Budget Resolutions and Economic Situation

– in the House of Commons at 2:03 pm on 22nd March 2005.

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Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry 2:03 pm, 22nd March 2005

I am delighted to be able to open this final day of debate on the Budget 2005, which extends and entrenches the Government's commitment to economic stability. It also puts in place and reinforces the measures needed to enable British business and workers to cope with the challenges presented by the global economy, and to seize the opportunities that arise.

Our country is doing well. We are enjoying the longest period of unbroken economic expansion on record. Inflation has fallen to its lowest in 30 years, and interest rates are among the lowest for more than 35 years. Unemployment is at record lows and the number of people in work has risen by more than 2 million since 1997—the highest level of employment in history. There are 300,000 more businesses than in 1997, and 1,000 new businesses start up every working day. The rate of business failures is at its lowest level since 1993.

There is no doubt that Britain leads Europe in competitiveness. I hope that hon. Members of all parties are proud of what our entrepreneurs, working people and business leaders are achieving.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

Amid all that pride, will the Secretary of State tell the House when was the last quarter of negative economic growth in Scotland? Will she point to two measures in the Budget that would boost Scottish economic performance?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

The economic stability and public investment delivered by this Government, and confirmed by this Budget, are good for Scotland and every other part of the UK. If the policies espoused by the Scottish National party were ever put into effect, Scotland would be the first to suffer.

However, we know that more needs to be done if Britain is to be and to remain a leader in the world's knowledge-driven economy. For example, China is set to be the world's largest economy inside a generation, and India already produces 3 million highly skilled and well-qualified graduates every year. The challenges set by those countries make it clear that there is more for us to do.

Other developing countries are growing fast, but India and China have growth rates three times higher than Europe's. Their populations, and potential consumer markets, are five times bigger, while the wages paid in both countries are a tenth of the rates paid here and in the rest of Europe. However, we can be confident about our ability to compete. Our high-technology manufacturing industries have made great achievements in aerospace, pharmaceuticals and the new and fast growing field of biosciences. Our financial services sector has also done very well, and our knowledge-based business services in general have delivered more than half of the job growth enjoyed in this country in the past decade. In addition, our creative industries sector is one of the most successful in the world.

All that shows that Britain is poised to compete in the knowledge-driven economy. We lead the EU in the share of value added that comes from our technology and knowledge-based businesses, whether they be in manufacturing or services. It is increasingly clear that Britain is making the goods and services that people around the world want to buy.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

Will my right hon. Friend acknowledge the great contribution to job creation made by the Dundee company Cyclocel? It is the fastest growing and most highly financed spin-off venture to come out of any university in Europe. Is not that a tribute to the work being done in Scotland to contribute to the UK economy?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

My hon. Friend makes an important point, and I readily congratulate the company on its extraordinary achievements. It is just one of the successful spin-off companies that we have helped to support. I am sure that he—if not Mr. Salmond—will welcome the fact that the profits made by the top 300 Scottish companies increased by 292 per cent. last year alone.

Photo of Mrs Anne Campbell Mrs Anne Campbell Labour, Cambridge

I am sure that my right hon. Friend will be as pleased as I was with last week's announcement by the Chancellor of changes to Government procurement rules for small businesses. They will do a lot to benefit the small firms in my constituency, but does she agree that they need a very thorough overhaul? At present, they are designed to get the best value from the purchase of paper clips and large IT systems, and are not suited to the purchase of research and development. Will she look carefully at my Procurement of Innovative Technologies and Research Bill, which I presented to Parliament today? It contains some good ideas about how that overhaul can be achieved.

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

I agree strongly. My hon. Friend has been at the forefront in promoting the cause of science and of innovation in science-based companies. The Budget measure to which she refers will give a direct boost worth £100 million to small companies, which now know that they can bid with real confidence for research contracts funded by the public sector. I shall certainly look with great interest at her Bill, and I take this opportunity to congratulate her and her co-author, David Connell, on the excellent White Paper that they published to accompany her Bill.

The examples given by both my hon. Friends illustrate well the point I want to make: our success in Britain, in the face of the extraordinary technological and competitive challenges of globalisation, requires action by the Government as well as by business and industry. That is the fundamental point of difference between Labour and the Opposition parties. We recognise that the scale and speed of the changes that are taking place in our world demand as an absolute imperative that Government, business, the work force and unions, our universities and colleges, the regions and local communities all need to work together and that the Government, in particular, must make the investment and take the actions that only they can undertake—in science, skills, infrastructure and much else—if our businesses are to be enabled to thrive, grow, compete and succeed.

The Opposition parties simply do not get it. Like many of us, I was astonished that in the debate on my right hon. Friend the Chancellor's Budget statement last week the Leader of the Opposition had nothing to say—not one practical, positive proposal—about what the Conservative party would do to help British business deal with globalisation. In fact, we know what they would do and I am not surprised that the right hon. and learned Gentleman did not care to mention it last week. We know that the Conservatives would slash spending on science, just as they starved science of investment when they were in power. We know that they would cut the support that we give businesses that are making investment in growth, and we know that they would cut support for British exporters. So it is hardly a surprise that the Leader of the Opposition chose not to mention any of that last week.

We know, too, that the Liberal party would not be content merely with slashing the budget of the Department of Trade and Industry, but would abolish us completely. Both Opposition parties have fallen into the old ideology, believing that businesses can succeed if Governments simply leave things to the market. No successful country does that. The United States does not do that. France, with its investment in technology, does not do that. Germany, with its investment in research and development, does not do that. Finland and Israel, two of the most innovative economies in the world, do not leave things to the market. China certainly does not. Wherever there is success in the knowledge-driven economy, we see modern partnerships between Government, the public sector, the universities and our entrepreneurs and the business community.

Photo of Jim Cunningham Jim Cunningham Labour, Coventry South

The work of my right hon. Friends the Secretary of State and the Minister for Industry and the Regions at the time of the Jaguar closure was much appreciated. What consultations did my right hon. Friend the Secretary of State hold with Peugeot before its recent announcement about redundancies?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

We have been working with Peugeot for some years, so we were disappointed that the company decided recently to announce that it did not plan to make the replacement for the Peugeot 206 in the United Kingdom, despite our offer of investment support and the hard work of my hon. Friend and my right hon. Friend the Minister for Industry and the Regions. I greatly regret the loss of 850 jobs, announced by Peugeot recently, which will be very bad news indeed for those employees and their families. We shall of course do everything we can, especially through Jobcentre Plus, to ensure that all the individuals affected get new jobs, with retraining and new skills if necessary, as quickly as possible.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

I am sorry that I was not in the Chamber for the beginning of my right hon. Friend's remarks, and I hope that I shall be lucky enough to catch the Speaker's eye later in the debate.

Can my right hon. Friend tell us whether there is any way of getting in touch with Peugeot at the highest level to find out precisely what the company proposes for the future? There have been progressive cuts over last year and this year, although they are going down, but why will the company not tell us its intentions? It must know what it intends to do, because the car industry has to plan four to five years ahead.

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

My officials and I, as well as other Ministers, are regularly in touch with Peugeot and other major automobile and manufacturing companies. I know that my hon. Friend will welcome the fact that the chief executive of Peugeot, Jean-Martin Folz, announced at the Geneva motor show that production of the current 206 at Wrighton will continue until 2010 or beyond. We shall of course remain close to the company so that we can understand its plans and ensure that we help it in whatever way we can.

Photo of James Arbuthnot James Arbuthnot Shadow Secretary of State (Trade and Industry), Shadow Minister (Trade and Industry)

The Secretary of State has twice mentioned China. Does she accept, as we have said all along, that lifting the arms embargo on China will do serious damage to Britain's relationship with the United States, and hence serious damage to British business and British trade?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

Let me underline for the right hon. Gentleman—as my right hon. Friend the Foreign Secretary has done repeatedly—that discussions about the arms embargo in respect of China need to be seen in the context of the extremely strong controls that we have put in place in Britain, and helped to establish throughout the European Union, on the sale of arms or dual-use technology to any country. Those controls, which we shall continue to strengthen, would apply if the arms embargo were lifted. We continue to discuss that with the American Administration and I hope to reassure them on that point.

I return to the theme of what the Government need to do, not to substitute ourselves for business—we can never do that—but to create the climate, the environment in which more people can set up and grow a business. We recognise that we must do even more than we have done already. The research and development tax credits, for instance, have already delivered more than £700 million worth of support for growing businesses that are willing to make the investment in research and development that will keep them competitive in the future. As my right hon. Friend the Chancellor said, we shall make it even easier, especially for smaller firms, to claim that support in future.

We are encouraging more high-tech small businesses to develop their research capability, with the £100 million reserved for them to which I referred earlier. I particularly welcome the announcement in the Budget that we shall be investing further in the most disadvantaged areas of England to promote enterprise through a new local enterprise growth initiative worth £150 million a year by 2008–09.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

What my right hon. Friend is saying shows some recognition of the fact that the United Kingdom biotech start-up is one third the size of the United States biotech start-up. Will she strongly emphasise her commitment to ensuring that the R and D tax credit system reaches smaller enterprises, especially those in less favoured regions?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

My hon. Friend makes an extremely important point. We have been determined from the outset to ensure that the R and D tax credit is designed to meet the needs precisely of the smaller firms whose growth in the past was all too often choked off. By continuing to make the R and D tax credit even more accessible to small businesses, by setting up support for public sector R and D contracts and by sustaining the regional capital venture funds, which we created, we can ensure that those exciting businesses in the biotech sector, and in other sectors, can indeed fulfil their potential. I have no doubt that some will become the world-beating and job-generating companies of the future.

We in Britain are seeing a real change in people's attitudes towards entrepreneurship, with a significant increase in the number of people expecting to start a business over the next few years. Last November, over 150,000 young people took part in the inaugural enterprise week, and there is the increasing success of the Business Link network in helping businesses to grow. Last year alone, Business Link helped 458,000 small businesses, and another 164,000 pre-start-ups. Its reach into the business community continues to grow, as, I am delighted say, does the satisfaction of its customers. As the regional development agencies take responsibility from next month for the Business Link service, that business support will not only be sustained but made even more effective as it is delivered along with other regional support in the way that small business customers need.

Photo of Claire Curtis-Thomas Claire Curtis-Thomas Labour, Crosby

How will my right hon. Friend ensure that the creative industries continue to enhance the productivity of our manufacturing and engineering base?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

My hon. Friend makes an extremely important point, because I know very well from all the manufacturing companies that I visit that the ones that are succeeding best in the global economy are those that are harnessing the outstanding capability that we have in Britain, particularly in industrial design, and using that, as I saw for instance at a clothing company in Leicester last week, to keep themselves competitive, even against very low-wage competitors. The announcement in last week's Budget that George Cox, former chairman of the Design Council, will be invited to look specifically at this area of harnessing the creative skills of our people for the benefit of our manufacturing industry, will be welcomed by my hon. Friend, and certainly by industry.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

If the Secretary of State believes that the Government have a special talent for helping disadvantaged areas in the regions, why did they first of all introduce and then withdraw disadvantaged area relief from stamp duty for commercial property?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

The stamp duty relief on property was a time-limited programme that has come to an end, and as the Chancellor said last week, we have now put in place a new local enterprise growth initiative which will deliver £150 million worth of support by 2008–09. If I may say so, I deplore the somewhat sneering tone that the hon. Gentleman adopted on the issue. I have seen the real impact that our policies are having in many of our most disadvantaged communities as far more people obtain the skills, confidence and support that they need to move into self-employment and, as their businesses grow, even to start taking on new employees of their own; and that is what we need.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee)

The Secretary of State was asked about the short-lived stamp duty relief. I assume that when these flows of initiatives come out some attempt is made to evaluate the impact of such targeted tax reliefs. Has any evaluation been done on this and, if so, does it demonstrate any benefit to those who live in disadvantaged areas? How much is it estimated was wasted on giving stamp duty relief to developers who found themselves lucky enough to be in a place where they could take advantage on a valuable site of the tax relief that the Chancellor, probably unwisely, put forward?

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

As I am sure the right hon. and learned Gentleman knows, my right hon. Friend the Chancellor evaluates every initiative and policy that we put in place in order to ensure that taxpayers' money is used as wisely and effectively as possible.

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

All Freedom of Information Act requests are dealt with quite properly under that Act. My right hon. Friend the Chief Secretary will, I know, want to return to the point about stamp duty in more detail when he replies, but by offering that support in disadvantaged areas we have helped to bring back into use some of the old properties, particularly derelict properties, left behind by the demise of some parts of our manufacturing industry, and that has been to the real benefit of people in disadvantaged areas. The new enterprise growth programme will be a better targeted form of help on enterprise in those communities.

Photo of Claire Curtis-Thomas Claire Curtis-Thomas Labour, Crosby

The stamp duty relief was available extensively in areas of Liverpool where there has been significant deprivation, and it has made a significant difference to people seeking to buy their first homes, many of which were abandoned properties that have been brought back into use.

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

My hon. Friend makes an important point, because reviving and strengthening the housing market in disadvantaged areas is essential if we are to get both economic growth and social inclusion in every community in every part of our country. That is perhaps not a point that those on the Opposition Front Bench understand.

Photo of Stephen Dorrell Stephen Dorrell Conservative, Charnwood

Will the Secretary of State clarify whether she is saying that the commercial property relief under the stamp duty land tax was a success or a failure? Is it being withdrawn because it was a failure, or is she celebrating its success? Would she also remind the House that the revenue that the Chancellor is gaining by abolishing the relief is said in the Red Book to be £350 million a year, £150 million of which she says she is putting into the new scheme? That is a net increase in the revenue from disadvantaged areas of £200 million.

Photo of Patricia Hewitt Patricia Hewitt Secretary of State, Department of Trade and Industry

The stamp duty relief has helped in exactly the ways that I and others have outlined within disadvantaged areas. It has undoubtedly helped, but the new relief will be a better targeted support for disadvantaged areas, which I hope that both sides of the House will welcome.

One of the areas on which we have made real progress but on which there is still more to do is regulation. It is worth reminding the House that in 1990 setting up a company took five working days from receipt of papers until registration, but we have cut that to 24 hours for those filing electronically, and in the EU we have now won the argument about the need to simplify European regulations in order to give business right across the EU an even better basis for growth.

Last week my right hon. Friend the Chancellor published the reports of Sir Philip Hampton and David Arculus, and we have accepted all their recommendations. The Chancellor, the Prime Minister and I had an excellent meeting with representatives of business organisations last week at which we discussed the practical steps that we will take to put those recommendations into effect. By bringing together different regulatory bodies, and by ensuring that all our regulators take a risk-based approach to enforcement and inspection, we estimate that we can cut the number of business inspections by at least a million a year—a significant saving in time for our entrepreneurs and business owner-managers that again will give a further boost to their businesses. That lighter-touch regulation for the vast majority of law-abiding businesses, coupled with tougher penalties for those who do break the law or who continue wilfully to flout the law, is the right approach.

My hon. Friends and I have already mentioned the whole issue of science, but let me say a little more about that, because it is central to our ability to compete in the future. We are an astonishingly successful nation in terms of our scientific achievements—1 per cent. of the world's population funding 5 per cent. of the world's science, publishing 9 per cent. of scientific papers and receiving 12 per cent. of world citations. We lead the G8 on citations per pound invested in publicly performed research and development. We have three of the world's top universities for biomedicine here in the United Kingdom. As the Budget confirmed, we are now delivering the largest sustained growth in science investment for decades—more than £1 billion of extra investment for the UK science base by 2007–08.

We know however that it is not enough simply to invest in the science base. We must take the new ideas and technologies out of the laboratories and get them into our factories and businesses, so the investment that we are making—for instance, £300 million in the technology programme—will help our universities and research institutes to link up with businesses and spin-off companies. We are seeing the success of those early programmes all around the country—in Lancaster university, for example, where InfoLab 21, a major project backed by £10 million of Government money, is attracting inward investors and will create a world-class centre of excellence in information and communications technology.

That support for science and innovation in our economy is central to the next stage of economic strategy in the United Kingdom, but it is an investment that would be put at risk by the Opposition parties. It is essential to manufacturing in particular, and it builds on the industrial strategy that I put in place four years ago with our industrial leaders and trade unionists, and which my right hon. Friend the Minister for Industry and the Regions is taking forward through the Manufacturing Forum. By ensuring that our manufacturing companies can benefit from the manufacturing advisory service and now from the technology programme, we are giving practical help to thousands of our smaller manufacturing companies and their work forces all around the country.

If we are to succeed in this competitive world, we need to continue investing in our people and raising the standards that working people can enjoy in the workplace. My right hon. Friend the Secretary of State for Education and Skills has just published a landmark White Paper on adult skills, which shows once again how we in the Government are working successfully with the business community and with trade unions to put in place the investment and reform that are needed to correct a skills deficit in Britain that goes back to the 19th century. However, we need to do more.

We have shown over the past eight years that, contrary to all the fears that were raised by the Opposition eight years ago, it is possible both to raise standards of protection for working people and to raise the growth rate and the employment rate in our economy. That is what we have done through the minimum wage and through the advances that we have made on family-friendly working, trade union recognition and much else besides. We have set out in the Budget and in the recent consultation document that my Department published how we propose to move forward in the years to come to ensure that we get the best standards for our employees, because that is the way to get the high-performance workplaces that are central to Britain's future as a high value-added, high-wage, knowledge-driven economy.

The Budget reinforces the economic stability that is the essential foundation for business success and employment creation, which we will never put at risk. It also puts in place the measures that are needed to help more of our businesses create the new products and the new production processes that will keep them competitive in the global economy, and which will continue to deliver increased employment, higher living standards and a better quality of life for our people. I commend the Budget to the House.

Photo of Stephen O'Brien Stephen O'Brien Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Industry 2:34 pm, 22nd March 2005

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

I welcome the opportunity to assess the real implications of this vote now, pay later Labour Budget on Britain's wealth creators, risk takers and entrepreneurs. Beginning with the broad economic background to the Budget debate, I am conscious of the tradition on these occasions—at least under the present Chancellor—to include grand historical analyses of the state of the economy. I am more than happy to continue the custom.

The Government and the Chancellor claim credit for 50 consecutive quarters of growth, so when did that start? For the vast majority of businesses and people of this country not brainwashed by the spin to which Labour is addicted, it started in the final quarter of 1992. The solid foundation on which the UK's macro-economic stability was built, and on which British business so vitally depends, was in fact established during the last four and a half years of the previous Conservative Government.

What has Labour done while building on our golden legacy? The Chancellor[Interruption.]—and in domestic matters his sidekicks, the Prime Minister and a string of Secretaries of State for Trade and Industry, have presided over the largest trade deficit—[Interruption.] since records began in the reign of William and Mary.

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

Order. The House listened with civility to the Secretary of State making her speech—[Interruption.] Order. The House ought to do the same when the Opposition spokesman is speaking.

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

I am grateful, Mr. Deputy Speaker.

The Chancellor has presided over the largest trade deficit since records began, and the lowest economic growth of any major English-speaking economy over the past seven years. Following the even worse experience of 2001, more regulations were introduced by the Government in 2004 than in any other year in the past half-century.

Photo of Linda Gilroy Linda Gilroy PPS (Rt Hon Nick Raynsford, Minister of State), Office of the Deputy Prime Minister

The hon. Gentleman mentioned a golden legacy. Will he apologise to my constituents for the dreadful waste that was inherited in 1997, when we were paying out more to keep people unemployed and to service the national debt than we were spending on all our schools?

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

I am absolutely sure that my party and those who were responsible for building that golden legacy have nothing to apologise for, as we ensured that we locked in the macro-economic stability so valued by business.

A greater number of regulations were introduced by the Government last year than in any other year in the past half-century. So much for Prudence Brown and her sister, Constant Spin. What is the role of the Department of Trade and Industry in all this? According to the Department's recent business plan, the DTI's principal policy goal is to

"raise the rate of productivity growth" and improve the competitiveness of the UK. Tragically, for the entire eight years under the Government's heavy trudge, the Department's overriding policy objective has had a staggeringly miserable record. Productivity growth is down by a third in comparison with the last Conservative Government, and the UK's competitiveness under Labour has fallen from fourth to 11th, according to the renowned World Economic Forum.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

Is Scotland included in the league table of English-speaking economies to which the hon. Gentleman referred? If so, can he answer the question that the Secretary of State so signally failed to answer, and remind the House when the last quarterly downturn in economic growth in Scotland occurred?

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

Unquestionably, I regard Scotland as a full member of the United Kingdom. Its native language is a wonderful dialect of the English language. As it happens, I am more Scottish than anything else within the United Kingdom, and I am very proud of that. As for the question that the Secretary of State signally failed to answer, I do not pretend to know the answer, but the hon. Gentleman is undoubtedly owed an answer by the Secretary of State. On my last visit to Scotland recently, I was aware that although some very good businesses are prospering, there are some serious challenges, not least because of net migration, which is causing severe difficulty in accessing the skills that Scotland needs.

