhouse. It was a sad fact that when the nurses had to move into temporary accommodation, it was better than that at the existing hospital. We now have a £9 million brand-new community hospital, of which we can be proud. It is not just providing excellent care using modern facilities but leading to a reduction in waiting lists. In the County Durham and Darlington Acute Hospitals NHS Trust area, waiting times were running at between 18 months and two years for orthopaedic operations. They are now down to less than six months. I am told that if people are prepared to go on an emergency list, they can get their operations done even more quickly, so the investment is making a difference in communities such as mine.

Reference was made earlier to the new deal. I know that it was opposed by the Conservatives and the Liberal Democrats—we should remind the electorate of that—but in my constituency long-term youth unemployment has gone down 85 per cent.—a real change. The other day, I looked up how many people in my constituency have been unemployed for more than 12 months. The figure has gone down 84 per cent. in the past five years. Those are not just boring statistics. People's lives are being changed.

In the Durham coalfield in my constituency, people were losing their jobs and were being put on incapacity benefit and written off by the system. The investment that we have now put into the new deal for young people and into encouraging people back into work is making a real difference. It is giving people a sense of purpose again. They can be proud of their communities.

I pick up on the point that was made eloquently by the hon. Member for Cities of London and Westminster about access to higher education. I agree that it should be everyone's aspiration to get into higher education but, in parts of my constituency—for example, South Stanley, the social fabric of which was destroyed in the 1980s—staying-on rates are still appallingly low and persuading people to go on to higher education is difficult. That will take time, but we should not shy away from the fact that it needs to be done. Those people are very intelligent but the aspiration is not there. To open up the world of opportunities that the hon. Gentleman has described must be an aim. I will certainly pursue it to ensure that people seize the opportunities that lie in higher education.

I have described my constituency on many occasions as a rural one with urban problems. It has some deprived areas but also some wealthy areas. When I talk to people in the more affluent parts of my constituency, they too are content with what has happened in the past eight years. A stable economy and low interest rates have made a real difference to them. They trust the Labour party to manage the economy. I remember the 1980s pamphlet that was written by the Fabian Society entitled, "Will Labour ever win again?" We can perhaps change that now to "Will the Conservatives ever win again?" I am sure that they will make some recovery in the next few weeks but, importantly, the argument was that the Labour party was not trusted with the economy. If there is one thing that the Chancellor has done, working with the Prime Minister, it is to ensure that the Labour party is seen as economically competent. The electorate realise that.

That is one thing that we need to remind people of in the next few weeks. We also need to remind them of what went on before. For my constituency, going back to those bad old days would be a complete disaster not just for people living in poorer parts of it, but for hard-working families who are benefiting from the prosperity and the stable economy that we have created, with low interest rates, low unemployment, and job security.

All that has meant that people can invest in purchasing a new home, but I now have a problem in my constituency: house prices are rising. We must do something to allow people to get on to the housing ladder. The announcement in yesterday's Budget on stamp duty will certainly help. Likewise, the announcement a few years ago that certain parts of my constituency were exempt from stamp duty allowed people to get on the housing ladder. We should not forget those facts.

For pensioners, the Budget's proposals on free bus transport will be welcome in my rural constituency, although, as the hon. Member for Mid-Worcestershire said, there are problems with accessing bus services. That is a bit rich coming from the Conservatives who deregulated the system in the first place. Perhaps we need to look at re-regulating certain parts of the service in areas such as mine to guarantee bus services. If one lives in a rural village in my constituency and has no car, a bus service is not a luxury; it is a necessity to get to work.

The free bus service will be welcomed by many of my constituents. An old lady called Annie Bell from Waldridge Fell comes to my surgeries. She is in her 80s and has asked for years when she would get a free bus pass. I am sure that she will be in my next surgery welcoming the announcement.

The measures for pensioners need to be viewed in context. There are many complaints about what the Government have done for pensioners, and I make no excuses for what we have done to tackle the poverty that many poorer pensioners faced. If one talks to those pensioners, some will say that they have never had so much money in their lives. Our policies have changed their lives, particularly those of women with no works pension who have had to rely on the state pension. The Government can be proud of that, and many constituents remind me of that.

Pension credit has helped a lot of people with a small occupational pension, which was welcome, but we must recognise that council tax is a problem in some areas for those on a fixed income. I welcome the announcement of the £200 assistance, which is a far better option than what is being proposed by the Liberal Democrats in terms of a local income tax. In my constituency, two people on average earnings will certainly pay more under a local income tax than under the present system, but the system needs radical change. We must look at options, but the thought of giving my local authority access to people's wage packets horrifies me. Once the electorate know about the proposal, they will reject it.