Why has the DTI failed British business so miserably? As hon. Members might expect, I have been giving the question not a little thought, and my inescapable conclusion is that the DTI lives on a different planet from the rest of us—Planet Hewitt. On that planet, there is no correlation between the level of taxation and regulation of business and the productivity growth and competitiveness of the UK. On Planet Hewitt, the level of taxation of business has nothing to do with the Secretary of State whose Department exists to

"champion UK business at home and abroad".

We know that because, on 1 February, I tabled a parliamentary question to ask the Secretary of State

"what assessment she has made of the likely effects of additional tax rises on businesses in the UK in the period 2005–07 on national (a) private sector employment growth, (b) productivity growth and (c) competitiveness."—[Hansard, 15 March 2005; Vol. 432, c. 229W.]

That is a highly pertinent question, given that table C9 on page 254 of the Red Book reveals that the Chancellor expects his receipts from tax and national insurance to increase from 36.3 per cent. of GDP this year to 38.5 per cent. in 2008–09. The Ernst and Young Item Club, which uses the Treasury's model of the economy, calculates that the Chancellor will need to raise taxes by £10 billion to achieve that. Furthermore, the PricewaterhouseCoopers poll reported yesterday that 73 of the senior business people questioned believe that the tax burden will rise significantly in the next three years under Labour. We have shown how the inevitable tax rises that will follow hard on the heels of—electors forbid—a Labour third term can and will be avoided under an incoming Conservative Government.

I waited for a response to my question. While I waited, I wondered what the Secretary of State does with her time. Five weeks after I tabled it, on 10 March, I received a response from the right hon. Lady saying that my question was being transferred to the Chancellor. It is partly because all the discussion and all the decision making about the effects of business taxation have been transferred to the Chancellor under Labour that taxes have increased 66 times since 1997 while, at the same time, our productivity growth rate, our private sector growth rate and our competitiveness continue to fall.

Sir Digby Jones said:

"Business has become mightily fed up with being taken for granted. The cumulative rise in taxes of £46 billion between 1997 and 2005 has exacerbated a five-year decline in corporate profitability and sliced investment by 11.5 per cent. in just two years."

The director general of the Confederation of British Industry is referring to a fundamental structural failure under this Government. Faced with a complacent Chancellor who has an obsessive-compulsive tendency to micro-manage the private sector, there is no one at the top of the Government to stand up for the interests of British business. The losers are not only the somewhat powerless Prime Minister and his equally hapless Trade and Industry Secretary, but, more importantly, the wealth creators and risk takers on whose profits we all ultimately depend for our essential public services. Let us not tiptoe around the subject: profit is good, as well as essential to the standing and welfare of our nation and her peoples.

Not for the first time, we have heard the Secretary of State's torrents of words about family-friendly policies, the importance of diversity and the position of women in the workplace. Let me make it absolutely clear that there is no dispute between us about the importance of harnessing all the resources and talents in our society. The best means of delivery is not the words uttered on Planet Hewitt, but the best practice of companies of all shapes and sizes up and down the country. The most important opportunity for us all to take is to enable all British businesses to be more competitive. Any more Government-inspired burdens on business only take this country backwards, not forwards, under Labour.

If the Secretary of State really means what she says, she should put her own house in order. Given that the work-life balance is so important, why do a majority of staff at her Department—55 per cent.—say that they work

"in excess of their conditioned hours" according to the DTI's 2003 employee survey? Given that diversity is so important, why in the same survey do a significant majority of DTI officials—60 per cent.—not agree with the statement

"I believe that the DTI recognises the diversity of its customers and adapts its policies to reach them"?

If the Secretary of State believes as strongly as I do in narrowing the gender pay gap, why is there still a 16 per cent. difference between male and female salaries at the DTI—only marginally different from the national average?

In this outer orbit of Planet Hewitt, apart from tax, the major bugbear of business is over-regulation, which deflates corporate profits, absorbs valuable management time and drains entrepreneurial ambition. On Planet Hewitt, however, British business is not over-regulated, only "better regulated". The Secretary of State and her Ministers have been absolutely adamant on that point. The right hon. Lady said in November 2003:

"The number of regulations each year that impose a cost on business has fallen since 1996".—[Hansard, 6 November 2003; Vol. 412, c. 915.]

Back in the UK, the incredulity that greeted that claim was accompanied by sharp intakes of breath. According to a CBI survey, an overwhelming 95 per cent. of businesses say that they are having to spend more time on red tape now than they did five years ago.

Even the Chancellor's Hampton review, which was published last week, found that

"The predominant mood, particularly among small businesses, was one of concern of . . . the cumulative burden of regulation. Many surveys and much academic research confirm that this is the general consensus. This issue has been more prominent in recent years".

The Secretary of State's big conversation about business regulation cannot have extended far beyond the Treasury Bench, because she is mysteriously absent from the "general consensus" referred to by Philip Hampton.

According to the British Chambers of Commerce, Labour has placed a "millstone" of slightly less than £40 billion around businesses' neck since 1998. On Planet Hewitt, the BCC's figure is wearily disputed. The Minister for Small Business and Enterprise told the House last year:

"I reject the figure of £30 billion"— the BCC's estimate of the cost of business regulation introduced between 1998 and 2003. He continued:

"The real cost of administering the regulations is only a fraction of that."—[Hansard, 30 June 2004; Vol. 423, c. 399.]

Last week, however, the Government's own Better Regulation Task Force admitted in a report that

"Complying with the information requirements of UK regulations is estimated to cost some £20 billion to £40 billion per annum."

According to the BRTF, whose report the Chancellor has accepted in full, he tells us, the cumulative burden of business regulation introduced under the Labour Government is between £140 billion and £280 billion. That is at least three and a half times greater even than the BCC estimates, which from their distant planet DTI Ministers vehemently reject.

The big tent of consensus from which the Secretary of State and her Ministers are mysteriously absent does not extend merely to the cost of over-regulation, but includes the policy tools to lighten the burden on business. Back in the real world, the Conservatives have been listening to individual business men and women, to business organisations and, of course, to our own panel of senior business practitioners and economists. Based on their input and advice, we have published a series of reports on how to reverse the flow of over-regulation. Our reports, which are accessible on www.conservatives.com/policies, have been welcomed by all the major employer bodies—[Interruption.] It is a great shame that Ministers have no idea of the terminology of e-business technologies. As I said, our reports have been welcomed by all the major employer bodies, including the Confederation of British Industry, the Federation of Small Businesses, the Forum of Private Business, the Institute of Directors, the Engineering Employers Federation and the British Chambers of Commerce.

After listening to British businesses' concerns about the stock of existing regulation, we have also announced plans to introduce deregulatory Budgets and a deregulation Bill containing specific measures to reduce the volume of regulation introduced by the Labour Government. We shall include that Bill in the first Queen's Speech of an incoming Conservative Government. [Interruption.]

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

Order. Non-stop chuntering is not allowed, particularly from the Treasury Bench.

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

Thank you, Mr. Deputy Speaker. Clearly, Ministers want to close their ears to the real demands of business in this country to enable it to maximise its opportunities in a competitive global world.

When, on the advice of our business deregulation panel, the Conservatives called for sunset clauses, the Minister for Small Business and Enterprise dismissed them as a "quack cure for regulation". When the Conservatives backed post-implementation reviews, the Minister for Industry and the Regions derided them as

"regulatory impact assessments on regulatory impact assessments" that would

"neither deregulate, nor cut bureaucracy."—[Hansard, 30 June 2004; Vol. 423, c. 381.]

When the Conservatives published proposals for regulatory budgeting along the lines of the Dutch model, the Treasury this time claimed that such Budgets

"could easily be used up by the need to implement EU rules. This would leave no space in the Budget for legislation proposed by British politicians."

When the Conservatives announced plans to end gold-plating of EU legislation when it is transposed into UK law, the Minister for Small Business and Enterprise accused us of being advocates of what he called "copping out of directives".

Now, all of a sudden, and with a general election imminent, the Chancellor feigns to announce that he has had a Damascene conversion to Dutch-style regulatory budgeting and that he will, by no means for the first time, overrule his DTI subordinates by accepting the BRTF's recommendations on sunset clauses, post-implementation rules and ending gold-plating. The Chancellor and the BRTF have obviously been absorbed in studying our action plan to reverse the drivers of regulation. The Chancellor's speech included phrases that were extraordinarily familiar to me and my business deregulation panel; I cannot imagine where he managed to lift them from.

It is symptomatic of the DTI's extraordinary ineptitude under this Secretary of State that British business finds itself having to defer to a famously meddling and interventionist Chancellor to defend it from extra red tape and bureaucracy.

Photo of Robert Walter Robert Walter Conservative, North Dorset

I wonder whether my hon. Friend noticed an item in the Financial Times this morning referring to a Library study about regulations. The Chancellor has stated that 50 per cent. of regulations come from Europe, whereas the Minister for Europe, citing the House of Commons study, said only 9 per cent. come from Europe, which would mean that 91 per cent. emanate from the Government themselves and they cannot not hide behind the European Union.

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

I am grateful to my hon. Friend. Every which way one looks at it, it is clear that all the regulations being placed on business are deeply worrying and undesirable. That said, there is no doubt that the Government are having a spat among themselves as to the true provenance of all these regulations. On this occasion I think that the Chancellor is nearer the mark—he is certainly supported by the Library research—in saying that 50 per cent. of regulations placed on business emanate from Europe. Other estimates even claim that 80 per cent. of such regulations initially emanate from Europe. But as we know, with this Government it is all talk, and in this particular dispute it is all talk in two different directions.

This is a Chancellor who describes the creation of the Financial Services Authority, a super-regulator whose handbook runs to more than 8,000 pages, as

"a measure to reduce the administration burden of regulation".

And this is a Chancellor who proudly, if rather strangely, refers to the new dispute resolution regulations as a "deregulatory measure". Those regulations are so complicated that the DTI had to spend £200,000 of hard-earned taxpayers' money pulping and then rewriting its guide to them, and the Federation of Small Businesses has described them as a

"potential minefield for small firms".

These regulations tell British businesses all they need to know about the difference between Labour and the Conservatives on red tape. Labour-speak is that introducing the new regulations is somehow "deregulatory". Sometimes Labour gets its newspaper headline, but it is long-suffering British business that gets the hassle of a costly and complex new set of Labour impositions. The Conservatives, by contrast, will take action to abolish the regulations via our deregulation Bill.

On his record so far, British business has no more reason to trust the control freakery of the Chancellor in the Treasury than the nannying of the DTI to deliver genuine deregulation and to get Government off the backs of the British business community. The Chancellor should beware, because no one is better able than British business to see through his pre-election "bribes of March".

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

The hon. Gentleman may be aware that 160 people in the export credit section administer the arms export controls and export licensing systems of the DTI. Does he consider that to be far too many?

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

Our plans for the DTI, unlike those of any previous Opposition, have been set out line by line and are, as always, published for the hon. Gentleman to see. The straight position is that we have looked at what will be effective in helping our innovative and competitive exporters to win new markets overseas. In refashioning the quality of that representation, we are looking to appoint people of higher calibre. We would therefore redeploy some people and at the same time hire at least 50 very high powered and experienced business men and women who would be able to operate in the markets where we are seeking to develop export opportunities, and, more to the point, have the respect to get business-led generation as an extension of the resources to businesses that are so sorely in need of the support that has been lacking to date under this Government.

As we have heard today, on this outer planet the Secretary of State does not spend much time worrying about the over-taxation or the over-regulation of business, but she does spend a lot of time worrying about the straw men that the Government put up, which pretend to be Conservative policies but which bear no relation to the reality of our proposals. The new Labour spin machine was whirring at full throttle this morning as we heard about the imaginary Conservative plans to decimate Government support for science and research and development. Back in the real world—[Interruption.] It may be useful for Government Front Benchers to listen to this and to hear the facts for a change, as they are sometimes a little bit shy about that. I have made it quite clear that a Conservative Government, with the support of my right hon. Friend the shadow Chancellor, will at least match the current Administration's spending on science, innovation and R and D.

Furthermore, we will refocus the raft of ineffective Government-funded support schemes, which, as we know from the FSB's 2004 membership survey, only 17 per cent. of businesses, particularly small and medium-sized businesses, even access, let alone use—a depressing finding that is also borne out by the Forum of Private Business figures. Of those few businesses who have used those schemes, only one out of 10 in the FSB survey found the DTI's advice or support satisfactory. Refocusing those schemes is the correct and sensible approach that we will take. After all,

"a few major wins of significant impact for business are worth any amount of initiative-itis."

Those are not my words, but those of the Martin Wyn Griffith, chief executive of the Small Business Service.

We will therefore retain and enhance the manufacturing advisory service, the small firms loan guarantee scheme and Enterprise Insight. Although we will abolish the Small Business Service as a freestanding entity and save overhead administration costs, we will absorb its value-added activities back into the core DTI with a real outward customer focus. The Secretary of State has said that the SBS is indispensable, but it is not—it is the business support services that are delivered to customers, not advice to Ministers, that count in a competitive world. If I can bring the Secretary of State and her Ministers once again crashing back down to earth, the chief executive of the SBS has stated in clear terms that the SBS will discontinue its provision of direct support to businesses and downsize its operations

"by 60 per cent by April 2006."

I commend to the House and to all the people who are engaged in this country's business community and workplaces our line-by-line analysis of DTI activities. We believe that taxpayers have an unqualified right to expect value for money from a Government. They know they are not getting that under Labour and that they can get it only from an organised and efficient Department of State, which is what we have set out in detail as a Department for business under the Conservatives. We note that according to a DTI staff survey, only 19 per cent. of DTI employees believe that

"there is a shared sense of purpose and direction across DTI", and fewer than half believe that

"DTI's work is focused on a clear set of priorities".

That is a startling indictment of the current structure and regime of the DTI under this Secretary of State.

The right hon. Lady should listen to her colleague, the Secretary of State for Culture, Media and Sport, who told the House earlier this month that the BBC's model of governance is "unsustainable" because the governors cannot be effective as both "cheerleader" and "regulator" of the BBC. No business or organisation has ever succeeded where its strategy is to pull in two polar opposite directions as today's DTI does. By the same token, in the real world the DTI cannot more than double its employment relations budget and introduce 17 major new pieces of employment regulation, showing just how much it really distrusts business, and at the same time claim to be an effective cheerleader for business. That is why a Conservative Government will restructure the DTI to champion, not regulate, business.

Championing businesses means first and foremost showing a willingness to listen to them and celebrating all those engaged in businesses in Britain. The Conservatives have already shown our willingness to listen to and engage with business, not only on deregulation but in developing our recent skills policy. Working with the CBI, the BCC and the Engineering Employers Federation, we have proposed a system of vocational grants—I hope that the Secretary of State heard about those earlier in the response by my hon. Friend Mr. Collins to the statement by the Secretary of State for Education and Skills—whereby we would create a skills strategy driven by what British businesses demand, not by what the education bureaucracy sometimes happens to produce. That is precisely what has not been successful under this Government and what our policies will produce, as has been endorsed by business.

After eight years of relentless regulation, for which the Secretary of State clearly remains stubbornly unapologetic—not least because she did not mention regulation on business in the whole of her opening speech, although it was a central piece of her own Chancellor's speech—smears about Conservative policies and fantasy Labour initiatives to deregulate are not good enough. British business will consider this Budget on the basis of the real-life facts on the ground, not the Labour myth-peddling machine.

It is a fact that before the last election, Labour said that it would not raise national insurance contributions. Immediately after the election, it did so. It is a fact, according to the CBI, that

"budget changes have pushed up business taxes by a cumulative £40 billion since 1997".

It is a fact that there have been 15 new regulations every working day under Labour—50 per cent. more than under the last Conservative Government. It is a fact that under Labour, as we are told on page 62 of the Red Book,

"the UK has not been fully effective at realising the commercial potential of research".

It is a fact that for every job that the private sector lost last year, the public sector took on almost two jobs. And it is a fact that nearly 1 million manufacturing jobs have been lost under Labour.

Enough is enough. Instead of the endless talk that we hear from Ministers about the challenges facing British business—important as they are, and important as it is to recognise the global challenge now coming from China, India and other very fast-developing markets—businesses need a Government with a clear plan of action. They need a low tax and a real low-regulation economy; the right skills system, driven by the demands of business, to pull young people up through school and higher and further education; support for science and research and development through the stripping away of much of the current bureaucracy, not least in the mismatched definitions of development for the purposes of qualifying for research and development tax credit; and a refocused DTI. The DTI must be that loud, authoritative voice that is needed for the confidence, competitiveness, profitability and highest possible reputation of British business. That will be at the heart of a Conservative Government whose success will transparently be measured by its month-by-month, year-on-year real effectiveness in reducing the regulatory burdens on business.

None of that is rocket science. It is all deliverable—but, obviously, only under the Conservatives. It is clearly out of reach of the inhabitants of planet Hewitt.

Several hon. Members:


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

Order. I remind the House that Mr. Speaker has placed a 12-minute limit on all Back-Bench speeches.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West 3:02 pm, 22nd March 2005

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

It is appropriate that I have an opportunity to speak in today's debate. I am sure that my right hon. Friend the Secretary of State will not mind if, while she is still here, I deal briefly with a local issue—that of Peugeot. My hon. Friend Mr. Cunningham is present as well, and the Secretary of State will understand why we in Coventry are particularly concerned about the issue. It comes hard on the heels of Ford's decision to close Browns Lane, the historic centre of activities for Jaguar worldwide. We are happy to note that the job losses were small, and we are grateful for the handling of the operation in that respect. Nevertheless, as the Secretary of State will appreciate, this was a hard and bitter blow to the morale of the city itself.

Neither my hon. Friend nor I make any apology for viewing the Peugeot issue from a constituency point of view. Ryton is clearly our last manufacturing plant—albeit an assembly plant—for the motor industry. As the Secretary of State will know, 700 jobs went last year and 850 job losses have now been announced. That means that there will be fewer than 2,000 Peugeot employees at Ryton.

The Secretary of State spoke of her own disappointment, after all the work that she had done and, indeed, all the work that her Department had done. The Department deserves credit for that, notwithstanding the rubbish and denigration that we have heard from the Conservatives. I do not know how we would fight such things through without a good, committed, effective Department—but that is a separate issue. Anyway, the Secretary of State said how disappointing it was that, after all those efforts, the company had turned around and said "No thank you, we are not going to build the 207 in the UK; we are going to build it somewhere else, and we do not need the grant." Worse, the company now tells me—the Secretary of State may wish to confirm this now or later—that if it wanted the new grant for new investment that we still hope will be provided for the next few years, it would no longer be applicable and the whole process would have to start over again. As the Secretary of State can imagine, that is very disappointing. I regret to say that we are all reaching the conclusion that Peugeot has no plans for the plant's future, and will probably let it go in due course. I do not think we can let it go by default.

Photo of Jim Cunningham Jim Cunningham Labour, Coventry South

My hon. Friend has raised an important point: the transferability of the grant from one project to another. I hope the Secretary of State will clear that up. I acknowledge that she worked wonders to save Jaguar's Whitley plant, and we appreciate that, but companies are making people redundant without proper consultation—without a by-your-leave. I am sure the Secretary of State knows that for the past 18 months we have been trying to get answers out of the company. Does she not think it is about time we introduced some form of legislation, perhaps tougher legislation, requiring consultation?

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

I take my hon. Friend's point. He will be pleased to know that the company has agreed to consultation, but the redundancy notices have been issued and the decision to reduce the Peugeot staff by 850 has already been made. It is a funny sort of consultation when a company decides first and consults afterwards.

The Secretary of State will recall the last time we were in her office. She agreed to a meeting to discuss Peugeot some months ago, before we had the answer from Europe on the grant. One of her officials said that the Department was pushing for an appointment with the chief executive or the company president. I subsequently wrote to him myself, in French, and received a reply from the local director of communications in Coventry. It seems to be very difficult to get through to the company to find out what its intentions are. I think that that is the minimum that we are entitled to ask of it.

The chief executive officer is quoted as saying—at, I believe, the Geneva motor show—"Do not worry, the 206 will go on until 2010 at least." I do not think that statements of that kind are of any value in this context. The reason given for the present reduction of staff by 850, to less than 2,000—a 30 per cent. reduction, almost exactly—is that last month sales of the 206, marvellous car though it is, were down by 5 per cent. in Europe. If that is the case now, with the 207 coming in, I think we shall see a fairly rapid decline in sales over the next few years. I feel that my right hon. Friend the Secretary of State should take the matter up and have a discussion with Peugeot. If it became involved in a meaningful discussion, it might change what seems to be its current mindset—that there can be no future for Ryton. The Secretary of State will be pleased to know that we have a meeting arranged with the Minister for Industry and the Regions, on, I think, 5 April. We will bring up those points then, and she may be able to tell us what steps she can take.

Photo of Claire Curtis-Thomas Claire Curtis-Thomas Labour, Crosby

I have listened to what my hon. Friend is saying with deep regret. There may, alas, be no future for Peugeot in his constituency. Does that mean there is no future for the employees, and how does their future under this Government compare with their future under past Administrations?

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

Fortunately everyone is a good deal better off than they were under past Administrations—if not in my constituency, in the general area of Coventry city.

What struck me about the Budget as soon as the numbers came through was how remarkably restrained the Chancellor had been. I do not want to provoke Mr. Clarke, who is a former Chancellor himself, but I have a sneaking suspicion that had he found himself on the presumable eve of a general election, he might have found it in himself to give more away. Perhaps I should not have made that remark; I do not wish to provoke an intervention.

This is a mildly restrictive Budget. Some £250 million has been taken out of the economy. If the idea is to take £800 million from the super-rich oil companies with one hand, by advancing their tax payments, and giving it to pensioners with the other, I do not see how any Member could object to that.

Photo of Stephen Dorrell Stephen Dorrell Conservative, Charnwood

For the record, the hon. Gentleman does not have to look into a crystal ball to inquire what my right hon. and learned Friend Mr. Clarke would do in the run-up to a general election. He was in exactly that position and subject to the temptations that the hon. Gentleman refers to, but did not do what the hon. Gentleman suggests he would have done.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

I will tell the right hon. Gentleman what his right hon. and learned Friend did: despite the imprecations of the then Governor of the Bank of England, he refused to increase interest rates, and we had to put them up the day we came to power. However, I do not want to get into that debate. We are talking about a Chancellor whose record, nine Budgets later, is well known to the House, and he basks in a glow of approval.

There were four targets in the Budget, which I thought were carefully selected. The first was lower-income families, and children. A remarkable statistic to pick out is that a family with two children on an average income of £25,000 is now, once credits are taken into account, paying an effective rate of 6 per cent. income tax. That is the extent to which the Chancellor and Government have been successful in targeting credits and relief and in making those on lower incomes with children much better off. I take great pride in that figure, which as with other aspects of the Budget, should be endorsed by both sides of the House.

I also believe that the targeting of senior citizens was right. Half of the increase that we have made has gone to the one third of pensioners who are less well off, and I believe that the £400 will be extremely welcome to them this year. The third target was first-time buyers, with the increase in the threshold for stamp duty, which was doubled. Many of us would have liked to see that threshold increase even further. However, if there is an element of regional redistribution—perhaps involving the midlands, east and south-east—given that effective regional policy is endorsed, we could all welcome that.

The final target was individual savings accounts, of which I suppose I have to claim to be the author. I am pleased to see that the savings under the new ISA provisions have been extended for a further five years. All those provisions were welcome, and I believe that the priorities were all well chosen.

I turn now to what I believe are two or three of the biggest challenges, beyond the Budget, that will face whoever is in government in the next five years—I am sure that that will be the present Government. The first was referred to with some effect by Mr. O'Brien, and I say to my right hon. Friend the Secretary of State that red tape and the size of the public sector are a real issue.

I have only a little time, but I remember that when I was in the Treasury there was a Better Regulation Task Force. It sent me one paper on regulation in particular—it did not send me any more after that—that I could not understand. I sent it back and told the taskforce to rewrite it. It sent it back to me, but I could understand it even less the second time. I decided that I would not sign it, so I sent it back to the Cabinet Office, where I suppose the taskforce is still located, saying that I would not sign the paper as I did not understand it. I never saw the document again, but I imagine that it went out. At that time, the unit had 29 people sending that stuff out, so I say to my right hon. Friend that red tape is a problem.

We do not always need initiatives. My right hon. Friend announced another important one today, but as we have more initiatives and more people administering them, the system becomes more unwieldy and difficult to reduce in size. There is only one way to deal with the problem, which is to cap the numbers in many areas of government. I stress from the start that we should work in meaningful consultation with the trade unions and tell them that we would continue with natural wastage, redeployment and retraining. If we as a Government were serious about that, we could bring down the numbers within a few years.

Gold-plating has been referred to. We were meant to be reducing that back in 1997–98, and I am sure that we are. [Interruption.] I am sure that we are. The number of regulations coming out of Brussels is a different matter altogether, and I am sure that the hon. Member for Eddisbury will know that I am not the greatest fan of them, although the former Chancellor is.

There are two or three huge challenges facing us.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

I want just to chide my hon. Friend. If he does not believe in regulations, how on earth did he give us the insurance ISA?

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

I did not say that I do not believe in all regulations—I do not believe in many regulations. I believe that they could be cut, and that we should cut them.

I have only one minute left, and I want to say briefly that two or three huge challenges face the next Administration. The first is pensions, and Members from all parties will be aware of the scale of the problem, both locally and nationally. The Government have taken two excellent initiatives: the financial assistance scheme of £400 million; and the pension protection fund, which should safeguard 80 per cent. in the future. We are also very grateful for Brico, part of the Federal Mogul scheme in my constituency. However, the problems are huge and ongoing, and they will have to be faced.

The second challenge is equal pay. If the national health service is to meet the claims that will arise out of a court judgment in the north-west, the problem could be enormous. We ask the Government to be prepared to help the NHS. They will also face problems with equal pay from local government, and together with that will be the pensions issue. The third area is globalisation and the changes that it will force on all sectors of all economies, especially such an exposed and open economy as the UK's.

Only a Labour Government will have the vision and courage to meet those challenges. Equally importantly, only a Labour Government will have the compassion and values to ensure that, in meeting them—they are harsh challenges and will impose harsh realities—we look after the old, the sick and the poor. Only a Labour Government can do that, and I assure my colleagues on the Front Bench that I look forward to their re-election in due course.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury) 3:16 pm, 22nd March 2005

I had intended to start by setting out the parts of the Budget that I agreed with, but I have been provoked by the Secretary of State so I will start with a couple of points on the Department of Trade and Industry. She takes the proposal of axing or cutting the DTI a bit personally, so perhaps I could quote back to her a comment that was made to her when she spoke to the annual conference of the British Chambers of Commerce a few months ago. One of our leading entrepreneurs, Gulam Noon, who I think is a new Labour supporter, asked her please to stop trying to help them and just let them get on with their job of running their companies. In many ways, that encapsulates the scepticism that many companies feel about the DTI's role.

I want also to say in passing that I endorse the intervention from Mr. Arbuthnot about trade with China, not simply because it might offend President Bush, which is a subsidiary issue, but because it is rather a bad idea. I would have thought that the Government might have learned by now that subordinating British foreign and economic policy to the interests of a handful of arms companies is not good practice. I agree very much with what the right hon. Gentleman said.

I turn now to the substantial parts of the Budget with which I agree. First, the Secretary of State is right to say that, in many respects, the British economy is doing well. Of course, it is uneven and, as Mr. Salmond correctly pointed out, there are variations across the UK. None the less, in many respects, the British economy is and has been doing very well. The problem, however, is that the Chancellor, like the Secretary of State, does not do modesty. We therefore have a completely unbalanced explanation of how this has been achieved. Part of the explanation clearly comes from outside—the rapid growth in the United States and China is an example—and from the legacy of Mr. Clarke, in that there was a period of growth before this Government came in. All those are factors that need to be acknowledged.

I acknowledge many of the specific achievements that the Government have claimed. The Chancellor said in his Budget speech that our exceptionally low inflation had enabled him to launch 50-year bonds. That is good and, historically, it is a very positive development. He did not point out, however, that 50-year bonds are also being launched in France, one of those European failed states that he enjoys gloating about.

The Chancellor also argued that the British Government had a generally good record on the Government balance sheet—the relationship between debt and gross domestic product—and that is certainly true. We are one of the best countries of the G7 in that regard, although our record is nothing like as good as that of the Liberal Government in Canada, which is exceptionally low and is improving. None the less, our record is relatively good. However, this is being attributed to good housekeeping in the United Kingdom, whereas we should be more concerned about the collective folly of the entire G7. Only a couple of years ago, a report from the Organisation for Economic Co-operation and Development highlighted the fact that the current trend in this respect in all the developed countries was unsustainable. I freely acknowledge, however, that the one genuinely positive and unambiguous benefit has been the fact that we have had steady growth. Martin Wolf produced a very good piece a few days ago, demonstrating that, of all the G7 countries, Britain has enjoyed the greatest stability in both inflation and growth. That is an advantage, and it is probably a product—in part, at least—of good policy decisions on the independence of the Bank of England.

As I advocated the policy of changing the stamp duty thresholds, I cannot help but agree with the Chancellor's proposal to do so. I am a bit disappointed that he did not go up to £150,000, because £120,000 is of precious little use in London and the south-east of England. None the less, it is a good policy as far as it goes. The objection raised by people in the property industry is that raising the stamp duty threshold will fuel house price inflation, but I do not think that that will happen. I base that belief on a small piece of information that was allowed to trickle out of the Treasury in the past few days. The Treasury's own forecast is that house prices are going to fall in the current financial year, admittedly by only a modest amount, but the trend is now clearly being acknowledged.

Photo of Sir Sydney Chapman Sir Sydney Chapman Parliamentary Private Secretary To the Rt Hon Michael Ancram, Foreign Affairs

Does the hon. Gentleman agree that the problem with the stamp duty threshold is that, once it has been reached and the payment triggered, the duty is liable on the total cost of the home rather than on only that part of the value above £120,000? That is going to be the main problem for people living in his constituency and mine.

Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

The hon. Gentleman is quite right. The slab system, as it is called, which would kick in at £150,000 and apply 3 per cent. duty to the total amount, is one of the underlying elements of unfairness in the system. Having done the numbers, however—and having hoped that I might be able to offer some comfort on this issue—I have decided that unwinding the slab system and replacing it with a genuinely progressive system of stamp duty would either be phenomenally expensive or result in the top end of the property range being charged extremely high rates, such as 7, 8 or 9 per cent. So unravelling the problem that the hon. Gentleman has correctly identified is going to be very difficult, but he is right to say that this is a fundamental problem.

The Government were also right to give up the stamp duty exemption on properties in disadvantaged areas. We had a very useful exchange on this during the Secretary of State's speech. The Government have clearly discovered, as we did when we looked into the matter, that the vast majority of beneficiaries of the exemption are big property developers in Canary Wharf. Indeed, one of the largest beneficiaries in the past few months has been a big commercial development in High Holborn. We are not talking about shopkeepers in Salford—[Interruption.] The distinction is that that particular commercial area on the fringe of the City of London is extremely profitable, and the companies that benefit from the exemption are not small companies. The Government have drawn the correct conclusions in this regard. They had made a mistake, and they have at least partially acknowledged that in this proposal in the Budget.

A further change in the Budget that I acknowledge positively was the modest step to raise the threshold on inheritance tax. We know that this is a difficult and complex area. May we, however, have some feedback on whether the Government are going to address some of the serious anomalies in inheritance tax that are beginning to arise for middle-income families in many of our constituencies? This is partly caused by a threshold problem, and partly by a deeper issue. For example, a family came to see me last week. Five orphaned children whose mother had recently died found themselves living in the family home, having to cope on no income beyond benefits, and without any inherited savings. Nevertheless, they faced an inheritance tax bill of £20,000. They live in a fairly modest house in my constituency. We need to face not only the threshold question but the issue of how the inheritance tax burden on many middle-income families can be made supportable in exceptional cases of that kind.

My final point of agreement reflects partly what Mr. Robinson said about red tape. The Chancellor's proposal is admirable and sensible, but the only problem is that we have had Lord Haskins and David Arculus considering the matter, and relatively little has happened. The Government claim to be committed to a tough regime of regulatory impact assessment, but, in practice, significant Departments such as the Home Office ignore it totally, and Departments are not consistent in the way that they apply it. The Treasury and the Inland Revenue in particular seem to treat it in a fairly flippant manner. Therefore, we need to consider the Government's record as much as their words. None the less, common ground exists on some important issues.

Let me turn to some of the issues about which I am more sceptical. First, on forecasts, the Government are forecasting above-trend economic growth for the next two years. The Government can say, not unreasonably, that their previous forecasts have been proved right and the doom-mongers have been proved wrong. To believe that there is no spare capacity in the economy however, is to make a series of fairly optimistic assumptions. We will not discover who is right until after the election, but if the Government are wrong, the Bank of England will raise interest rates over the next few months, or later in the year, which will begin to test out the stress, which Lord Griffiths and I have identified, of personal debt. In an environment of rising interest rates, many of those families who are just on the edge of a personal debt crisis will be tipped over it. It remains to be seen what will happen, however.

The other area in which forecasts are seriously optimistic is in respect of Government receipts. The two major areas through which the Government expect to get more money are anti-avoidance measures and the oil industry. The anti-avoidance measures will bring in about £3.3 billion extra. Clearly, I have no quarrel with effective anti-avoidance, and the Treasury and Inland Revenue clearly want to lock horns with multinational companies over what are now laughably called double no taxation agreements, and if they can win that battle, that is fine. But independent analysts such as KPMG have suggested over the past few days that however well intentioned the Government's anti-avoidance measures, their likely effect might be to reduce revenue simply by driving away companies at the margin. I do not know what the outcome will be, but the forecasts are certainly on the optimistic side.

Similarly, it was interesting that there was no reaction from the oil industry. As I have been in that environment, that tells me that it has assumed that it will not have to pay. Effectively, it will pass on the change, and it might manifest itself in reduced investment in the North sea, but it will not pass it back to its shareholders. A proper evaluation of what the change in taxation implies for the oil industry is missing. The Secretary of State for Trade and Industry knows, because she has had bad experience, that the Treasury routinely announces radical changes in oil taxation without consulting the Department of Trade and Industry. I do not know what the answer is. The measure might be perfectly sensible, but we need some evidence that the Government have thought through the implications for investment in the industry. It is possible that oil prices will dip sharply in future years, and I think that the Government are merely bringing forward a receipt, which implies that, in five years' time, that receipt will not be there. Effectively, therefore, the change is an accounting shift rather than an increase in resource revenue, which will inevitably have to be paid for by the next Government, whoever they are.

Both those key points raise a question that I have raised previously, and that the Conservative spokesman has raised, about the independence of assessments of the Government's assumptions. The Government might be perfectly right, but we do not know what the Inland Revenue is expecting—it is all clothed in opaque cover. This country badly needs a system that gives the National Audit Office much more independence to assess and evaluate the Government's assumptions, and gives the Office for National Statistics more genuine independence of Government.

The other area of ambiguity relates to the so-called golden rule and the black hole. A spat broke out this weekend between the Government and the Conservatives. Perhaps I can put myself forward as an honest broker or arbitrator in this dispute, having no particular axe to grind. Having looked at the facts, I have to say that the Conservatives were rather misrepresented. Part of the problem is that they have been toying with two different £35 billion sums and the Government have focused on the wrong one. The £35 billion figure for 2011 is neither here nor there, and although I am not particularly pro-Conservative, the idea that they want to sack all the country's doctors is a little preposterous.

There is a genuine benefit in looking in more detail at the real £35 billion saving that is supposed to happen during the current spending round. As I understand it, that £35 billion consists in part of the £22 billion saving from Gershon, which we all say is desirable, although most of us are pretty sceptical about it. Incidentally, I hope that at some point the Government will demonstrate how the Gershon savings that the Chancellor mentioned will actually be realised. Given that we all agree with the £22 billion Gershon figure, what the Conservatives are actually advocating is an extra £13 billion in savings. I freely concede that of that sum, £5 billion is entirely plausible and constitutes serious cuts in things such as social housing. Such cuts may or may not be desirable—I do not think that they are—but they are serious attempts at making choices. However, the other £8 billion-worth of cuts are simply not plausible, as my hon. Friend Mr. Laws demonstrated in the House a few weeks ago.

The problem with the Conservatives' proposals on the "black hole" is not that they intend to sack all the country's doctors, but that, if anything, those proposals will make the problem worse. There are two reasons for that. First, if they are as good as their word and cut taxes in their first week in office, it will take several years to claw back those savings, so the immediate impact will be a widening of the deficit. Then, there is the large-scale sacking of civil servants. As I understand it, the biggest spending commitment is a £5.9 billion increase in redundancy payments for civil servants, which will be clawed back by selling off Government assets. We know that selling off Government assets is a difficult and slow process, so even if it happens, there is a long time lag. So, whatever happens, if this policy comes about, the black hole—if there is such a thing—will actually get worse, rather than better. Perhaps the Government would do well to concentrate on that issue, rather than on the preposterous allegations that they were making over the weekend.

In my concluding few sentences I want to highlight the two main areas in which we fundamentally disagree with the Government, the first of which is council tax reform. We have all understood the £200 relief offered by the Government to be a one-off, although it has been suggested in the past few days that it might not be; perhaps we could have some clarification on that point. The Red Book clearly states that the relief is for one year only, but I ask that it be made absolutely clear for how long the £200 concession will last.

Even if such relief is a short-term sticking plaster for some pensioners, what the Government are not acknowledging is the potentially disastrous effect in the next 18 months to two years of council tax revaluation. Such revaluation has already begun in all our constituencies, and the impact on individual homes will be entirely capricious. Of course, some people will benefit, but many will lose out simply because their homes happen to be in an area where the rate of house price inflation has exceeded the national average over the past 14 years. In several cases in my area, the consequences will almost certainly involve moving up by two or three bands, thereby costing the families in question £700 or more. As I said, others will gain, but this random distributional effect will cause an enormous amount of grief and bring the whole council tax issue to a head. That is why we argue for fundamentally reforming the whole system by moving over to an income-based one, as operates in the United States, Switzerland and Scandinavia.

The second criticism is a much more fundamental one. The hon. Member for Coventry, North-West rightly argued that the Government are genuinely trying to target poverty through their child-related benefits and pensioner support. The intentions are admirable, but we all know that, in practice, there are all manner of unintentionally damaging consequences, the first of which is extremely high marginal rates of tax. The 2.1 million people enjoying tax benefits who are in work face marginal withdrawal and tax rates of 60 per cent.; indeed, in some cases the figure is much higher. That is far in excess of the 50 per cent. marginal tax rates that we have been told are wholly unacceptable for the rich.

There are even bigger problems for pensioners. The marginal withdrawal rates of 50, 60 or 70 per cent., depending on circumstances, are a massive disincentive to save. That complicates long-term pensions arrangements, which is why we need to move to the policy advocated by many people—we believe that it is shared in some parts of the Government—of providing a decent basic state pension, at least for older pensioners, above the means-tested level.

What is the overall verdict on the Budget? We should certainly be appreciative of economic stability, but in other respects the Government have created yet more complexity in an already complicated system and have done nothing to deal with the underlying unfairness in the tax system.

Photo of Linda Gilroy Linda Gilroy PPS (Rt Hon Nick Raynsford, Minister of State), Office of the Deputy Prime Minister 3:36 pm, 22nd March 2005

It seems just yesterday that I was walking around Plymouth, Sutton when it was a city down at heel, down at the bottom of far too many league tables and down at heart. That was the city that I inherited from my Tory predecessor. At that time, it included what was judged as the poorest ward in England on the index of multiple deprivation. However, that was not yesterday, but in 1997—and what a difference there is in Plymouth 2005. It is now a city buzzing with energy, full of ambition and confident in its future, as anyone who saw the exhibition, "Urban renaissance: a vision for Plymouth", in the Upper Waiting Room at the beginning of January could see for themselves. The Chief Secretary to the Treasury also saw it when he visited Plymouth last May.

With stability providing the foundation, investment and not cuts, and every child having the best start in life—the watchwords of the Chancellor's Budget speech—this was a Budget for Plymouth's hard-working families. There are 6,000 in Plymouth, Sutton with 10,000 children, all of whom will benefit from the commitment to uprate the child tax credit in line with earnings.

The vast majority of Plymouth, Sutton's 11,000 pensioners will welcome free bus travel in off-peak periods. I am pleased to say that it is already available in Plymouth to the over-80s. While only one in four—five out of 20—pensioners who are responsible for paying council tax will receive help under the Tory proposals, 19 out of 20 will benefit from the Chancellor's proposals. The Budget provides a platform to move forward on our policy to provide a fair deal for older people. We are committed to eliminating pensioner poverty, as well as recognising that all older people deserve our attention.

Older people are as different as any other group. In 1997, 3 million to 4 million of 11 million pensioners were living in abject poverty on £69 a week. We should have been much angrier about that. Many women who did not have a chance to build up a pension were among their number, yet 1 million of the 11 million pensioners were among those who saw their incomes rise most in the 1980s and 1990s—with an 80 per cent. real-terms increase in their income.

I make no apology to anyone either in my movement or outside it for supporting the Government's efforts to close the income gap rather than widen it. There is no way that increasing the basic pension across the board could have achieved that in the years up to the present. All that we can do to achieve that is based on having a strong and stable economy, low inflation, low interest rates and low unemployment. They provide the basis of security for pensioners, and are also good for home owners, business and our public services.