Let us consider the support that the Government have given to young families and working parents. During the last summer recess, I was proud to open the Stanley Sure Start centre, whose aim is getting the basics right and giving support to parents when they need it. It is a fantastic facility. It may seem like the nanny state to some people, but in my constituency the social fabric was wiped out in the 1980s when industry went. Giving support to parents and making sure they can get training, access to benefits and the support they need is vital.

I was knocking on doors on Saturday in a village in my constituency called Quaking Houses, and I want to tell the Minister how a woman's life has changed. She is a single parent who now works in the local Asda. She gets £70 a week in tax credits, which she said has given her her dignity back. The fact that she is not claiming benefits and is going out to work to support her children has ensured that she now has opportunities that were not on offer before. She told me that she thought that the Tories would take it all away, and I told her that they certainly would. She is one person who will vote Labour in the next few weeks, as will many others like her who have benefited from what the Government have done.

We need to remind people that the minimum wage was opposed by the Opposition parties on the grounds that it would cripple local industry and cripple jobs. Over the next few weeks, I shall be reminding the Liberal Democrats that they opposed a measure that has made a real difference in my constituency and in the north-east where, thanks to the minimum wage, some 111,000 people have had a pay increase.

Let me tell the hon. Gentleman that I had the honour of steering that legislation through the other place on behalf of my party, and I supported the minimum wage from the moment of its introduction to the moment of its arrival in law. I have always felt that it is a good piece of legislation.

That is another good example of the Liberal Democrats doing one thing in one place and another thing in another place. I do not question the hon. Gentleman's recollection of events, but the Liberals clearly opposed the minimum wage, as they opposed the new deal. Those policies have made a real difference in constituencies such as mine. I believe that the Liberal Democrats are trying to make inroads in the City of Durham constituency, so we will be reminding its low-paid workers that the Liberal Democrats opposed the minimum wage. We need to remind people of what the Liberal Democrats do in this House. Those Members should not be allowed to say one thing in this place and something quite different when they express themselves in their "Focus" leaflets, issued in different parts of the country.

I shall end on that point. As the hon. Member for Cities of London and Westminster said, there may not be much intelligent debate on the intricacies of the economy over the next few weeks, but the important thing is to remind the people of this country—I shall certainly be doing so in North Durham—that the Government have delivered a stable economy. That is why we have been able to put extra investment into public services, which has made a real difference. I am proud to support the proposals in this year's Budget.

I draw attention to my entry in the Register of Members' Interests.

Mr. Jones described the great improvements that have occurred in the north-east over the past few years. I once fought a parliamentary seat near his but, unsurprisingly, did not win it. I think that he would agree that the improvements predate 1997, beginning in the early 1990s and clearly evident through that decade. The arrival of Nissan in Sunderland is one example. He also made an important point about the improvement in the standard of living of a good number of pensioners on low incomes.

Mr. O'Neill, who looks relaxed in his place, gave a characteristically measured and reflective speech, though I take issue with several of his points. He said that we should accept at face value the figures provided in the Red Book. I wish that we could, but the working families tax credit was misclassified and there is the curious accounting regarding the private finance initiative, not to mention serious flaws in the forecast of tax revenue estimates and many other curiosities. The recent road maintenance reclassification is another example. I shall deal with those problems in more detail.

The hon. Gentleman also said that stealth tax and even council tax increases sometimes need to be mitigated—that, I believe, was the word that he used, and I agree with him. I regret that the mitigation announced in the Budget would, if the Government were re-elected, last only for one year.

My hon. Friend Mr. Fallon made an interesting and typically forceful speech, in which he alerted us to the shortcomings of the Government's arrangements for auditing the cycle. He also mentioned the crucial role that changing the culture will play if we are to bring downward pressure to bear on regulation when we get back into government.

My hon. Friend Mr. Field made a wide-ranging speech based, among other things, on his trips to China and India. I am envious of his trip to China. He was right to say that that is where the future lies—not so much working out how to sort out our competitiveness within Europe, but thinking about how to sort out Europe's competitiveness globally.

My right hon. Friend Mr. Maude also gave an interesting speech and made a powerful point when he noted the shrinkage of discussion on productivity in the Red Book—compared with previous years, it does not seem to be going so well—and the importance of understanding what really creates growth in an economy. It certainly is not micro-management and the micro-tinkering that we have had from the Chancellor in recent years.

My hon. Friend Mr. Norman, who is a good friend of mine, will be a great loss to the House. I am very sorry that he is going. It is rare to have someone who is so successful in another walk of life bringing his experience to this place. His points about the Hampton and Arculus reports were well made and he spoke with authority about the regulatory burdens on businesses. Whoever wins the election, that is something that needs to be addressed.