Public services need stability, predictability and steady investment rather than cuts. Steady investment also means that some 6,000 people in Plymouth, Sutton are now in work, thanks to the new deal—3,390 through the new deal for young people, 660 through new deal 25-plus and 1,900 through the new deal for lone parents, which the Opposition are intending to axe, should they get into office. That steady investment and high employment level mean that Plymouth now has below-average unemployment for the first time in 25 years.

Instead of the fear that unemployment means months and years on the dole, there is now confidence that, if major job losses arise, the support is there. For instance, a little over a year ago we had 1,400 job losses at the ITV digital call centre, all within a few months, but that hardly made a blip on unemployment in Plymouth because of the active employment policies that swung into action. Instead of feeling that the Government and their Member of Parliament believed that unemployment was a price worth paying for some crazy mirage that the economy prospers under the Conservatives, they had active support. In the weeks and months ahead, I will take any and every opportunity to remind people of the real track record: one of 10 per cent. interest rates, on average, across the time of the last Conservative Government—15 per cent. at times—which was bad for house owners.

The real track record included the price of economic failure and of servicing the national debt and the totally unnecessary sky-high levels of unemployment that meant that we were paying more on the economics of those failures than on schools. In Plymouth city alone, we were spending £100 million a year on keeping people unemployed. People were trapped in a low-skill, no-skill and no-hope economy, with £1 an hour for cleaning jobs not uncommon in and around Plymouth and Plymouth, Sutton.

In 2005, 140,000 people in Plymouth and the south-west have benefited from a minimum wage that we were told would put 1 million people out of work; instead, we have 2 million more jobs. In 2005, stability means year-on-year increases in school buildings, books, equipment and teachers—150 more than in 1997 in Plymouth alone. We have 2,320 more nurses as well as 696 doctors and 258 consultants in the South West Peninsula health authority area.

As well as more new people, there are more new buildings, including the new Peninsula medical school of which we are proud, where some 200 out of the 2,000 extra doctors now in training in Britain are in their third year.

The Budget paves the way for continuing sustained and stable investment. I have mentioned some of the challenges, including the dockyard, globalisation and call centres—we have 10,000 jobs dependent on call centres—and foreign-owned companies will be looking at our competitive position. We have too many people with low skills and businesses are finding that skills are scarce. We have made significant progress and have more confidence and ambition, but we still need a recognition of our comparatively weak position and we need the son or daughter of objective 2 regional aid funding support.

My right hon. Friend the Secretary of State for Trade and Industry, through funding for the city growth strategy programme, helped us to identify where our strengths lie. The strategy envisages continuing to support the science park developments, such as the successful Tamar science park, and a new marine science park that we hope to develop in the Millbay regeneration area. We aim to build up our marine science industry and our medical and health sciences, including the growing reputation for stem cell research and the spin-off businesses from it. We have advanced engineering, including a very good department of robotics at Plymouth university.

The creative and cultural industries are playing an important part. The TR2 in Plymouth—the Theatre Royal 2—is a rehearsal theatre that production companies from London have used for making their scenery and rehearsing their productions. Following a recent meeting with my right hon. and noble friend Lord Sainsbury, we have opened up discussions. From this list, my right hon. and hon. Friends will be aware that we will soon be beating a path to the door of the Treasury to discuss the ambitious and aspirational agenda that we have in Plymouth.

Our region has the greatest disparities of any and we need science city status. I am pleased that Bristol has such status but, given the need for us to act as the engine driver for the Devon and Cornwall sub-region, we will need the sort of support that we have had through objective 2 for another round. We would want that to act with the themes that I have identified in a way that would lift us out of the need for such support. We are right on the edge of the objective 1 area, where my hon. Friend Ms Atherton is beavering away to make sure that there is a son or daughter of objective 1.

Plymouth is a city with a great past and a great future. This country has a great past, and Plymouth is building on that. The Government and their Budgets have a great track record of delivering a basis for the sort of growth that we have experienced and want. The country will shortly face a choice between a sustainable economy that is in good shape to take us forward fairly or an Opposition party that is still stuck in the past, apparently unable to understand the need for an active Government to play their part in helping us all to realise our full potential as individuals and in the public, private and voluntary sectors in which we work. I commend the Budget to the House.

Photo of Mrs Gillian Shephard Mrs Gillian Shephard Conservative, South West Norfolk 3:46 pm, 22nd March 2005

It is with some sadness that I rise to make what is almost certainly my last speech in this House. Eighteen years is a long time in politics and I am conscious of the privilege that my constituents accorded to me by returning me four times to play my part in this House and, in the past, in the Government of our country.

However, I am not entirely sure how effective my representations have been over the years. Throughout my time in the House, I have reminded Labour and Conservative Governments that rural people matter too. In my maiden speech in October 1987, I said that in future I would

"From time to time . . . remind the House that there are areas of the United Kingdom that lie to the east of"

Watford, as well as to its north and south

"and that the particular concerns of scattered rural communities such as my constituency also merit attention."

That is certainly life-enhancing prose now that I read it again. I also pointed out that the delivery of services in rural areas is more costly and complex than in urban areas and I pledged to fight for better infrastructure in Norfolk, not least because Norwich is

"the only conurbation of its size . . . that is approached by a medieval network of single track roads."—[Hansard, 23 October 1987; Vol. 120, c. 1040.]

Not much has changed there.

During the whole of my time in this place I set out to test the fairness of Government policy by examining the effectiveness of its application in rural as well as urban situations. My Government did not always pass that test with flying colours and an episode that is strongly etched in my memory occurred during my first ministerial job in the then Department of Social Security when I argued that an overflowing septic tank was a real emergency for people on benefit and that if they were faced with that unpleasant situation, they should have access to the social fund. A civil servant said, "What is a septic tank, Minister?" At least Ministers knew that rural areas have many different and sometimes more complex concerns than urban areas. However, sadly, this Government still seem to have very little concept of how life works in rural areas and I shall illustrate that with two examples from the Budget.

The first is the Chancellor's much-vaunted offer of free bus passes for pensioners. Last week, he announced that the over-60s and disabled people would be entitled to free bus travel from April next year. Welcome as that news will have been in towns and cities and perhaps in some rural areas, it was treated with hollow laughter in many other rural areas. "What buses?" people said, as well they might. A constituent recently wrote from Rockland St. Peter, a village some six miles from the nearest market town, Attleborough. She said:

"The service we used to have to Attleborough and Norwich was reduced to once daily two years ago. It is now once monthly, yes, only twelve buses a year."

She added:

"The service when it ran every day was used to visit doctor, dentist, optician, nurse, foot clinic, health centre and to get to the hospital, the Norwich City College and other appointments."

I know that the Minister has a relative in that part of the world—I hope that he does not mind me saying so—and he will therefore be able to imagine how much use a bus pass would be for residents of that village. It certainly will not cost the Government very much if they can use the bus pass only once a month. He might even be able to picture the residents' reaction as the Chancellor pulled that particular rabbit out of his not very well filled hat. Since I raised this question, the county council has agreed to provide a taxi link once a week from the village. I wonder whether free bus passes will apply, but I shall not hold my breath for a reply.

There is more to that issue. According to the Eastern Daily Press, Norfolk's excellent regional newspaper, by Friday last week the Department for Transport had been forced to admit—only hours after the triumphant Budget—that local authorities were waiting to hear if the Government cash provided would cover the costs of the scheme, or if pensioners and the disabled in rural areas would have to pay for the Government handout through their council tax payments. Even more significantly, Department for Transport officials had to admit that only journeys that start and finish within a district council's boundary will be covered. How do Ministers think that rural people's lives work? Do they not understand that services, jobs and education are found in larger towns, and that in order to reach them people have to travel outside their own areas and that that, more often than not, means crossing a council boundary? I fear that that is a rhetorical question because those measures would not have been announced in the form that they have had Ministers realised that people in rural areas would be disqualified—at least, I assume that that is the case. The Norfolk Age Concern spokesman was quoted as saying:

"It does seem that some older people won't get any real benefit . . . if they live in rural areas."

Quite so.

My second example is more serious, and I make no apology for returning yet again to the question of biofuels. Obviously, a developed UK biofuels industry would have multiple benefits for this country, environmentally and economically. There would be particular benefits for rural areas, since the production of feedstocks would provide alternative markets for agriculture and help to ensure the continuation of farmed rather than merely conserved land in our countryside. The House does not need to take my word for that, because it could take the Government's. Only last summer, the Government agreed to amendments to the Energy Bill, which placed responsibility on the Secretary of State

"to ensure the integrity and security" of energy supplies, specifically mentioning energy derived from biomass and biofuels.

The Government have signed up to the Kyoto protocol and they have adopted a national goal to move towards a 20 per cent. reduction in carbon dioxide emissions by 2010. They have signed up to the EU biofuels directive, which requires them to set targets for the substitution of petrol and diesel with biofuels by this July, and higher targets by 2010. Their energy White Paper, which I assume they support, states:

"The UK should put itself on a path to a reduction in carbon dioxide emissions of some 60 per cent. from current levels by about 2050".

Nor do Ministers lack all-party support, as illustrated by the number of early-day motions, debates, questions and delegations from both sides of the House to encourage further support for biofuels. Outside Parliament, unprecedented support includes the CBI, the British Chambers of Commerce, Friends of the Earth, the academic world, the National Farmers Union, development agencies and local chambers of commerce—all recommending that the Government should reduce duty on biofuels or provide other encouragement.

The Government say that they support the development of biofuels, and they have signed up to a number of environmental obligations. They enjoy extensive cross-party support, and huge support from outside the House. However, little has been done. Observation obliges me to point out that Ministers have paraded their environmental credentials for some time, most recently at an international meeting held the day before the Budget. However, they do not go into detail about why successive domestic Budgets have done little more to encourage environmentally friendly fuel produced in the UK than to propose a concessionary rate of 20p. Lord Whitty has said that that concession will not stimulate the investment needed to deliver the required outcomes in this country. Ministers cannot afford to be complacent, as they know that CO 2 emissions from transport have risen in the time that they have been looking after the economy.

Like its predecessors, this Budget will have disappointed Lord Whitty and the biofuels lobby. It is big on working parties and feasibility studies, and it extends an already inadequate and ineffective duty derogation. Above all, it is big on words, but action is not forthcoming. The biofuels industry will remain a tiny cottage industry that produces biodiesel from used cooking oil, and no bioethanol will be produced in this country. The only result of the Government's fine words will be massive imports of biodiesel from Germany, which is made from exported UK rapeseed, and of bioethanol made in Brazil, whose cost in terms of employment rights and the environment we can only guess.

That brings me back to where I started. One other side benefit of the development of the biofuels industry would be the provision of a secure and sustainable future for many aspects of agriculture, to the benefit of our rural areas. Eighteen years ago, I stated my intention to work in Parliament to ensure that specifically rural problems gained recognition. Under this Government, council grant has been switched away from the shire counties, and there has been a failure to recognise that a sparse population is more costly to police and to provide with services. Fuel tax has been hiked, and the Government have refused to contemplate a strategy for the development of agriculture. They have displayed equanimity about the fact that the countryside faces a managed rather than a working future.

Given all that, this Budget shows that the Government understand nothing of the countryside, or rural people. It is time for a new Government who do understand those things—and we will.

Photo of Claire Curtis-Thomas Claire Curtis-Thomas Labour, Crosby 3:57 pm, 22nd March 2005

I welcome many of the measures in this Budget, but my contribution today will centre on small and medium-sized enterprises.

I welcome the Government's announcement that SMEs' access to public sector procurement will be improved, as those businesses improve competition, drive innovation and therefore offer better value for money in the delivery of public services. I am also delighted that the Government intend to introduce the mandatory requirement that at least 2.5 per cent. of public sector extramural research and development will be devoted to SMEs. Many years ago, the Government introduced the research and development tax credit. That focused specifically on SMEs, and was subsequently extended to include larger businesses.

A number of derogatory remarks have been made today about the Small Business Service. I neither echo nor understand them. They do not match my experience of the SBS which, together with the regional development agencies and the Office of Government Commerce, will roll out nationwide the measures to improve SMEs' ability to tender effectively for public sector contracts. That roll-out will build on successful pilot projects in the west midlands and Haringey, which involved more than 1,600 businesses and increased the number of SMEs competing for public sector projects. They also raised the success rate of SMEs, including those run by people from the ethnic minorities.

I am sure that I am not the only hon. Member who was delighted to learn that 1,000 SMEs start up every day, and that the viability of such companies has improved considerably under this Government.

I am delighted that in the summer the OGC and the SBS will launch a national portal for low-value contracts, making it easier for SMEs to compete for business. I was especially pleased to learn that it is the Government's intention to improve the coverage and quality of information available on SMEs' participation and procurement opportunities through an annual review that will explore how to extend further those contracts to SMEs.

I want to touch briefly on retentions and what the Government have done to tackle a problem that faces many in the construction industry. For Members who do not know what retentions are, I will briefly explain. Historically, contracts in the construction industry were let with a retentions clause, whereby a sum of money is retained by the company or business, when a job is completed, until it is satisfied that there are no problems with the work. The contracting company can sometimes hold on to that money for years. There may be nothing wrong with the work undertaken, but the company letting the contract makes the contractor wait until the entire job is complete. If the project is small, such as a small office block, a small electrical company might have to wait for a year until the construction of the entire block is complete. If the construction is on a larger scale, for example a new technology park, the company might have to wait for years. Typically, retentions count for between 5 and 10 per cent. of a company's turnover and represent a significant loss of opportunity.

Retentions are an old-fashioned financial instrument that should have no place in today's construction industry. Their continued use inflates contract costs and can lead to some SMEs going into receivership, because the company that awarded the contract in the first place itself goes bust, leaving the contractor waiting in line for crumbs from the bankruptcy court.

The situation facing SMEs has not gone unnoticed by the Government, however, and some Departments have made great efforts to phase out retention clauses, especially the Department of Health, but much more remains to be done. My involvement in the matter is through the Electrical Contractors Association, whose representatives came to see me several years ago to talk about the problems their members were experiencing. I went to see my right hon. Friend the Chief Secretary, then the Financial Secretary, and the Under-Secretary of State for Trade and Industry, my hon. Friend Nigel Griffiths, who had responsibility for construction and small business. Both Ministers spent an inordinate amount of time trying to address the problem, which is endemic in the construction industry. They established a working group that involves not only representatives from various Departments but also employers and the trade associations representing them. Thus far, significant progress has been made. A huge number of public contracts are awarded every year and small businesses would dearly like to be involved in them, but while the retentions problem remains their active involvement is seriously curtailed.

The measures introduced in the Budget substantially assist those businesses, in which I have an immense interest, but I ask my hon. Friends on the Front Bench to reconsider the retentions problem and to do more to ensure that small businesses, which we have grown and developed under a Labour Government, continue to flourish without that onerous financial burden.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee) 4:03 pm, 22nd March 2005

I draw the attention of the House to the business interests that I have listed in the Register of Members' Interests.

There was one measure that attracted the broad agreement of the majority of the House, in all three parties, when the Chancellor delivered his speech last week. A majority of all three parties fervently hoped that it would be the last Budget delivered by the present Chancellor of the Exchequer. In my case, that was not motivated by any animus. Personally, I get on well with the Chancellor and concede that he is by no means the worst Chancellor of the Exchequer that I have encountered in my political career, but there is a little animus among the Blairite element on the Labour Benches. Indeed, I think that the Prime Minister would wish to post the Chancellor as high commissioner to the Falkland Islands, if he could get him further away than the Chief Secretary—he would certainly like to see him away from the Treasury.

It may be that this was a valedictory Budget, and we have just heard a valedictory speech from my right hon. Friend Mrs. Shephard, who was a delightful and effective colleague. I am sorry to see her departing from our midst so shortly after she arrived here.

The Chancellor delivered his valedictory Budget in storming style, but he did not have a very good stage upon which to go out. He was in the unfortunate position of having to deliver a pre-election Budget, which I know from my experience can give rise to some unreal expectations on the part of one's colleagues and requires a certain amount of courage to be summoned up to bear in mind the national interest and to try to work out where one is going.

At the moment the Labour party is in a considerable panic, quite rightly, about the course of its election campaign, and it fondly imagined that something could be pulled out of the hat in order to buy them sufficient votes to win. The Chancellor did acknowledge that he could not afford that, and he produced a stirring performance, but one that will have no effect whatever on the course of the forthcoming election.

The Chancellor produced a smattering of electoral bribes that he managed to finance by an accounting device in order to have the minimum effect on the country's fiscal stance. I shall not speak about the bribes themselves, but bribes they plainly were, guided by focus groups towards parts of the electorate that are thought to be crucial to the forthcoming campaign.

The pensioners' bribe has been referred to, and it is not the first that they have received. Many hon. Members collect their winter fuel payment, which I regard as a small tax rebate. I do not quite qualify for the £200, supposedly off the council tax, but many hon. Members will collect it, and, I am glad to say, so will many of my constituents. I do not think that that will impress many pensioners; indeed, I do not think that they are impressed. They are being treated like 18th century electors, being offered little bits of cash in order to induce them to vote gratefully for a munificent Chancellor. I would advise them to follow the practice of all the more sensible 18th century electors, which is to accept the bribe but not to allow it to influence their judgment. It is no substitute whatever for serious reform of the pension system, which is in a critical state in this country, and if that is the approach that the Government are taking to the position of pensioners at the moment, I welcome the fact that we will be able, I hope, under a new Government, to have a serious look at pensions in the light of Adair Turner's report as early as possible in the next Parliament.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

How does the Chancellor's £200 bribe differ in principle from the Conservative party's £500 bribe to pensioners on council tax, except, of course, that the Conservative party's bribe will not apply in Scotland?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee)

Ours will recur and be a permanent reduction from the council tax; the Chancellor's is a one-off in the pre-election moment with no guarantee of its recurring.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

I just point out to the right hon. and learned Gentleman that I do not think the Conservative party's bribe is permanent. It is strictly limited to four years, I think.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee)

Well, it is a better bribe than that of the Labour party.

We all agree that when Parliament reconvenes we must address seriously the issue of future pension provision in the light of Adair Turner's excellent report, including the warnings that it contains about the affordability of future policy.

The other bribe is the adjustment of the thresholds for stamp duty on residential dwellings. I do not have time to express certain doubts about that. As I am standing for election myself, I welcome it, of course, although I have serious doubts about whether it will automatically feed through to reduce the price of houses below the bracket concerned for the benefit of first-time buyers. It is rather curious that the Bank of England has spent so much time trying to damp down the housing market and then the Chancellor produces a measure that tries slightly to reflate it. First-time buyers will come back into the market when it sorts itself out. I rather fear that house prices are likely to sag in the near future, only a little I hope, and then if they stay steady for long enough to reach a more sensible relationship to pay and personal incomes, first-time buyers will come back into the market.

Economically, the measure is a one-off fix which is a rather peculiar approach to the problem that has been caused in the housing market. It was financed by an accounting device—there is some short-term cost to these changes. The accounting device was, as far as I can see, simply a change to the cash flow of the oil companies, bringing forward the payment of certain tax revenues which, as Dr. Cable said, they will undoubtedly pass on to their customers.

That was the shape of the Budget, and it does not amount to very much. In a way I am slightly relieved, because so much damage could have been done by a reckless Budget before the election. It has left every problem to be faced by the Chancellor's successor after the election, and problems delayed are not problems solved.

The Budget speech got even further away than the Chancellor has ever got before from any serious presentation of economic policy, either of measures or of the state of the economy. We mainly recall it for the announcement of the statue to the Queen Mother, a very distinguished lady. I am sure it is a noble sentiment to erect a statue, but I cannot remember a more irrelevant statement in a Budget statement to the House, and it indicates how the barrel was being scraped.

The Government immediately tried to change the subject, with the Chancellor joining the Prime Minister in presenting one of the most dishonest election posters that I have ever seen—and that is quite a competitive field—in a pre-election campaign, with a totally fictitious claim that the Conservatives were proposing to cut public spending to an extent that would threaten the livelihood of teachers and nurses across the country.

When the Chancellor spoke about the economic situation, towards which he has some responsibilities, he gave his usual rosy and extremely upbeat and optimistic forecast about where the economy was going. It certainly was not modest, as my hon. Friend Mr. O'Brien said, and it did not acknowledge that the 50 quarters of consecutive growth to which the Chancellor referred began more than four years before he took office. But that is all history, and the Chancellor's record has not been too bad in parts of the past eight years for which he has been responsible.

The Chancellor did not address the two issues which the public should have uppermost in their mind when they decide where we are going now and start looking to the future in terms of our economic performance. The first issue, which has been well presented in debates throughout the country, is whether the present Government will be bound to increase taxation as soon as they get back, because of the situation that they are glossing over. That is exactly what they did after the last election, and I continue to believe strongly that that is what they will do if they win the election again. Secondly, and more importantly, how much further will those 50 quarters go, unless there is some drastic change of policy? My fear is that we are getting near the end of this long and sustained period of growth, and the Chancellor's denial that he is now on thin ice and that we are facing problems is becoming ever more incredible.

I have no time to set out the various things that I am worried about, none of which was addressed to any significant extent by the Chancellor in his speech. The increase in oil and commodity prices will almost certainly be sustained for quite a long time. It is a substantial step change in the price of oil and many other commodities, which is bound to have an effect on this country. The balance of payments deficit is at historic levels and seems to be deteriorating still. It is an important measure of how far our competitiveness is generally at risk, because it means that British business cannot produce the goods and services to satisfy domestic demand in competition with an ever-mounting flood of exports.

The most important thing that worries me is the huge amount of debt by which our continuing growth is being sustained. I refer not just to the Government debt, to which I shall turn in a moment. The combination of Government debt and private sector debt, including £1 trillion worth of household debt that has been accumulated largely on the back of a boom in the housing market which is now coming to an end, is a very serious problem indeed. In addition, unlike in competitor countries, wage growth in this country is beginning to increase in a somewhat alarming fashion, led by the steadily increasing public sector wage settlements being won by the ever-expanding public payroll, consisting of staff taken on by various Government agencies. None of those serious threats to our well-being was addressed by the Chancellor.

The right hon. Gentleman did not even convince me regarding the key policy that is within his control—fiscal policy. Are his forecasts for growth, tax revenues and spending correct? He claims consistently that he was right, pointing to his figures for growth in GDP as a whole. In fact, with the rate at 3.1 per cent., he came just within the forecast he made in last year's Budget—he just made it, and when I reminded myself of the speech I made last year, I was pleased to see that I conceded that he had a chance of doing so. However, over the years, the right hon. Gentleman's forecasts for tax revenues have consistently been wrong. I agree with the hon. Member for Twickenham that the Chancellor's forecast for corporation tax receipts, which runs far ahead of any likely growth in the economy, is wholly improbable, and his forecasts for public spending are also shaky. In any event, the Chancellor forecasts a continuing substantial rise in taxation and spending and a remorseless increase in the wealth consuming part of our economy relative to the wealth creating part.

I have no time for analysis, but the opinion of the Institute for Fiscal Studies is well known. The institute has identified what the public are beginning to recognise as a black hole of about £12 billion. Another source that I find attractive is the International Monetary Fund's article IV report for 2004—a report that I began to publish when I was Chancellor; previously, it had been a secret document. The IMF praises the British economy in some ways, but not our fiscal performance. It points out that the deterioration in our fiscal position since 1999 is the worst in the G7 and that a fiscal adjustment of about 1 per cent. of GDP will probably be needed to keep our economic progress on course. That is the tax increase to which the Chancellor will have to turn.

The Chancellor might stay within his golden rule if the statisticians can keep revising certain items of expenditure and if he can keep putting in the bag for the future various estimates of savings on tax avoidance he might make, but even the basic debt rule will be threatened in the not-too-distant future. The accounting conventions on which we now produce the figure for debt of slightly more than 30 per cent. of GDP are highly questionable. All capital expenditure is now off balance sheet and no proper provision is made for the future costs of the private finance initiative or for the huge unfunded pension liabilities that this country faces. The Chancellor's reputation will depend on whether he gets out in time. He needs to get out now so that someone can slow the growth of public expenditure, get control over affairs and guarantee future growth.

Photo of Piara S Khabra Piara S Khabra Labour, Ealing, Southall 4:18 pm, 22nd March 2005

I was surprised and disappointed to hear the views of the former Chancellor, Mr. Clarke. I thought that he had the capacity to be objective about the Budget, but he was not.

I thank my right hon. Friend the Chancellor and the Treasury for producing a sensible, restrained and comprehensive Budget. I am sure that other hon. Members have greater expertise than I in the subject of today's debate—perhaps they have direct experience of working in business, finance or economics—but it needs no expert to see the many improvements that have been made to our economy as a result of the Chancellor's policies over the past eight years. Those benefits, including low interest rates and low inflation, have been felt throughout my constituency. Unemployment in my constituency has fallen by a third since 1997 and long-term unemployment has been cut by about 80 per cent.

Indeed, the British economy is not just healthy on its own terms; it also bears favourable comparison with other nations. Last year, the Organisation for Economic Co-operation and Development described the British economy as "impressive in recent years". As the Chancellor pointed out in his statement, it is a remarkable achievement to attain 50 consecutive quarter years of continued growth. However, to maintain those gains it is essential that we should continue to nurture business, now and in the future. That means meeting the needs not only of headline-grabbing large corporations, but of small and medium-sized businesses, many of which are to be found in my constituency.

Small firms contribute about 40 per cent. of the UK's gross national product, and they employ more than 50 per cent. of this country's private sector work force. Therefore, I welcome the Chancellor's stated commitment to cut some of the red tape that, unfortunately, can strangle the entrepreneurial spirit of small and medium-sized firms. In particular, it is right to release small businesses from the obligation of administering working tax credit by next year. That should save them an estimated £90 million and many hours of form-filling.

As the Federation of Small Businesses has noted, we must ensure that we keep our promises on red tape. However, it is important to note the overall confidence that small businesses have in the economy. The small business confidence survey carried out by Teneric in February this year shows continued optimism on growth. More than 80 per cent. of those questioned were optimistic about the UK's economic growth in the next 12 months, and three quarters believed that their businesses would be better off a year later.

I also welcome the Treasury's commitment to transport, which is an essential part of a healthy economy. I welcome especially the funding that has been found to put forward a Crossrail Bill. I realise that transport issues were covered in last Thursday's debate, but Crossrail is of real importance to the economy of my constituency. It should be a real boon to businesses in Ealing, Southall, which has a direct link to Heathrow airport—many of my constituents are employed there and many business men in my constituency have dealings there—and to central London. The Government estimate that Crossrail will result in an extra 56,000 to 110,000 jobs as a result of regeneration activity in areas covered by the route.

It was interesting to hear India mentioned in the Chancellor's statement. I have a particular interest in India for three reasons. First, I was born in India, so I have a particular interest in developing a good trading relationship with it. Secondly, there is a large Indian sub-continent-descended population in Ealing, Southall. Thirdly, I am a member of the Select Committee on International Development, which has a strong involvement with India on developmental issues such as trade and business. For all those reasons, I am keen to promote the UK's trading ties with India. Although the Chancellor mentioned China on a number of occasions, I am sure that he understands the importance of working closely with a democratic nation of India's size. It is huge country with huge economic potential. Moreover, the UK is India's third largest trading partner. I am aware that the Secretary of State has visited India a number of times to promote trade and trade relations between the two countries.

Outsourcing is often a controversial subject. I urge both the Treasury and the DTI to do more to explain to the public why it is good for our economy. The CBI estimates that the UK economy has gained roughly £16 billion through offshoring.

One of India's advantages in attracting investment from overseas is its educated population, especially in information technology and the pharmaceutical industry. With that in mind, I welcome our Government's commitment to investment in educating a UK work force that is fit for the 21st-century workplace. Measures such as improving financial support for 16 to 19-year-olds in education, including the extension of child benefit and child tax credit from April 2006, are therefore sensible.

It goes without saying that any investment that we make in our young people's skills has the potential to benefit the British economy and enable it to produce many times what it produces now—although I feel that we must not crowd out some of the more traditional subjects just because they do not have business applications.

As the Financial Times has noted, the days of the truly give-away pre-election Budgets are probably in the past, but those who criticise this Budget for not giving enough away cannot then turn around and complain that the Chancellor is overstretching the country's economy.

Ultimately, following what is likely to have been an election year Budget, it will be the people of Britain who make up their minds about our policies, but I am confident that, if we go to the polls in May, there will have been enough in the Budget for me to make a good case to the people of Ealing, Southall for why the country's economy is safe with the Labour party and not with the Conservatives.

Photo of Stephen Dorrell Stephen Dorrell Conservative, Charnwood 4:27 pm, 22nd March 2005

I begin by drawing attention to the interest that I declared in the Register of Members' Interests.

I want to take up what was said by my right hon. and learned Friend Mr. Clarke. I believe that the Budget statement that we heard last week was an exercise in suspended disbelief. The Chancellor did what he does best: he came to the Dispatch Box and took us on a guided tour of all the high spots—from his perspective—of his economic record, seeking as he did so to avert our eyes from other less comfortable truths which he prefers not to address until the other side of a general election.

The Chancellor drew attention to the fact that we had enjoyed a long period of growth, which is extremely welcome. He drew attention to the fact that the competitiveness of the British economy is currently much better than it was during the 1960s and 1970s, with the result that we have been able to achieve reasonably high and reasonably sustained levels of employment. As my right hon. and learned Friend said, all that is true, and the Chancellor can certainly claim not to be the worst Chancellor on record—but true though it may be, it is not the whole story.

One way of encapsulating the less comfortable aspects of the Chancellor's record is to invite the House to reflect on the fact that one of the characteristics of his time in office has been his tendency to attend meetings of ECOFIN and lecture his European counterparts on how much more effective wealth creation and job creation are in Britain than they are elsewhere in the European Union. The Chancellor would recognise that one reason why that has been true in recent years is that productivity growth in the 1990s and the early part of this century has compared favourably with growth elsewhere in the European Union. It should therefore be a matter of serious concern to both the Chancellor and all Members that, when Deloitte recently conducted a study of 6,500 European companies to assess productivity growth in Britain compared with elsewhere in the European Union, its conclusion was that Britain is now below the European average.

So, measured by the Chancellor's own rhetoric to his ECOFIN colleagues, there is cause for serious concern about the underlying performance of the British economy. The various burdens, which I want to discuss briefly and for which the Chancellor is responsible, are now impeding productivity growth and competitiveness. They are doing so at a time when the Chancellor's own lectures draw attention to the danger, in a globalised and highly competitive economy, of saddling our business with burdens that our competitors elsewhere in Europe and, more importantly, elsewhere in the world beyond Europe do not suffer.

There is no great secret about why British productivity growth is slipping down the European league—and, as the Chancellor is fond of pointing out, slipping down the European league is bad enough in itself, but we must remember that that is the third division. By global standards, real productivity growth is being achieved in the United States and some of the other Anglo-Saxon economies and, more importantly, in India, China and the economies of the emerging countries. In comparing ourselves with the European Union, we are comparing ourselves with the third division, and even in the third division we are in the relegation zone.

Why are we seeing such gradual deterioration in our performance? The first reason, which the Chancellor has recognised, albeit belatedly and inadequately, is the cost to British business, in terms of both pounds and pence and of impeded productivity efficiency growth, of the regulatory burden for which the Government are solely responsible. Anybody who has been a Minister is painfully familiar with the logic that says, "This is desirable and ought to happen, Minister, and if you sign this regulation, your constituents will be grateful because it will happen and you won't have to go to the Chancellor to pay for it because the cost of meeting the obligation will be met by the people to whom the regulation applies". Regulation imposed by Government looks like a free lunch in the short term, but in fact it impedes the underlying competitiveness of the economy. We are seeing that working through day by day and week by week as part of the Chancellor's record to which he does not draw attention when he presents his annual good news statement in the Budget.

The second thing to which the Chancellor does not draw attention is the fact that a growing public sector—job creation in the British economy in the past seven years has been disproportionately in the public sector—

Photo of Stephen Dorrell Stephen Dorrell Conservative, Charnwood

The Chief Secretary cannot say that that is untrue. The number of people employed in the public sector has grown faster over the past seven years than the number of people employed in the private sector.

There are relatively more people employed in the public sector, and it is a matter of fact that productivity growth is slower in the public sector than in the private sector. If we look at the total effect of that on the British economy, we see that it is another factor contributing to the slowdown of our competitiveness and undermining our capacity to deliver the economic stability, growth and rising living standards that we all want.

All that is compounded by the clear evidence of the black hole in the public finances. The burden that Government represents on wealth creation is partly manifest in regulation, but more directly manifest in tax—the cost burden that the Government represents on the wealth creation sector.

The Chancellor is fond of reminding people that his growth forecasts have often been closer to the truth than those offered by people in the private sector and, to some extent, he is entitled to do so. His growth forecasts have a reasonable record of accuracy. His forecasting ability has been wholly inadequate, however, in regard to his capacity to forecast his own public sector deficit. It is worth reminding ourselves that in the Budget before the last general election, the Chancellor expected that, in the tax year that is now just coming to an end, the amount of borrowing required in the public sector would be £13 billion, whereas the actual out-turn, according to this year's Budget, is £34 billion. So, over four years that figure has gone up by £20 billion.

I do not believe that the rather academic discussion about the golden rule gets us very far, and I want to draw the attention of the House to two tables—which seem to be much more telling—that appear in the Red Book. The first is table C9, which examines the Government's projections for tax revenue. During the period between 2005–06 and 2009–10, the Chancellor projects that, for the first time since the mid-1980s, tax will go back above 40 per cent. of national income. More importantly, perhaps, for the voting population, not only will the tax burden rise as a share of national income over that four-year period, but income tax in particular will rise relentlessly as a share of national income year by year. So, the Chancellor's own projections for the next Parliament contain a significant rise in the tax burden in general and the income tax burden in particular, taking the total tax burden back above 40 per cent. of national income for the first time since 1988.

Table 2.5 on page 32 of the Red Book shows that, even taking account of that rising revenue, we shall still be faced with debt as a share of national income rising year by year over that same four-year period. Public sector net debt will rise from a figure of 34.5 per cent. of national income today to just over 37 per cent. by 2009–10. The Chancellor is therefore projecting a rising share of national income accounted for by tax and, even taking that into account, an increase in his borrowing as a share of national income. That is why the Institute for Fiscal Studies and almost all the independent commentators are right to say that there is a black hole in the public finances that will have to be put right by a post-election tax increase.

My right hon. and learned Friend the Leader of the Opposition described this as a

"vote now, pay later Budget."—[Hansard, 16 March 2005; Vol. 432, c. 270.]

That is true on two levels. First, it is true on a specific cash level. The public finances are in such a state that tax increases after the election will be inevitable. If Labour is re-elected, which I hope that it will not be, it will have no choice but to raise tax. My right hon. and learned Friend the Member for Rushcliffe suggested that we did not need a crystal ball when all we have to do is look at the Red Book, because that is exactly what happened after the last election.

Beyond the specifics of the tax increase, however, we should also be concerned about the long-term impact of a rising regulatory burden, a rising tax burden and a rising debt burden on the competitiveness of the British economy, which the Chancellor is so fond of trumpeting. We are embarked on a slow deterioration of the very achievements that he is so proud of talking about, and if we are to protect those achievements and reinforce our competitiveness, we need the kind of change of direction that I hope and believe the Government will start to initiate on 6 May.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central 4:39 pm, 22nd March 2005

It is always a pleasure to speak in a debate involving Mr. Clarke and the right hon. Members for Charnwood (Mr. Dorrell) and for South-West Norfolk (Mrs. Shephard). The right hon. Member for South-West Norfolk said that she was making her last speech, which the whole House will regret. I hope that it will not seem churlish if I say that when she held office I often prayed for the speech that she was making to be her last in that high office.

It might be useful to start on a note of agreement with some of the points made by Opposition Members. The right hon. and learned Member for Rushcliffe is perfectly right that, in the next Parliament, we will have to consider the issue of pensions and how we fund and organise a substantial increase in the basic rate of state pension to provide a platform for savings in younger generations. He is also right to describe the current Budget as largely neutral, and that is proper. The steady build-up of public expenditure over the past four years has protected our economy and enabled it to grow so that we have not experienced the problems and difficulties of growth that many other economies in the world have experienced.

Opposition Members are also right that now is a time when we ought to consider how the public investments that we are making can contribute to growth, the creation of employment and the creation of new enterprise in the future. That lies at the heart of the Chancellor's proposals, and I want to focus my remarks on that. I want to deal particularly with the proposal for science cities.

My city has been identified as a science city, and it might be useful to illustrate how that has depended on the public expenditure growth of the last four years. Cities such as mine could not have been transformed as they have been, and could not demonstrate the growth potential that they now demonstrate, had that public expenditure not taken place. The idea of science cities also shows that one cannot parachute public policy innovations into a vacuum—they must grow from initiatives already in place. The whole concept of science cities began with the idea of getting universities in the north-east to work together rather than against each other, examining what research there was in a largely research-free zone in the north-east, and considering how the regional development agency could support new research initiatives that were designed to put the north-east region at the centre of innovation, rather than running behind it.

From that initiative of creating five research centres and bringing universities in the north-east together, the idea of science cities was born. That has been reflected in the Government's "Northern Way" initiative, which, as the Chancellor announced, is to be extended to regions outside the north. That is an example of public expenditure, innovation and enterprise in the public sector growing and developing organically.

Another message is that innovations such as science cities cannot exist in a vacuum, unconnected to real-world activities. If we consider some of the initiatives that I hope the science city programme will pick up, we can see that connection and reflection. A huge investment in systems biology and the biology of ageing is growing out of the activities of one of our local hospitals, which is now developing international expertise. An initiative in molecular engineering works off the fact that 50 per cent. of Britain's petrochemicals are now generated in the north-east of England. An initiative in microsystems, which benefits from an earlier investment through the science and research infrastructure fund, has now generated one of the largest new enterprise formation from public enterprises and £45 million of research on top of that. In particular, there are biotechnology initiatives, which are a focus of the Chancellor's Budget. In my own city, such activities have been building up for 10 years, arising originally out of a millennium scheme—a biological exhibition centre, the purpose of which was to involve young people. That should remind us that the science city idea must be connected to the inspiration of younger people, who may have no knowledge of such activities in their educational lives so far.

What is the result of such investment? Five of the 12 stem cell lines now being used in this country were developed in the city of Newcastle, as part of the economic activities undertaken by that biotechnology centre. Moreover, the only licence for therapeutic cloning in this country is also held by that centre. That is an example of how public expenditure can join up with and inspire real-world activities.

Here, however, there is also a warning for us all. In many cases, such activities depended on the quite complex "bending" of main programmes across a wide range of departments. The Chancellor's Budget makes specific reference to undertaking activities related to the stem cell initiative across the research councils. However, the Higher Education Funding Council has not acknowledged the important role of maths and science in its resource allocation systems in the past couple of years. I hope that not merely the research councils but the HEFC will be involved in this initiative. We cannot splice together a new policy for science and innovation unless the HEFC acknowledges the important role that it has to play. Most of our universities' research funding comes from the HEFC, the clinical fellowships that it supports, the postgraduate work that it supports, and from main-line departments whose activities it supports.

My own city faces difficulties in funding exciting projects such as linking energy policy to the environment, and carbon storage. Such projects will prove significant in the extension and prolongation of North sea oil and gas, but we cannot proceed with them unless the HEFC's main programmes continue to be "bent". We also need to achieve joined-up government and to develop the activities of the Department for Education and Skills and of the Department of Trade and Industry, along with some of the Chancellor's own tax system initiatives.

This Budget has now put right an error of two years ago that could have choked off the development of many university spin-off companies. That error was an accidental, collateral effect of a tax avoidance restriction measure, and the fact that the Budget has put it right is an illustration of smart government. It shows that public enterprise can be used to create enterprise in the real world, and to build up such connections.

One of the worst things that one can ever do in politics is to ask the question, "What did the Romans ever do for us?" I have a particularly strong feeling about this issue, given that the Romans got as far as my constituency boundary, stopped and built a wall. I suppose that that has given my constituents a knowledge of hand-to-hand fighting and of excise duties—a knowledge that unkind people claim has not left them to this day. We should not ask a Government to do things for us. The public sector should put proposals to the Government, based on what can be done in its own regions and cities, to which it can legitimately expect the Government to respond. That is how the science city initiative should work.

I should like to say to the right hon. and learned Member for Rushcliffe that one of the real dangers that the country faces stems from the fact that financial engineering occupies such a dominant place in our economic activities, while real engineering does not. The attempt to seek higher yields and engage in higher levels of risk in some sectors of our financial engineering economy could well put our overall economy at risk in the future. We would then find again that public expenditure, public investment and the creation of public employment were necessary to sustain our economy's growth and stability through such difficulties.

Photo of Sir Sydney Chapman Sir Sydney Chapman Parliamentary Private Secretary To the Rt Hon Michael Ancram, Foreign Affairs 4:51 pm, 22nd March 2005

I am grateful for the opportunity to speak in the final day of debate on the Budget resolutions, and it is a pleasure to follow Mr. Cousins. If I may say so, he made a very interesting speech, which is worth re-reading. He has taken us intriguingly across a broad spectrum of time, from the Romans visiting and colonising his constituency to the science city of the future.

I hope that the House has not become tired of valedictory speeches. I have—alas, in a sense—another one to give and I am conscious that I am following a superb valedictory speech from my right hon. Friend Mrs. Shephard. I must say with great regret at the outset that I have no financial interest to declare.