My hon. Friend Mr. Luff spoke with passion about education, among other issues. He mentioned the school starting age and bribing people to stay on at school, as he put it, which prompted a learned debate about academic evidence on the value of playtime in Scandinavia. I do not know the answer to the question—I am just not qualified to comment—but I noted what was said.

I acknowledge the success of the UK economy in recent years and agree that the Chancellor has taken one or two good decisions, such as giving the Bank of England full independence, which I had long supported in principle. I regret that the Chancellor cannot bring himself to give credit where credit is due. He talked about 50 successive quarters of growth, 19 of which came in a Conservative period, and it is only reasonable to say, too, that another nine or 10 after that were largely, and very directly, to do with that legacy, not least because the Government's monetary and fiscal stance were both largely set by the previous Administration.

The central issue in the Budget is whether the public finances will be sustainable in the long term. The key question, therefore, is whether taxes will have to rise afterwards. The fact that we are even asking that question after 50 successive quarters of economic growth tells us that the Chancellor has taken a risk with the public finances: for five years in a row, with more to come, he has been increasing public spending by more than the economy has been growing, and hoping that taxes will grow fast enough to pay for it.

As far as I know, there is only one instance in the post-war period in which the threats to the public finances of a major western economy were increasing at the end of such a long period of growth: it was the United States in the late 1960s, and of course, the threat to its public finances was caused by the Vietnam war. I worry that we could be heading for a serious financial threat to our fiscal position—it is not yet clear, and I am not making a prediction, but I certainly worry about it. It is certainly extremely worrying that we should be facing that threat at this point in the cycle, with a rising deficit.

Since the Chancellor's pre-election giveaway of £4 billion in 2001, there have been forecasts every year for the public finances that have repeatedly been over-optimistic, particularly on corporate revenues. The Chancellor now forecasts a current budget deficit of more than £16 billion—£6 billion up on his forecast the previous year. It is worth noting what the Institute for Fiscal Studies said about that this morning. It said:

"the key question confronting whoever is Chancellor after the election remains the same . . . is it plausible to expect the current budget balance to improve by 2.2 per cent. of national income . . . by 2009–10? . . . is it prudent to expect revenues to go up by £27 billion over the same 5-year period without fresh tax raising announcements?"

That is the key economic question ahead of the election. The IFS has done the House a favour by supplying an answer. It states:

"We think that to achieve these forecasts requires the Chancellor to raise taxes or cut spending by £11 billion a year."

Other commentators, such as PricewaterhouseCoopers, have said much the same thing.

There have been large increases in taxation that amount to a massive breach in trust, given that the Prime Minister said that the Government had no plans to raise taxes at all. The further increases already mapped out have hardly been mentioned in the debate. Page 255 of the Red Book shows the clear rise in the tax burden that is taking place. The economy is growing, but the share being taken in taxation is already forecast to rise. We are left to hope that, if Labour wins the next election, people will experience the curve flattening out towards the end of the next Parliament. Even those increases in the tax burden will not be enough to fill the black hole in the accounts identified by outside commentators.

How does the Chancellor think that he would fill that gap? He was asked that question on the "Today" programme this morning. I paraphrase him only slightly, but he replied, "Don't worry. We're going to carry on growing above trend growth for another year yet, and that will plug the gap."

I shall not second-guess that prediction, although almost all outside commentators have done so already and concluded that the Chancellor is being over- optimistic. However, does the right hon. Gentleman really believe his own forecast? This year, under its rolling review programme, the National Audit Office was due to audit the Chancellor's growth assumption, but tucked away in the Red Book is the admission that he has instructed the NAO not to audit the growth forecast this year.

That admission destroys the last vestiges of credibility in the Chancellor's claims that he was putting the Budget assumptions out to independent audit. What credibility can an audit have when the person being audited can tell the auditors what to look at and what to ignore? That strikes me as absolutely extraordinary and it reveals the promise to put the forecasts out to the NAO for audit to be the political and confidence-tricking gesture that it really was.

The Red Book is full of smoke and mirrors. Just over a year ago, the Prime Minister said that the cost of administering the public sector was falling as a proportion of total spending. Last year's Red Book contained a bar chart that purported to show that fall. When Opposition Members were finally able to get hold of the statistical series behind that chart, we found that the first half contained figures on expenditure for the UK as a whole but that, to achieve the downward slope that backed up the Prime Minister's claim, the second half of the chart contained the figures for England alone. In other words, it was what amounted to a falsified chart.