I would like to highlight the fact that I have had the privilege of being a Member of Parliament for 30 of the last 35 years by underlining the phenomenal growth in public spending during that period. I first fought a parliamentary election 41 years ago. In 1964, total Government expenditure was less than £13 billion. When I was first elected in 1970 it had grown to £22 billion, and when I was kicked out in 1974—I add that there is no causal link between these figures and my career as an MP—it had grown to £40 billion. When I was returned in 1979, Government expenditure was £87 billion and in 1997, after 18 years of Conservative government, it had grown to a whopping £320 billion. Today, it is nearly £500 billion.

Interestingly, national health service expenditure has matched those increases. Only £1 billion in 1964, it more than quintupled—if that is the right word—from £9 billion to £46 billion in the 18 years of Conservative government, and it is currently about £85 billion. Rightly and properly, the NHS had taken an increasing proportion of overall expenditure. I recall that when the NHS was introduced in 1948, it was expected that it would cost £400 million. In fact, in its first year, it cost £700 million. It was also expected when it was first introduced that the health of the nation would get better, so the cost in real terms would go down. Nothing could be further from the truth. It has not happened because of the cost of exciting new medical technologies, life-saving drugs and so forth. I salute both sides of the House for the way in which NHS expenditure has increased—a point to which I shall return in a few minutes.

It would be wrong of me not to try to make a cheap party political point by saying that the only time when Government expenditure has not grown significantly in real terms was between 1974 and 1979. At that time, there was a massive increase in prices of 106 per cent. and Government expenditure increased only a little beyond that.

All Governments boast that they have spent more. In my first campaign in 1964, I boasted that, after 13 years of Conservative government, education expenditure had increased from under £500 million to over £1,000 million. Politicians on the Government side always boast about the increase in public expenditure. Therefore, I reiterate what my right hon. and learned Friend Mr. Clarke said: it is patently absurd for the Government to say that if a Conservative Government were elected, public expenditure would be cut by £35 billion by 2011. If they continue to say that, I believe it will be counterproductive for them in the public opinion polls.

One feature of NHS spending worries me. Despite all the huge increases in NHS spending in the past eight years, all the NHS trusts around me complain of massive and increasing deficits and I genuinely would like some explanation of that. If all the increased spending is not being spent adequately at the sharp end, a lot must have leaked from the pipeline between the Government and the local trusts.

Within this great growth of Government expenditure under all parties, there has been growth in inflation and, in one sense, they are related. Also, since I first came here, the national debt has grown relentlessly. In 1964 it was £30 billion; today, it is about £450 billion. Since 1970—I have chosen that as it is the year I came here—the value of the pound has sunk by 90 per cent or, put another way, £1 in 1970 is worth only about 10p today. That is a matter of concern.

We need to spend more, not only because of inflation but because the population of the country has increased since 1964 from about 54 million to approaching 60 million. Increasing numbers of my constituents wonder, as we are spending all this money on vital services—perhaps some people might not regard some of the services subjectively as vital—whether we are doing so effectively and efficiently. The higher that expenditure goes within any Department of State, or the higher total Government expenditure goes, the more there is a case that a lot of it is being badly used or inefficiently applied. Our constituents will want us to address that.

I agree with my right hon. and hon. Friends that the Budget used to be about economic management and tax. It may be politically sexier now, but it seems that Budgets under the present Chancellor have become a political manifesto, if not a party political broadcast; certainly, he has been highly selective in the statistics he gives us.

I want to make a few points about the Chancellor's statement last Wednesday. The Chancellor boasted that this is the 50th quarter of economic growth, which means that it started 12 and a half years ago and obviously includes a period of the Conservative Government. That Conservative Government took the painful and unpopular measures that led to sustained economic growth.

I am not impressed by the Chancellor's boast of fiscal tightening in the Budget. In reality, he has tightened spending by £265 million in a Budget of £450 billion. If that is a tightening, it is infinitesimal. I warn my constituents—I will not be able to pick up the pieces for them—that before the last election he cut taxes by £1 billion only to increase them by £8 billion after the election. This does not look promising for the next Budget.

I have calculated that the Government's compound current deficits since 1997 are fast approaching £150 billion, which is certainly more than the Chancellor anticipated a few years ago. There has been a deterioration in private savings, and the savings ratio has almost halved from 9 per cent. to 5 per cent.

I want to make two further points. I welcome the doubling of the stamp duty threshold, but only 15 per cent. of people who buy homes today will benefit. The average price of a house in England is around £170,000, but in London it is £280,000 and in my constituency of Chipping Barnet it is £380,000. Stamp duty rates will kick in at £120,000, but again they will apply to the whole purchase price and the first £120,000 will not be exempt. Inheritance tax will now apply to most of my constituents simply because of house prices in my constituency.

I shall finish on a personal note. During my time in the House, I fear that the power of the legislature has diminished while the power of the Executive has increased. That has been the trend for 100, if not 150 years, but there seems to have been a sharp increase recently. However, Members of Parliament still have a fundamental role and it has been a privilege to have been a Member of Parliament for 30 years. The hours have been long and the job has been stressful, but rewarding. I shall miss serving my constituents and, dare I say it, the camaraderie and friendship that I have enjoyed throughout the House.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East 5:03 pm, 22nd March 2005

I congratulate Sir Sydney Chapman on his farewell speech to the House, which was eloquent and forceful, although I disagree with some of his comments on the NHS. I wish him a happy, long and healthy retirement so that he can watch the health service go from strength to strength under continuing Labour Governments.

I am pleased to make a further contribution to the Budget debate. This is the eighth Budget of two successful Labour Administrations and it maintains the Government's efforts to secure Britain's continued economic prosperity. During an earlier exchange the Conservative Front-Bench spokesman, Mr. O'Brien, who has now left the Chamber, said that performance was not as good in the English-speaking economies of the world, and Mr. Salmond asked if Scotland was among those economies. I am firmly committed to Scotland remaining within the English-speaking economies as part of the Union.

Members of the Conservative Opposition who deride the Budget deserve what they get—further years in opposition. I am surprised that so many English Tory Members talk down Britain. That is why we need a Scottish raj, if there is such a thing, to ensure that Britain continues to be great. The efforts of my right hon. Friend the Chancellor lie at the heart of that.

We are at the beginning of a new millennium, and world trade and competition are now truly global. The Budget provides the vision and provisions that will avoid the boom and bust practices of the past. As recently as the early 1990s, those practices were visited upon us and my city suffered as badly as any. I hope that, under present policies, such recessions are a thing of the past. The Budget also aims to achieve social justice and economic well-being for all, goals with which I can clearly identify.

I understand why the Opposition want to make cheap political points in this debate: they are unnerved by the prospect of losing yet another general election. However, the citizens of Britain do not want cheap political shots: they want to know that the finances of this country are in safe, capable, prudent and expert hands. The real headline behind this and the previous seven Budgets is that they are.

I want to focus on the measures in the Budget aimed at creating ever more enterprise and employment opportunities for the people whom I have been elected to serve: the constituents of Dundee, East. I wish to concentrate primarily on the fostering of small businesses and the building of a knowledge-based economy.

I welcome the further steps in the Budget set to promote further investment, more jobs, higher levels of skills and more small business start-ups in areas like my own. At the outset, I wish to echo the point made by my hon. Friend Mr. Marshall: I, too, never want to hear another Conservative budget as long as I live, nor do an overwhelming majority of my constituents. Scotland rejected Margaret Thatcher, as it will undoubtedly reject Mr. Howard, a politician who was responsible for the introduction of some of the worst aspects of Thatcherism in the past and is dedicated to reintroducing them in greater measure in the future. That was called a golden legacy in the opening speeches, but it tastes bitter to the people of Scotland and others throughout the UK.

I have been glad to serve the city of Dundee, which has moved on so much since 1997. Unemployment has been halved and youth unemployment virtually eradicated by the new deal. Dundee is going forward, not back. It is going forward along the path clearly set out by my right hon. Friend the Chancellor. Dundee deserves and demands full employment, and this Budget sets out the next stage in the agenda to achieve it by ensuring that the conditions that encourage small businesses to be created, sustained and built on are firmly in place. I spend a lot of time visiting small businesses in my city, as other hon. Members do, to ensure that their needs are reflected in Government policy. That is the only way to counter the inevitable drift of manufacturing jobs and the inevitable attraction of lower production costs outwith the UK: replacing those lost jobs by creating more local jobs and encouraging local enterprise through less regulation, more simplified tax processes and a reduction in the administrative costs for small businesses.

As a member of the European Standing Committee that considers issues such as gold-plating, I am aware that the Government are now taking steps to deal with it. Areas such as my own are now beginning to see some benefit from policies previously put in place by my right hon. Friend the Chancellor, a trend evidenced over the past three to four years by increased small business start-ups. I hope that the Budget will provide a boost for further business start-ups in services, leisure, manufacturing and science-related sectors.

It is in that last cause, and the creation of a knowledge-based economy, that I am glad wholly to support the Chancellor and the Government in their quest to make the UK a world-leading location for the next wave of research and development. Although I welcome the further designation of Bristol, Nottingham and Birmingham to join Newcastle, Manchester and York as science cities, I wish to make the point strongly that Dundee—although it falls within the remit of the Scottish Executive—certainly deserves to be added to that list. Dundee has two vibrant and innovative universities and a student population of 20,000, with more students arriving every year. The importance of higher education and science is clearly evident, both within the city's boundaries and further afield.

Some may mock the Government's emphasis on those sunrise activities but, in a city the size of Dundee, the real impact made by our academic universities and their activities on our country must not be undervalued. I am happy to acknowledge the DTI's role in promoting research and development in Scotland, and at Dundee university. My right hon. Friend the Secretary of State mentioned Dundee university in her opening speech, when she spoke about the three universities in the UK that lead the world in the promotion of the medical biosciences and the life sciences.

In the past year, Dundee has been visited by my right hon. Friend the Home Secretary, when he was Secretary of State for Education and Skills. His remit in the city was not big and he does not make many visits north of the border, but he was in Dundee to open a new Wellcome Trust research facility. Only last week, Lord Sainsbury, the Science Minister, opened a new award-winning space research facility at Dundee university. The work being done at Dundee university is linked to an impressive computer games technology programme at the city's other university, Abertay university. The combined efforts of the two institutions enable me to declare that Dundee is one of the UK's premier science cities.

As an undergraduate, I visited the places where the industrial revolution began, and most of them are located in the English midlands. I regularly visit Dundee and Abertay universities, and I can report that the same vibrancy is evident in the new starts being made and building programmes undertaken. We are entering a new industrial revolution, in which the pursuit of advanced scientific research will take us on to an even more elevated plane, with an increased level of production and prosperity arising from an economy that is based on knowledge and science. I want to pay tribute to the principals of Dundee's two universities, Sir Alan Langlands and Professor Bernard King. They have done a great deal to improve Dundee's economic status by promoting research, bringing in new students, and changing the city's outlook.

This Budget will promote Dundee's economic improvement. It is not yet a designated science city, but I welcome the announcement that three more such cities will be created, to add to the three that already exist. However, it is not enough to have six science cities, or even 60. Six hundred such cities might be closer to the target that we should set. I believe that every UK city will need to be a science city if we are to cope with the global competition that is undoubtedly coming our way, as the Budget made clear.

The Budget embodies the Government's ideal on these matters, and my right hon. Friend the Chancellor is to be commended for the forceful way that he supports that ideal. In his biography of Gladstone, the late Lord Jenkins wrote—in a chapter entitled "The Chancellor Who Made the Job"—that Gladstone took four and three quarter hours to deliver his first Budget speech, which dealt with a total of £52 million and occupied 72 columns in Hansard. Last week, in his usual prudent way, today's Chancellor spoke for just under 50 minutes. His speech occupied only 13 columns in Hansard, but the growth in public expenditure in the 150 years since the grand old man made his first Budget speech means that my right hon. Friend's Budget deals with something like £590 billion. The Budget was delivered in a prudent manner that gave clear evidence of the intent to deliver.

Of previous Chancellors who are rated among the all-time greats—and I do not include Mr. Clarke, who is not present just now—Gladstone, Pitt the Younger and Lloyd George went on to become First Lord of the Treasury. I am sure that the present incumbent will emulate those distinguished predecessors some day. Until then, he and the Government deserve the gratitude of this House and the country for keeping us on a stable and even economic path.

My right hon. Friend the Chancellor has rejected boom and bust in favour of growing prosperity, and has created a long awaited era of social justice in this country. His commitment to combating poverty on a global scale puts many, if not all, of our neighbours to shame. Britain and Scotland are going forwards, not backwards.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party 5:14 pm, 22nd March 2005

Mr. Luke opened his speech by offering congratulations to Sir Sydney Chapman on his valedictory address. I do the same and wish the hon. Gentleman best wishes for the future. I extend the same good wishes to the hon. Member for Dundee, East, in case the citizens of that great city are less impressed than he is by the Chancellor's track record on the Scottish economy, which is what I shall speak about.

At the Scottish Labour conference a couple of weeks ago, the Chancellor attacked me and accused me of claiming to be an economist. I make the frank admission that I am a fully paid-up member of EA—economists anonymous. I confess that I was a Government economist. I confess that I was a bank economist. I confess that I am a visiting professor of economics at Strathclyde university. I confess to all those things. I would never accuse the Chancellor of any of them.

I am sure that the Chancellor's degree in history was great training for his present position and that his lecturing in politics was marvellous preparation. His time with Scottish Television as a producer also stood him in good stead for his tenure as Second Lord of the Treasury. I do not actually think it necessary for a Chancellor to be an economist, although it can occasionally be helpful for recognising mumbo-jumbo such as "endogenous growth cycle theory", but it is not necessary to have that background or expertise. My claim against the Chancellor is that he claims to be a Scottish Chancellor of the Exchequer when his track record tells us that he is not. He has done nothing specific or substantial to benefit the Scottish economy during his tenure of that office.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

I am glad to hear about the hon. Gentleman's CV in economics. Does he agree, however, that it would be much more profitable for him to concentrate on teaching economics rather than pursuing a career in politics where there is no end in sight?

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

I shall try to combine both. Perhaps the hon. Gentleman will hear me do so in my speech.

The Chancellor's speech last week opened with the boast about 50 continuous quarters of economic growth. The House may remember that he referred to the English premiership record of 50 consecutive matches.

Photo of Alex Salmond Alex Salmond Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury), Leader, Scottish National Party

Well, it was almost 50. The Chancellor said that he had gone one better and had reached the magic number of 50.

I wanted to ask the Chancellor about the figures for the Scottish economy—I thought that his own country might be of some interest to him. I asked a parliamentary question but received the reply:

"The Chancellor of the Exchequer has asked me to let you know that your parliamentary question: 'To ask Mr. Chancellor of the Exchequer, in which quarters Scotland has been in negative growth since 1997' . . . is more appropriate to the Secretary of State for Scotland."

What on earth does the Secretary of State for Scotland have to do with economic growth in Scotland? He has no power and no influence whatever. He survives on a pocket-money budget that is sliced off the Scottish Executive budget. Ninety per cent. of the decisions that affect economic growth in Scotland are taken by the Chancellor and the other 10 per cent. are taken by the Scottish Executive. None of them is taken by the unfortunate Secretary of State for Scotland, who presumably exists to answer questions that the Chancellor does not want to answer.

The answer to my question finally arrived. We find that there have been four quarters of negative growth in the Scottish economy since 1997. The last one was three years ago in the first quarter of 2002. In Scotland, far from seeing the longest period of economic growth for the past 200 years, we have experienced that for only three years under the current Chancellor. If the Chancellor was examining his record on the Scottish economy, he would not have started his Budget speech with that boast.

For the climax of his Budget speech, the Chancellor announced a freebie—free bus travel for pensioners. Earlier, Mrs. Shephard said that that announcement had confused some of her constituents, who were finding it difficult to get any buses, let alone free ones. The announcement would also confuse the Chancellor's constituents in Dunfermline, East, because they have had free buses for some time. I am not certain whether the Chancellor travels on buses in his constituency, but it seems significant that the climax of his Budget speech was an announcement that had already been made in Scotland.

In a speech that ranged wide and looked at announcements such as the well deserved memorial to the Queen Mother which has been mentioned, the Chancellor managed to miss out many things pertinent to the Scottish economy. I am somewhat concerned that even now, when I asked the question earlier—let us call it the Banff and Buchan question—about growth in the Scottish economy, the Secretary of State for Trade and Industry was unaware of the situation, as was the Conservative spokesman, although his reply was so nice about Scotland that perhaps I will forgive him. It was certainly a lot better than that of his colleague Mr. Grieve, who described the problem of emigration for Scotland as being attributable to the fact that Scotland was "an unattractive country". I hope that Mr. O'Brien will give his hon. Friends some lessons on how to address problems in the Scottish economy.

But this is a serious matter. We have a Chancellor of the Exchequer sitting for a Scottish constituency who either does not want, or is not prepared, to engage in why the economic success that he boasts about at a UK level is not being replicated in his own constituency and in his own country. Even more seriously, unless there is an acknowledgement of this growth problem and difficulty in the Scottish economy, how can there be any measures within the Budget to tackle it and do something about it? Significantly, when I asked the Secretary of State for Trade and Industry for two measures in the Budget that would boost Scottish growth, she did not come up with even one. So the charge that I make against the Budget and the Chancellor is that he is a Chancellor from a Scottish constituency, but in no way can he be described as a Scottish Chancellor of the Exchequer.

The black holes that were supposed in the Chancellor's estimation are also quite interesting. Brown's black hole seems to have been filled by black, black oil. I have been looking at the entirety of the Budget give-aways, and if we include everything, including measures that are due to take effect from this year, the give-aways, announcements or bribes, depending on one's point of view, come to £3.4 billion. The increase in projected oil revenues this year conveniently also comes to £3.4 billion, exactly replicating the figure of Budget give-aways.

I suppose that the Chancellor of the Exchequer could claim that he was anticipating this increase in oil revenues to allow him to be in a position to finance his Budget largesse and therefore it was all built into his calculations. As we all know, the price of oil is now $54 a barrel. The Budget estimates are based on around $40 a barrel, according to the Treasury convention. But I have been looking back to last year and I find that, far from arguing that the price of oil should be $55 or $40 a barrel, the Chancellor of the Exchequer was lecturing the Organisation of Petroleum Exporting Countries and suggesting to it that the price should be $28 a barrel. On BBC Online on 20 May 2004 he said:

"It is crucial for the stability and prosperity of the world economy that Opec act now".

Just in case OPEC was not reading BBC Online, in The Times of 24 May, the Chancellor said:

"I think Opec do accept themselves that the sustainable price for oil is $22 to $28 a barrel, and I think they do therefore recognise there is a need for production targets to be increased".

Rather luckily for the Chancellor, OPEC seems to have paid no attention whatever to his forecasts for last year, because if it had, and if that had been the prevailing price, I am afraid that the £7.1 billion of revenues forecast for the coming year in his Budget statement would not have been there, and therefore presumably he would not have had the wherewithal to finance the largesse and give-aways that the Budget has just announced.

I suspect that the Treasury model for looking at the impact of oil revenues on world economic growth is seriously out of date: out of date because the current surge in oil prices is demand-led rather than supply-led; out of date because the coefficients of energy in the economy have changed dramatically since the 1970s; and out of date because the major factor in world growth and oil prices in the '70s was the question referred to as "recycling", which now presents nothing like the same difficulties of hoarding and suppression of demand that we have now.

I wonder what would have rescued the Chancellor on this pre-election Budget if it had not been for the windfall of oil gains. I would have liked to see in the Budget some recognition or appreciation, or perhaps, as the Norwegians have done over the past 10 years—almost the tenure of the present Chancellor of the Exchequer—the building up of an investment fund for future generations, the first payments on which were made in Norway in 1996. The fund now stands at almost £90 billion, some £20,000 a head for every man, woman and child in that country. The revenue generated from that fund is greater than annual Norwegian oil and gas revenues. The point is clear. What we fear in Scotland is that while our neighbours across the North sea are providing for future generations—for their oil and gas revenues will never run out, in the sense that that fund will always be available to power forward the Norwegian economy—no Chancellor, and certainly not the present Chancellor, has made any similar provision for the long-term benefit of the Scottish economy and for effecting the transformations that are undoubtedly required.

Economic growth can be considered a dry subject, but the impact of low growth in Scotland is felt in ways that are comprehended by every person in the country. The official forecast is that far from gaining population—we note the debate on immigration that is taking place in the election campaign—Scotland is to lose 500,000 people over the next 40 years. That is the equivalent of losing a town the size of Alloa, Carnoustie or Kelso every single year. That is the impact of low growth on the Scottish economy. If we and our colleagues across the Chamber had a pound for every young Scot we meet in London who has come down here for opportunity and would love the opportunity to go back home if there were similar career advantages, we would all be very rich indeed.

So, far from being a dry subject, economic growth is a subject that touches every family in Scotland, and far from finding in the Budget a way out of the low growth-depopulation cycle to which the present and previous Chancellors have subjected Scotland, we find a Budget with nothing substantial to offer the Scottish economy and therefore nothing substantial to offer the Scottish people.

Mr. Clarke asked why the Chancellor was so keen to have items like the Queen Mother's memorial in his Budget speech. The answer lies in the same reason as for his mentioning Britain 60 times in his Budget, and Scotland twice: he is anxious to recast himself as someone with British credentials. They used to say in the Labour party, when they talked about such things, that one could rise with one's class or out of it. The difficulty with the Chancellor is that he is not rising with his country; he is rising out of it.

Photo of Damian Green Damian Green Conservative, Ashford 5:28 pm, 22nd March 2005

We have debated wide-ranging aspects of the Budget today. I shall concentrate on the effect of the Budget on public services and, in a sense, to pick up on the point made by Mr. Cousins, who spoke about smart government. I want to talk about dumb government and those aspects of the public services that are not responding properly to the money that has been put into them, and which will not do so for systemic reasons.

We have heard two wise and splendid valedictory speeches today, from my hon. Friend Sir Sydney Chapman and my right hon. Friend Mrs. Shephard. I refer the House to the valedictory speech made by my right hon. Friend Sir Brian Mawhinney in the debate last Wednesday. One part of his speech illustrated the theme that I shall emphasise today—the absence of value for money in far too much of the public sector. Over-ambition leads to under-performance, and big government is too often incompetent government.

I shall take three examples from different parts of the Government machine. My right hon. Friend the Member for North-West Cambridgeshire, speaking about the Child Support Agency, said that after 26 years in the House, he was still able to be righteously angry on behalf of his constituents. I share his anger. The sheer incompetence of the CSA is a stark illustration of how pouring millions of pounds of taxpayers' money into a problem is not the same as solving it.

The CSA's latest idiocy—a small but striking example—is that its preferred method of communication is by telephone. Why? The CSA deals with complex financial calculations, the detail of which is extremely important, but its senior management enjoin staff not to put anything on paper. A few weeks ago, in a conversation on the helpline for MPs, I asked to be e-mailed the details of an especially complex case, only to be told, "We don't have external e-mail." The helpline is a service designed to help us to help our constituents, yet e-mailing us the details of any case affecting one of our constituents is not permitted. I can conclude only that the CSA is being run for the benefit of the CSA, not its clients.

That is a powerful example of they way in which the honest aspirations of all Governments need to be subject to a reality check. We must ask in respect of every problem, will it actually be tackled best by an extension of the public sector or by the public sector pouring in more taxpayers' money?

My second example of the underlying problem is the Department for Transport, where administrative costs have increased by 50 per cent., from £255 million in 1998 to £382 million in 2003–04. Passengers on all modes of transport are entitled to ask whether they are getting value for money from that colossal increase in the Department's budget. Reference has been made to the big transport policy in the Budget—free off-peak bus passes for pensioners—but for many of my constituents and other people living in rural areas there simply are no off-peak buses on which they could use that election bribe. Many Chancellors have indulged in pre-election bribes, some effective, some ineffective and some straightforwardly cynical, but to offer free off-peak bus passes for pensioners takes the prize for sheer all-encompassing pointlessness in the large areas of the country where there will be no one to receive the bribe that the Chancellor is trying to give them.

My main example of the lack of effectiveness of too much Government spending is the railways. The Red Book shows that subsidies to the rail industry are increasing at a rate that I am sure alarms the Treasury, in particular the Chief Secretary, as they approach £5 billion a year. I invite the House to consider a specific example of how that colossal and fast-increasing subsidy is not working effectively. One of the next big franchises to be advertised, the integrated Kent franchise, affects my constituency. It seems to me that an obvious way to reduce the subsidy in the long term is to attract more passengers on to the railways by making it easier and more convenient to use the trains, but what does the Strategic Rail Authority propose for the integrated Kent franchise? Cuts in off-peak services to village stations such as Charing and Chilham. That is a prime illustration of how not to do it.

Those examples are a subset of the ways in which big, ambitious government can fail the people it tries to serve. One of the minor idiocies of the SRA's approach to the Kent franchise is that it ignores the fact that, at the behest of the Government, Ashford is one of the fastest-growing towns in the country. The SRA's approach merely reflects that of far too many central Government Departments. The Office of the Deputy Prime Minister has ordered the building of 30,000 extra houses in 30 years, but the Department of Health has not recognised that the growth has already started and has not provided enough GPs or dentists, the Department for Transport has not started to build the new motorway junction that is increasingly needed as the traffic congeals and the Department for Education and Skills says that the increasing school rolls can be covered by the usual funding, but there is no sign of that. The Chancellor probably thinks that he has been generous to the Deputy Prime Minister over the so-called sustainable communities plan. However, the fact that it is all driven and planned from the centre means that the needs and wishes of local people are ignored. When the SRA goes, the Department for Transport will plan everything. That does not inspire confidence, not because the Department will necessarily be any worse than the SRA—it may be better—but because the structure will not work, however much money is put in.

I have given examples from the benefits system and transport; my third example is education. The big idea in the Budget was more spending on buildings and computers, but standards in existing classrooms are not good enough. Of course new building will be welcome, but that is not aimed directly at what is most needed. The facts are clear: the Chancellor has heavily increased education spending, year after year, but the key aims that he wants to achieve are not being met. The Government's targets for raising primary school standards were set by the first Education Secretary, missed by the next, who resigned, moved carefully forward in time by the third Education Secretary and are now being quietly dropped by the fourth Education Secretary whom we have seen under this Government.

Some 1 million 11-year-olds are leaving primary schools unable to read, write and count properly; that is not a record of which the Government can be proud. Yet the Chancellor's response in this Budget is simply more of the same: more spending, more centralisation. That has not worked in the past, and there is no reason to believe that it will work in the future. This Budget has given us more of the policies that have expensively failed over the past eight years.

The same problems are apparent in those three disparate fields. A Government who came into office—full, I suspect, of genuine idealism—pulled the levers enthusiastically, taxing and spending with a will, yet found too often that the levers were not connected to anything. Eight years and nine Budgets in, there are lessons to be learned. First, taxing and spending with an unreformed public sector does not work, and that applies at any level of public spending. I recognise that there are areas of public service that need continuing high levels of spending, and I am glad that my party is committed to maintaining the high levels currently seen in key areas—including some that I have been talking about, such as education and transport. However, unless that money is spent more intelligently in the future than it has been in the past, it will not achieve its purpose.

The second lesson has already been learned by the British people: they should beware of Ministers who equate extra spending with extra virtue. The British people are entirely capable of recognising that money needs to be spent on the big, key public services, but that, at the same time, large sums of money can be wasted on those key services. They recognise that nothing like enough of the tax money that the Chancellor has taken away is being spent effectively where they want it spent. That is why the waters have already closed over this Budget, even before this House has finished debating it. It was meant to be the Government's big, pre-election boost; it has palpably failed in that, and for good reason.The new Labour experiment was reliant on a proposition that has been seen to be false: that higher public spending necessarily means better public services. Victims of the CSA, rail travellers in Kent and elsewhere, and anxious parents are only three of the groups now looking for an alternative, and finding one in the Conservative party.

This Budget has already been largely forgotten, and I hope that it is the final manifestation of a theory that has raised the amount of tax that we all pay, but has failed to raise the standards of our public services. That is why this Budget, the policy ideas that lie behind it and—most importantly—the Government who introduced it have all failed this country.

Photo of Keith Vaz Keith Vaz Labour, Leicester East 5:39 pm, 22nd March 2005

I will be brief, and raise only a couple of points. First, I disagree profoundly with what was said by Mr. Green—but I imagine that he had to say such things, as we have had such a wonderful Budget.

I congratulate the Chancellor on yet another superb Budget. When I returned to my constituency last weekend, the reaction of the people of Leicester, East was as positive as it has always been when the Chancellor has managed to tell us how well the economy has been doing over—in this case—the last eight years, while also pointing out that much more needs to be achieved if we are to stay on track. It is that stability, that security, that has meant so much to my constituents. I congratulate the Chancellor on yet again producing a Budget that is good for the people of Britain, but does not do what some have suggested Chancellors should do before an expected general election—although, of course, none of us knows when the election will take place—which is to indulge in a spending spree in an attempt to encourage people to support one party or the other. The Chancellor has not done that. He has kept to his script, taking care to be prudent but also to help certain interest groups.

This is very much a Budget for pensioners, and those who were most delighted to receive the Chancellor's news last week were the pensioners in my constituency who live on the outer estates in Leicester, such as Thurnby Lodge and Netherhall. His desire to ensure that pensioners can use public transport in the way that he envisages has delighted my constituents who suffered during the brief period when the Liberals and Conservatives controlled Leicester city council—that brief period when many of the gains made by previous Labour administrations, in the form of implemented policies that benefited pensioners, were taken away.

Also well received was the Chancellor's decision to increase the threshold for inheritance tax. I would have liked it to be raised a little higher. Having just completed, after nearly two years, the administration of my late mother's estate, I know how complicated these form-filling exercises are. But the Chancellor is moving in the right direction. The raising of the threshold will allow people on modest incomes to leave something to their families, having accumulated that money over a lifetime. It is important for them to be able to pass on their legacies. I understand the need for taxation, but it must obviously be graduated.

I welcome a third step—the changes made by the Chancellor to encourage Islamic banking. I know that he will address the Muslim awards dinner tomorrow night, and that he is the first British Chancellor to attend a function of that kind. I welcome his proposal to help those who wish to deposit their money in banks like the Islamic bank, a branch of which opened recently in my constituency. We should be able to provide financial services that meet the needs of different communities, and I thank the Chancellor for what he has done.

Overall, the Chancellor has achieved stability and prosperity, the two hallmarks of this Administration. I remember that when I first entered the House 18 years ago, people questioned whether the Labour party could manage the economy. Such questions are no longer asked, because the economy has been managed and organised so well.

Let me, in passing, pay tribute to the Chief Secretary to the Treasury, my right hon. Friend Mr. Boateng. We have heard a number of valedictory speeches from Conservative Members. I hope that this will not be mine, because I intend to stand again, and subject to the wishes of the people of Leicester, East, I may be elected. However, my right hon. Friend has announced that he is retiring from domestic politics to take up his post as the new high commissioner in South Africa, and this will be his last speech as the Chief Secretary. I pay tribute to him for all the work that he has done for his constituents in Brent, South who will miss him greatly, especially the Swaminarayan Hindu mission—I know that he was a frequent visitor to it. I pay tribute also to his contribution to the Government in the various posts that he has held. He has been an excellent Minister and is going out at the top. I hope that he will ensure that the furniture is polished in Pretoria because I know that a number of colleagues and I will be visiting him in South Africa. He will be a spectacular success there, as he has been in every job that he has had, in government and before. I wish him well.

I have another point about one aspect of the Budget that the Chancellor did not dwell on. I say this is in a friendly way, but if I had not listened carefully to what the Chancellor was saying, I would have missed his comment on the latest assessment of the euro. I want to conclude my comments by mentioning the euro, because it is a vital part of the Budget debate.

When the Government announced after taking office in 1997 that there would be a referendum on the euro, giving the people of this country the chance to take that crucial decision, we decided under our rolling timetable to see whether we had met a number of key economic tests. When the Chancellor announced that three out of the five tests had been met—I think in the Budget before last—he said that there would be a rolling assessment of whether the other tests had been met. He was very brief in his description of that assessment when he spoke last week.

I understand the situation fully, and this is not a criticism of Treasury policy—who would seek to criticise the Treasury when it has produced such a wonderful Budget? However, the fact remains that we have a commitment to examine the issue from Budget to Budget and in the autumn statement. The autumn statement was brief on the matter, and the Budget was even briefer. I accept the Chancellor's judgment, and I do not want to substitute my judgment for that of the person whom I regard as one of the finest Chancellors that we have ever had and certainly the finest in the past 100 years. However, it is important for us to be clear where we stand on the two remaining tests, and there is no harm in telling the House on a regular basis—once a year, because that is how often we have the Budget—what has happened to those tests. I am sorry that we did not have the opportunity of hearing whether we had met the other two tests. It is important that we get a timetable from the Government for the next time that we have those tests.

Photo of Damian Green Damian Green Conservative, Ashford

Does the hon. Gentleman think that the Chancellor is avoiding telling the House about the results of those two tests because we have passed them or because we have not passed them?

Photo of Keith Vaz Keith Vaz Labour, Leicester East

The point is that we do not know. I do not think that he is avoiding telling the House, but there is a feeling that we should not dwell on the issue because it is not exciting. However, it is important that we know, and when my right hon. Friend the Chief Secretary winds up—of course, he will be able to speak from the Dispatch Box without being held to account because he is going to South Africa—he will perhaps let us know the Government's view.

I do not mind what that view is as long as we know the timetable: will we have another assessment in the pre-Budget autumn statement, or do we have to wait a further 12 months, until probably the time of the European constitution referendum? We cannot ignore the issue, so let us be clear about it. Believe me, I accept the Chancellor's judgment: whatever he says I will accept absolutely, because I think that he is best placed to tell us whether the tests have been met. All I ask is to be told when the timetable will be set out. I do not think that enough was done last week to tell us about that.

I understand the problems of the stability and growth pact, and I know that the Chancellor fought a successful battle yesterday in explaining to our European colleagues that more had to be done in that regard, and that he was not satisfied with the new rules that had been decided on by the EU, simply because they would affect our budget and our financial prospects. My right hon. Friend was very cautious in that regard, and I am happy for him to be cautious, but there is a tendency to forget the contribution that the European Union makes to our economy. Eight of our top 10 trading partners are EU members, for example, and the enlargement of the EU on 1 May gave us the largest single market anywhere in the world. Contrary to the view expressed by some Conservative Members—not those who are in the Chamber today—such as the shadow Home Secretary, that the arrival of the eastern Europeans would cause problems for our economy, those countries have benefited our economy. So let us treat Europe in a proper way in our Budget statements, and remind ourselves that it has a contribution to make.

Nothing that I have said today about the euro should detract from the huge success of this Budget and of the Chancellor. We have a stable, prosperous economy and the people of this country will be able to pass their verdict, whenever the election takes place, principally because of our economic success. I thank the Chancellor for what he has done.

Photo of Robert Walter Robert Walter Conservative, North Dorset 5:51 pm, 22nd March 2005

To some extent, this has been a sad debate, because we have heard the final speeches of my right hon. Friend Mrs. Shephard and my hon. Friend Sir Sydney Chapman. As always, they made very good, well informed and witty speeches, and we shall miss them. My hon. Friend the Member for Chipping Barnet and I have become very good friends over the past eight years. He made some rather incisive comments about the beginning of the national health service, which he could remember. I do not quite remember it, because it was brought in just one month after my birth, although my mother always said that its introduction had nothing to do with that event.

As today's debate is on trade and industry, perhaps I should start by referring to our appalling trade deficit. The latest figures for last year show that our deficit on trade in goods was in excess of £57 billion. That is catastrophic for the nation. My hon. Friend the Member for Chipping Barnet reminded us that the first election he fought was in 1964. A key issue in that election was our deteriorating trade balance. If today's electorate were as well informed on the trade picture as they were then, I suspect that this Government would be done for in much the same way as the Government were done for in 1964.

The situation today is deteriorating. Imports have increased in volume terms over the past four years by some 12.5 per cent., whereas the export volume figure has decreased by 0.3 per cent. That is a poor situation to be in, and companies in my constituency are doing their best to fight that trend. Flight Refuelling Ltd makes the fuel systems for virtually every commercial airliner in the world, while Farrow and Ball, the paint maker, sells its excellent products on every continent. Marden Edwards produces packaging machinery—I am afraid that a lot of it is exported to pack the goods that are then imported into the United Kingdom. William Hughes produces springs, a very unsexy product, but we sit on those springs almost every day, as it supplies springs to every car maker in Europe to go in the seats of motor cars.

In relation to our trade picture, the important macro-economic point is the Government's complacency. I sit on the Treasury Committee, and on a number of occasions I have raised with both Treasury officials and the Chancellor of the Exchequer our trade deficit and current account deficit. They are at pains to point out to me that, in real terms, we have had deficits like this in the past. That may be so, but the difference now is that we have consistently had a deficit in virtually every year this Government have been in power, and the deficit has been increasing. We no longer have a cyclical trade position but a current account that is permanently in deficit and shows no signs whatever of improving, and the Government seem to have no sense of urgency about addressing that problem.

I want to consider the housing market and some of the Government's policies with regard to it, particularly the incentive to first-time buyers that the Chancellor introduced in this Budget. I do so with a sense of caution, however, as the International Monetary Fund, whose advice the Chancellor likes to ignore, in its latest article IV consultation on the UK economy, issued as recently as 8 March, stated:

"Perhaps the greatest near-term risk to the outlook was the possibility of a sharper-than-expected drop in house prices . . . even though the correlation between changes in house prices and changes in consumption may have weakened since 2002, the ratio of consumption to disposable income had risen over the past decade alongside increasing housing wealth."

The Red Book contains few figures on house prices. If we want to find any sort of analysis, we must go to the Treasury's website to find a section called "Supplementary charts and tables", which shows the ratio of earnings to house prices. That is a fascinating chart, as it reflects the entire United Kingdom. My concern is not the entire United Kingdom, but the regional picture.

Some of us may recall that, last autumn, the Joseph Rowntree Foundation did a fascinating analysis of the ratio of earnings to house prices, which showed that in London that ratio was in most instances of the order of 5:1. Outside London, in my region, the south-west, the ratio was also of the order of 5:1. In other parts of the south-west region, however, it was even higher. There are two districts in my constituency, north Dorset and east Dorset, and the figures for east Dorset show that the mean house price for a two or three-bedroomed dwelling, which is what most families need, was £203,000, and the ratio of house prices to average incomes was 5.35:1. Given an average or mean house price of £203,000, I wonder what benefit the Chancellor thinks that his £120,000 threshold will bring to those seeking to get on to the property ladder in London, the south-east or the south-west. I suspect that the only people who will derive any benefit are in the north, so in my view such a benefit will be available only to those who are perhaps supporters of the Labour party. It will do nothing for those who—

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

The hon. Gentleman will doubtless be aware that among the other districts in the Government's south-west zone—I do not call it a region—that suffer from large differentials between house prices and very low earnings is my constituency, which includes west Cornwall and the Isles of Scilly. Although I agree with his analysis, does he agree with me that one of the best ways, among many others, of helping local people is to develop policies that constrain the very high levels of second home ownership that exist in places such as west Cornwall and, no doubt, parts of his constituency? Second home ownership is fuelling price increases, and as a result houses are way out of the league of what local people can afford.

Photo of Robert Walter Robert Walter Conservative, North Dorset

I thank the hon. Gentleman for his intervention. There are many measures that the Government could implement to encourage those who need to get on the property ladder. I am always reluctant to suggest that we should introduce measures to restrain prices, but I can say that all Dorset's local authorities have moved to a 90 per cent. council tax on second homes, the proceeds of which will be used to provide affordable housing.

I want to make two further points before I sit down, the first of which the Chief Secretary to the Treasury can perhaps help with in his reply. The Government have re-opened negotiations on the plan to reform public sector pensions. If that were to lead to a retention of the status quo, whence would the anticipated savings be derived? On the other hand, would we be looking at an increase in projected public expenditure as a result of future, larger pension bills?

Finally, I want to discuss chapter 3 of the Red Book, entitled "Meeting the productivity challenge", and in particular subsection 19, entitled "Leading regulatory reform", which states that

"the Government believes that inefficient regulation can impose a significant burden on business".

Two of the stated areas of action in that regard are

"ensuring that regulation is used only where necessary", and that it is not 'goldplated' if it originates from the EU".

There will be a sound round of applause from all parts of the House for that provision on gold-plating—an issue that we have discussed on many occasions. The third area of action listed in subsection 19 is

"pursuing an agenda of regulatory reform in Europe"— we all agree on that—

"because around half of all significant new regulations affecting UK businesses originate in the EU."

I read that with interest, because according to this morning's Financial Times, the Minister for Europe said that that is not so. He

"debunked the 50 per cent. figure as typical of the tendency of 'anti-European politicians [to] tell more myths and fantasy about Europe than you can find in Harry Potter or The Da Vinci Code'."

The Minister for Europe also referred to work of the House of Commons Library, which shows that of those regulations that are passed in this House through secondary legislation, only 9 per cent. actually come from Europe. That implies that 91 per cent. of the regulations under discussion originate from the Government Front Bench, that they have very little to do with Europe and that the Government seek to hide behind the European regulatory framework in order to excuse regulations that they themselves decided to introduce, completely independently of the European Union. The Government should answer that question, and, if the story in the Financial Times is not true, we shall doubtless hear from the Minister for Europe.