I wanted to know, therefore, whether the chart had reappeared this year. As far as I can tell, it has not: on show in 2004, it was scrapped in 2005, and has disappeared altogether. The truth is that administration costs are higher than in 1997. The Prime Minister did not tell us what was really going on. Unusually, perhaps, the Chancellor tried to cover that up in the Red Book for a while, but has now decided not to bother any more.

How many other charts, tables and so-called facts in the Red Book are constructed on similar lines? I do not know. What I do know is that the Conservatives will do something about the problem when we come to power. We will bring some trustworthiness back to the Red Book, which will be shorter and much more honest. We will make the Office for National Statistics truly independent, so that no Government can fiddle the figures in the way that many allege that the Government have done recently.

We will create a fiscal projection committee that will assume sole responsibility for official fiscal projections, supervised by the Comptroller and Auditor General of the NAO. When he wants to audit the growth assumption, he will be able to do so. Unlike this Government, who stand him down from that when it suits the Chancellor, the Conservatives will make sure that he is responsible for ensuring that the fiscal committee has done its work properly.

There are three things for which the Budget will be remembered. First, the Chancellor, despite himself, had to confirm that there was and is a black hole in the accounts. Secondly, he confirmed that there will be further increases in taxation if Labour is re-elected. That is what the chart on the tax burden says on page 255. The combination of those two factors means that there will almost certainly have to be further tax rises to fill that gap—the black hole—that will remain in the accounts.

The third thing for which the Budget will be remembered is the most blatant piece of electioneering in a pre-election Budget. We have had a hand-out to pensioners to relieve them of some of the burden of council tax bills, but for one year only. What a re-run of 2001 that is: modest cuts in taxation followed by tax rises immediately afterwards, except far worse this time because they will fall on a vulnerable group—pensioners. I hope that the electorate see through that. I think that pensioners will see through it. It is our duty to ensure that they do.

This concludes two days of Budget debate. Sir Brian Mawhinney, who is retiring from the House after 26 years of service, was at times critical of the Government, but he had the good grace to welcome many parts of this and previous Budgets. I pay tribute to him. Not only has he been a courteous Member, but his contributions to seeking peace in Northern Ireland and to the early work that the Conservative Government did on world debt, on which my right hon. Friend the Chancellor has built, were substantial. I am sure that all hon. Members will miss his contributions.

My hon. Friend Mr. Marshall is also retiring after 26 years. He described how, over 18 years of a Conservative Government, he saw the destruction of his and his constituents' hopes and aspirations. My right hon. Friend Denzil Davies, who is retiring after 35 years, made a typically combative speech, while explaining thoughtfully, as others did, the challenges that we face from China and India.

My right hon. Friend Mrs. Liddell, who, with me, became a Minister in the Treasury in 1997, made an eloquent speech on behalf of her constituents. Hon. Members on both sides of the House will miss her greatly, but we wish her luck in sunnier climes as she moves to another part of the world to take up other public duties. I also congratulate my hon. Friend Mr. O'Neill on his characteristically reflective but at times blunt speech on Government policy. None the less, he demonstrated his experience and excellent stewardship of the Select Committee on Trade and Industry. His final comments were forcefully made about the importance of and the need for investment in skills and a knowledge-based economy, and of ensuring that we rise to the challenge that the global economy poses.

My right hon. Friend Mr. McFall—the distinguished chairman of the Treasury Committee—the hon. Members for Arundel and South Downs (Mr. Flight), for Grantham and Stamford (Mr. Davies), for Orpington (Mr. Horam), for Ribble Valley (Mr. Evans) and for Billericay (Mr. Baron), my hon. Friends the Members for Wolverhampton, North-East (Mr. Purchase), for Wolverhampton, South-West (Rob Marris), for Nottingham, South (Alan Simpson) and for Hayes and Harlington (John McDonnell) and Mr. Jack, and the right hon. and hon. Members who spoke today, have all contributed to the Budget debate.

A number of points have been made today about the Government's strategy, but it ill behoves Mr. Tyrie, who was an adviser to a Conservative Chancellor who got the economy into a terrible mess, to start lecturing the Government about how to proceed. Let us look at each of the allegations in turn, starting with the allegation that our tax revenue forecast was not accurate. Opposition Members need to look at the figures very carefully. Net taxes and national insurance contributions have come in on target since the pre-Budget report. Furthermore, the public finance statistics released in February 2005 for January show that the underlying fiscal position remains sound, for example, in relation to the PBR forecast for year-on-year growth of 3 per cent. The total corporation tax receipts have grown more quickly than expected with year-on-year growth in that period. The tax revenues will rise automatically each year as the economy grows, more people are in work and are earning more. That is a sign of economic success and increased national prosperity.

We have an economy in which more than 1.8 million extra jobs have been created since 1997. Every year commentators say that our forecasts are wrong, but every year Treasury Ministers demonstrate that the Chancellor's forecasts are correct. If the hon. Member for Chichester wishes to cite commentators, I suggest he cite all of them, including the Goldman Sachs economic research group, which said in March 2005 that

"we do not think there is a black hole in the public finances".

My right hon. Friend will be aware that today 310 job losses were announced in a factory based in my constituency that is part of the Weir Group. Given the tremendous efforts that the Government have made to help manufacturing industry, what comfort and support can they offer my constituents and the company which, as well as making that announcement, has plans to move out of my constituency?

I am sorry to hear that. It is another example of the challenges of globalisation. As Mr. Field pointed out, globalisation can be an opportunity, but it also offers huge challenges. I am sure that the Scottish Executive and the Department for Work and Pensions will do all that they can to work with my hon. Friend and assist his constituents.

Mr. Maude said that the debate needed honesty. I shall answer his questions about regulations, but also return to the honesty of the Opposition and their £35 billion cuts to the public sector. His speech was mostly thoughtful and considered. The Government have established the Panel for Regulatory Accountability to scrutinise regulatory proposals, and we have accepted proposals in the Better Regulation Task Force report to reduce the administrative burden on business. We have also accepted the recommendations of the Hampton review. Before the Hampton and Arculus reports, there had never been a survey of the regulatory landscape by any Government. This Government are the first to address cumulative administrative burdens. He asked how that would be taken forward. The Departments have plans in place to reduce the administrative burden by pre-Budget report 2006, and the Panel for Regulatory Accountability will set a target or targets against which to deliver. With regard to Hampton, Departments will have 18 months to develop a plan for integration, and the full transition will take place within four years.

I am sorry that Mr. Norman is also retiring. He has not been in the House a great length of time, but has made important contributions during that period. Members in all parts of the House will be sorry to see him leave. He always makes thoughtful and challenging points, as he did today. He spoke about growth. In recent years, GDP growth has become more balanced, with the composition shifting away from private consumption. More recently, investment and export growth has been picking up. Business investment growth has picked up convincingly, rising for seven consecutive quarters and rising by almost 5.5 per cent. in 2004, the fastest rate in six years. He went on to speak about manufacturing. Conditions have been picking up recently. Official data show that manufacturing output grew in six of the past eight quarters, and output was up 1.3 per cent. on the previous year in 2004.

On competitiveness, I ask the hon. Gentleman to read the reviews. The KPMG review said that the UK's competitive framework was the third best in the world. In September 2004, the World Bank ranked the UK as No. 1 in Europe and seventh in the top 20 countries in which to conduct business. The OECD said that the UK's economic and administrative regulations were the lowest in the OECD. That is not a recipe for an uncompetitive nation. As we know, when we look at the figures for tax and undertake international comparisons, whether with the G7 or with our European partners, we see that the UK's level of taxes is competitive, below the European average and competitive with most of the economies with which we seek to compete for jobs.

The economy is enjoying the longest period of growth since records began. Whereas every other G7 country experienced at least one quarter of negative growth in the recent world downturn, Britain did not. The economic fundamentals are sound. That is why my right hon. Friend the Chancellor was able to announce continued investment to modernise our primary and secondary schools, increase payments to head teachers so they can spend more in their schools, support young people to stay in education, increase help to hard-working families, help with the £200 winter fuel allowance to pensioners and give local free bus travel.

Compare that with the Conservatives. What is on offer? I come back to the point made by the right hon. Member for Horsham. Let us have a little honesty. According to their medium-term expenditure strategy, their proposals will cut £35 billion from front-line services. That was admitted by Mr. Willetts, supported by Mr. Yeo, who confirmed that both his Budgets had been frozen in the first two years and that he would take money from the Department for Environment, Food and Rural Affairs, should he ever be a Minister, and transfer it to the Department for Transport. From their very mouths came the admission that they would cut £35 billion.

It is about time the Conservatives told the British public the truth. What they are interested in is cutting public services without telling members of the public why they are doing so and dressing it up as extra choice or extra services, when the truth is that it is the decimation of public services—the very things we need to be a competitive nation, create more jobs and invest in our children. It is about time the Conservatives came clean. I commend the Budget to the House. Opposition Members keep imploring us to be honest, and we are. I look forward to their honesty when they explain their medium-term financial plans and why they will cut that money.

Debate adjourned.—[Mr. Ainger.]

Debate to be resumed on Monday 21 March.