Photo of Mrs Barbara Roche Mrs Barbara Roche Labour, Hornsey and Wood Green 6:05 pm, 22nd March 2005

Like my hon. Friend Keith Vaz, I shall start by telling my right hon. Friend the Chief Secretary that we wish him well in his new post and that we shall miss him a great deal. Speaking as someone who has known him for more years than I care to remember—we have known each other for a very long time—I know that he will be missed by the Labour party in London. I am grateful for his contribution as a London Member to our capital city.

Looking across the Chamber, I see in his place one of my neighbouring north London MPs, Sir Sydney Chapman. He and I have had an extremely friendly relationship ever since I became a Member, and I know that he will be greatly missed in this place. All hon. Members will want to wish him the best for the future. As I said, we have had extremely cordial relations as neighbouring MPs.

We also heard today a speech by Mrs. Shephard. She has been a mentor and friend to many women who have entered Parliament and she will be missed by Members on both sides of the House.

I want to focus my brief remarks on an important subject in this year's excellent Budget, which has been warmly welcomed by my constituents in Hornsey and Wood Green. I refer to black and ethnic-minority businesses. We all know that small businesses play a vital part in the economic life of our country. Indeed, they are the lifeblood of our economy and should be encouraged. When we look at the figures on business start-ups, we note a tremendous disparity between the richest and poorest areas of the country. One way to remedy the problem is by encouraging many more people in the minority ethnic communities to become entrepreneurs by starting up and running successful businesses.

More than two-thirds of black and minority ethnic communities live in England's 88 most deprived local authority areas. When I was a Cabinet Office Minister, I was proud to produce a strategy unit report that examined black and ethnic minority communities and the labour market.

Photo of Mr John Taylor Mr John Taylor Conservative, Solihull

Perhaps the hon. Lady shares my experience as a junior Minister at the Department of Trade and Industry, when I was probably the only person there who had run a business with fewer than 10 employees. As chairman of an enterprise agency, I learned that the real handicap to starting a new business—I applaud the hon. Lady's emphasis on ethnic minorities—was not the absence of a business plan or enough money, but the problem of finding affordable premises. That turned out to be one of the greatest obstacles that hindered small business start-ups.

Photo of Mrs Barbara Roche Mrs Barbara Roche Labour, Hornsey and Wood Green

The hon. Gentleman, who speaks with a wealth of experience, is right, but the other barriers—from a lack of access to finance to a lack of awareness of programmes—are also major issues.

I welcome the Chancellor's emphasis on the new centres of vocational excellence for entrepreneurship, which will be helpful in developing businesses. Many businesses start, but it is important that they flourish beyond three years. If they do, they can employ other people, creating wealth and opportunity.

I am pleased that the Government are looking at promoting the incorporation of race equality in public procurement within the current legal and policy frameworks. We ought to take a leaf out of the American Government's book and take public procurement and contract compliance very seriously. An emphasis on making public money work in deprived areas will produce a greater reward. We should look at what can be done under current regulations and the European framework to ensure that money is used wisely. If businesses flourish, that assists employment and wealth creation.

I am pleased that the Chancellor has placed great emphasis on Islamic-compliant products, to which my hon. Friend the Member for Leicester, East referred. Alongside the Phoenix fund—created by the Government to provide venture capital for small businesses—I would like to see Islamic-compliant funds. These would be open not only to the Muslim community, but to every business seeking to invest and would be ethically based. They could give an emphasis to mentoring, which fits with established good business practice. If those funds were used for regeneration, we would see more businesses in our most deprived areas. From excellent businesses and projects run in my constituency by women who are Muslim, I know that such a fund would make starting a business more attractive to others. That could be done easily and simply and would be open to everyone else. It would also promote the notion that the way to develop good business practice is to have a good business plan and to ensure that mentoring and advice are available.

It is important today, when our subject is trade and industry, to continue the emphasis on small businesses. I said earlier that they are the lifeblood of this country's economy, but they are often ignored. All right hon. and hon. Members know that they can be centres of innovation and creativity and can promote spin-off companies, which sometimes come from very small companies. They must be encouraged. If we encourage start-ups and the prosperity of those businesses, not only will our economy prosper in constituencies such as mine, but our national economy will prosper. That is why I welcome the Budget.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Committee, Chair, Public Accounts Committee 6:16 pm, 22nd March 2005

I am delighted that the Chief Secretary is in his place and I apologise for missing the early part of this debate—I was detained on other business in the House. I want to tell him before he retires from office that I hope that he and his successor will work closely with the Public Accounts Committee to root out waste and incompetence in the public sector. That can unite both sides of the House and is becoming increasingly central to the debate on the Budget. Whatever our different ideological positions, there are many opportunities to save public money and ensure that we get more bang for our buck.

I have sat on the PAC for five years. We have interviewed more than 600 senior officials and have had more than 250 hearings. The Gershon review has been central to our work and many of its recommendations have figured in PAC reports. It hopes to save £20 billion a year and my right hon. Friend the shadow Chancellor hopes to achieve even more. I must tell my hon. Friend the shadow Chief Secretary and the Chief Secretary that much unites both sides of the House, but improvements in the delivery of public services are not materialising or are taking place too slowly. There is often a failure to apply more widely the lessons learned in one part of the public sector or to transfer them to another part of the public sector. Mistakes are repeated in the public sector, even after causes have been identified. There is often a failure to exploit commercial opportunities and slow progress in making the most of opportunities offered by developments in technology. We see that again and again in report after report.

The numerous reports of the PAC, which I am honoured to chair, have highlighted practical ways of achieving financial savings for the benefit of taxpayers. Many of our recommendations do not require radical change, but involve basic housekeeping and good management. We could save money in so many areas—the figure could be obtained by reading the Committee's numerous reports. Given the scale of public spending a 2 per cent. improvement in the use of resources would generate savings of about £8 billion per annum. That is what I am offering to the Government. We could save £8 billion per annum if projects were more efficient. That would pay for 50 large hospitals and is equivalent to 2p on the basic rate of income tax. We could do that today without any change of policy simply by reducing complexity and bureaucracy, improving public service productivity, being more commercially astute, strengthening project management, tackling fraud and having better and more timely implementation of policies and programmes. If we did that efficiently in the public sector, we could save up to £8 billion.

I hope that that is a helpful offer from the Chairman of the Public Accounts Committee in the closing moments of Back-Bench contributions to this debate.

Photo of Oliver Letwin Oliver Letwin Shadow Chancellor of the Exchequer 6:19 pm, 22nd March 2005

May I begin by congratulating the Chief Secretary on his admittedly provisional appointment? No one could deny that it has been a long-term aim on his part. In his acceptance speech in the 1987 election, he said:

"Today, Brent, South; tomorrow, Soweto."

I hope that he will now consult the works of the American historian, Will Durant, who tells us:

"To say nothing, especially when speaking, is . . . the art of diplomacy."

The Chief Secretary has been an adornment to the House and I wish him well in whatever role 6 May may bring him.

I also wish to pay tribute to my right hon. Friends the Members for North-West Cambridgeshire (Sir Brian Mawhinney), who spoke in an earlier debate and for South-West Norfolk (Mrs. Shephard), who received a touching tribute from Opposition Members, and my hon. Friend Sir Sydney Chapman. Alas, in all three cases they have probably given their last speeches in this House. They have served the House for many years and made distinguished contributions. We will miss them.

I thank my right hon. Friend Mr. Dorrell and my hon. Friends the Members for Ashford (Mr. Green), for North Dorset (Mr. Walter) and for Gainsborough (Mr. Leigh) for their contributions to the debate. I also thank, of course, my right hon. and learned Friend Mr. Clarke, who was an enormously distinguished Chancellor and knows more about Budgets than most people in this House or outside it.

Two phrases have been used to describe the Budget. The first is that what the Chancellor gives with one hand, he takes back with the other. The second is that this is a vote now, pay later Budget. It is certainly the case that what was given with one hand was taken back with the other. For example, let us take the case of the £200 allowance for the over-65s. When the Chancellor announced it, he did not highlight the fact that, unlike our permanent 50 per cent. discount for the council tax bills of the over-65s, it will be for one year only. There was a blissful moment on a television programme when my hon. Friend Mr. Osborne, the shadow Chief Secretary, faced the Chief Secretary himself, who ventured the idea that every change in the Budget is for one year only. That is odd, because the Red Book shows that that is by no means the case. It is proof that when it comes to anti-terror legislation, the Prime Minister has to be dragged, kicking and screaming, to accept a sunset clause, but when it comes to tax cuts he is happy to see a sunset clause after just one year. It is a clear case of giving with one hand and taking back with the other.

The Chancellor made the welcome announcement that he would raise the threshold for stamp duty. However, he did not draw attention to the fact that he had frozen thresholds year after year, as house prices have risen. I checked Hansard to ensure that I had not missed any bits of the Chancellor's eloquent speech, but he did not draw attention to the fact that he had raised the top rate of stamp duty from 1 per cent. to 2 per cent., then to 3 per cent. and finally to 4 per cent. Indeed, there may come a time when children are taught to count by listing the rises in stamp duty from this Chancellor.

Above all, the Chancellor did not draw attention to REV09 in the Inland Revenue notes that accompany the Budget, but people now know that they have to read them. They show that the Chancellor will raise £340 million—£90 million more than he is giving in stamp duty changes—by getting rid of the disadvantaged area relief, which we heard about earlier in the debate today. It was mentioned by my right hon. and learned Friend the Member for Rushcliffe and my right hon. Friend the Member for Charnwood, and it was also debated with the Liberal Democrat spokesman, Dr. Cable. It may be appropriate to get rid of that relief, but I wonder why the Chancellor did not major on the advantages of doing so. Could it be because he introduced it in the first place? That may be a connected phenomenon. The fact is that the Budget gave with one hand, and took back with the other.

Opposition Members have inquiring minds and will be asking why the Chancellor engaged in so much give and take—giving with one hand and taking back with the other. Labour Members are probably also wondering the same thing, although not many are in the Chamber at the moment as they do not want to hear too much about the Budget. I wish that I could offer an enormously subtle and complex answer, but it is—alas—terribly simple. It is that the Chancellor has run out of money.

That is what every independent economic commentator has noted. The Institute for Fiscal Studies, the International Monetary Fund and the Organisation for Economic Co-operation and Development all say that the Chancellor is borrowing and spending too much. They say that, on his plans, he will have to raise taxes after the election because there is a black hole in the public finances. That is why he had to engage in taking away with one hand what he gave with the other. It is also why this is a vote now, pay later Budget.

The problem is not just that the Chancellor has run out of money. That might be called an oversight, but such things happen to Chancellors from time to time. The nation might forgive the right hon. Gentleman if he had been spending the money in an enormously appropriate way. The nation might be willing to help him out with some tax rises after the election. People might want to elect him to impose those rises if they felt that he was getting value for money.

However, the terrible problem for our country is that the Chancellor has run out of money not because he has spent it well, but because he has failed to get value for it. He has created vast bureaucracies, with 250,000 extra posts created. Those extra bureaucrats are busy. So busy are they that some need to have stress counselling. What do they do? They create 15 new regulations every working day. That is enough to keep those bureaucratic postholders very busy indeed.

In the midst of that vast expansion of the bureaucracies, what has happened? It is what always happens when Governments grow too big—the spending in those bureaucracies moves out of control. I pay tribute here to my hon. Friend the shadow Chief Secretary, who has asked a marvellous series of very simple parliamentary questions on this matter. I also pay tribute to the Chancellor as, unusually, many of his questions have been answered.

We have discovered fascinating insights into how our bureaucracies work. Today's debate was opened, eloquently, by the Secretary of State for Trade and Industry, but she did not say much about the potted plants in her Department. Had she done so, she would have had to admit that £120,000 has been spent on those plants over the past four years.

It is also true that the Budget debate has not been adorned by the Deputy Prime Minister—he of the two Jaguars, as hon. Members will recall. My hon. Friend the shadow Chief Secretary has asked an interesting question about the use of hired cars in the Office of the Deputy Prime Minister. A most interesting result emerged. From the amount spent on car hire in the ODPM, we have calculated that over the past two years it would have been possible for Department staff to circumnavigate the globe 250 times in hired cars. That is an example of spending that is out of control.

However, the real problem is that the huge increase in bloated bureaucracies is making the public services not better, but worse. People do not have to take the word of politicians for that, as our chief constables are queuing up to say the same thing for us. Just a few days ago, the chief constable of Nottinghamshire said that his force was "reeling" from excessive bureaucracy.

Labour Members were not shy, but they stepped forward and said that the Nottinghamshire chief constable was not as good as he had been made out to be. Alas for them, just last Sunday the chief constable of Surrey joined the fray. He said that only for about 10 or 12 per cent. of their time are police officers

"doing things that I feel constables should do . . . about 32 per cent. of a constable's time is pure bureaucracy—it's clerical work", which he said had increased "exponentially".

That is the problem. There is waste, spending is out of control and there is a huge bureaucracy. I grant that the Chancellor and the Chief Secretary would like to achieve an improvement in public services, but those factors are making those services worse. That is why we are not getting the cleaner hospitals, the school discipline and the police on the streets that our country deserves, needs and wants.

Even the Chancellor half admits that fact. He is endlessly making promises to remove bureaucracy and red tape—the very bureaucracy and red tape that he has created. If he did not believe some of what I have just said, why is he always telling us that he is trying to remove it? But the problem is that it never happens. A year ago, we were told that about 104,000 civil servants would be removed. What did we discover in the Budget? Just 12,000 civil servants were removed—5 per cent. of the added bureaucratic posts created during the past seven years.

The record on red tape is very interesting. In 1998, the then Secretary of State for Trade and Industry said:

"The Budget cuts the burden of red tape."—[Hansard, 23 March 1998; Vol. 309, c.51.]

By 1999, there was a new Secretary of State for Trade and Industry—there have been several; the Chancellor does not seem to be happy with any of them for long—who said:

"I am currently reviewing all regulations".

He bravely announced:

"We have started that process."—[Official Report, 25 March 1999: Vol. 328, c. 509–11.]

Then we come to 2001 and a new Secretary of State for Trade and Industry—[Hon. Members: "Ah."] Yes. She said that

"the Regulatory Reform Act 2001 will give the House the opportunity and power to sweep away unnecessary, out-of-date, entangled old regulations".—[Hansard, 25 June 2001; Vol. 370, c. 483.]

The Chancellor was not satisfied with that because then he started saying things—

Photo of Oliver Letwin Oliver Letwin Shadow Chancellor of the Exchequer

But I shall of course give way to the hon. Lady before I tell the House what the Chancellor said.

Photo of Mrs Barbara Roche Mrs Barbara Roche Labour, Hornsey and Wood Green

I am extremely grateful to the right hon. Gentleman. Does he recall that during the last Conservative Government a significant number of Conservative Back Benchers signed an early-day motion deploring the regulatory record of the then Conservative Government? What does he have to say about that?

Photo of Oliver Letwin Oliver Letwin Shadow Chancellor of the Exchequer

Poor things. They did not realise what would hit them under a Labour Government.

The Chancellor said:

"I now propose . . . to abolish a set of regulations."—[Hansard, 17 April 2002; Vol. 383, c. 581.]

Very well done. Unfortunately, in 2003 he felt that he had not achieved that so he said:

"In total, the Government are announcing today 147 regulations for reform or removal."—[Hansard, 10 December 2003; Vol. 415, c. 1064.]

Problem. Ernst and Young looked at them and found that 75 per cent. of them had nothing to do with tax or red tape. The only item that the then Financial Secretary was able to mention was something that had never occurred in the first place.

We move on to 2005. What did the Chancellor say?

"Today the enterprise challenge is to enhance the flexibility needed for a successful economy and to tackle . . . regulatory concerns."—[Hansard, 16 March 2005; Vol. 432, c. 261.]

So we have 1998, 1999, 2001, 2002, 2003, 2004 and 2005. Spot the difference. It has been all talk and no delivery.

What is the Labour party's response to that evidence of failure to get value for money, failure to constrain bureaucracy and failure to get rid of red tape—a vast commitment to big government? It is to engage in the theatre of the absurd. First, Labour said that the Conservatives were

"committed to an immediate £18 billion cut to public services".

That was in June 2004. By August, they had changed their tune. By then, the figure was £20 billion, but by 1 December, at column 654 of Hansard, the Chancellor was telling us that it was £70 billion. The Chancellor had found an excess of additional funding for the Conservatives. He felt that that was not terribly good, however, so a day later he asked the Chief Secretary to put something on the website and it was £50 billion—£20 billion gone in a day. Remarkable. Now, we are at £35 billion. The problem with all those accusations is that each is as false as the last—18, 20, 70, 50, 35. Dodgy arithmetic from the party that brought us the dodgy dossier.

Photo of Kevin Brennan Kevin Brennan PPS (Rt Hon Alan Milburn, Chancellor of the Duchy of Lancaster), Cabinet Office

The right hon. Gentleman is on the record as saying that he would like public expenditure to fall to 35 per cent. of gross domestic product. If that is not the figure, what figure does he believe in today?

Photo of Oliver Letwin Oliver Letwin Shadow Chancellor of the Exchequer

I am on record as saying that I would like to spend £12 billion less than the Chancellor in 2007–08 and to use £8 billion of it to stop his tax rises in the next cycle and £4 billion to produce tax cuts. [Interruption.] We should have pity on the hon. Gentleman because he works for the Chancellor of the Duchy of Lancaster, and under whatever dispensation, that is not a post that will last very long.

This is a Budget debate that will be remembered for the Chancellor's dodgy arithmetic. It will be remembered as the time when the Chancellor yet again locked himself into spending plans that the nation could not afford. It will be remembered as the time when the Chancellor yet again failed to set out any coherent plan for giving people in this country value for money.

What is needed now is a change of direction—transparent accounts, spending plans that the nation can afford, real action to cut back on wasteful, unnecessary and extravagant bureaucracy—to give the taxpayer value for money, to get that money to the front-line services, and to give Britain better services and lower taxes. That is what the coming general election will be about, and as my right hon. and learned Friend the Leader of the Opposition so memorably put it on Wednesday, bring it on.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury 6:35 pm, 22nd March 2005

This has been a good and typically wide-ranging debate over a number of days with differing perspectives and tribute is due to all those who have participated, particularly those for whom this has been a valediction. In that respect, I should like to pay tribute to Mrs. Shephard. She has friends on both sides of the House. My hon. Friend Mrs. Roche has already paid her glowing tribute for the work that she has done in mentoring women Members of the House. I want to pay her a tribute from the other side. I remember the very first day that she was appointed to her then historic position in the Treasury as the first woman ever to sit on the Treasury Benches as a Treasury Minister. If she recalls, we followed each other around the studios on that day. We had a good old go, as was our wont, but she made an enormous impact on the Treasury, and she made a subsequent impact on this House. She is a groundbreaker in every respect, and she will be much missed. [Hon. Members: " Hear, hear."]

I also pay tribute to Sir Sydney Chapman. I went to Chipping Barnet, unsuccessfully, in the course of the last general election in an attempt to unseat the hon. Gentleman. [Hon. Members: Shame."] Call me old fashioned; I am a politician—[Interruption.]—at least I am now. We were in the square in Chipping Barnet and it was clear that we would have a good old go, and indeed we did. We considerably reduced the hon. Gentleman's majority, but it was clear that he was the long-standing Member who was much loved by his constituents, known to all of them just as he is known to all of us, and is greeted with much affection on both sides of the House. However, as I heard him bemoaning at great length the increase in public spending over the many years that he has been a Member of the House and a candidate, I could not help remembering that throughout all the jobs that I have ever held on the Government Benches he has always asked for more. But we all got the point of his contribution, and he will be much missed.

Talking of valedictions, let me just say a word of thanks to those who have been kind enough to refer to my own departure. I am thinking of Mr. Francois, the shadow Economic Secretary, who was kind enough to pay tribute to me yesterday, and the shadow Chancellor, but particularly my hon. Friends the Members for Hornsey and Wood Green and for Leicester, East (Keith Vaz). It has been an honour and a privilege to serve Brent, South in this place, and I am grateful for the opportunities and friendships it has afforded me. Those have been 18 deeply fulfilling years, and I look back on them with much happiness.

Now to the task in hand. [Interruption.] No more Mr. Nice Guy. The Budget locks in our current economic stability. It seeks to promote fairness in relation to our nation's prosperity, so pensioners, children, hard-working families and those seeking a step up in terms of home ownership, which we will consider in some detail in the course of this evening's winding up, all benefit. The Budget recognises also that in the 21st century we need to invest in skills and education and in research and development, reduce the regulatory burden on business, and so boost our long-term productivity and growth.

This year has seen Britain benefit from strong global growth. The Chancellor's Budget forecasts in 2003 predicting strong growth, which were challenged repeatedly by our opponents, have once again been proved right. Our economy is set to grow by 3 to 3.5 per cent. this year. Growth, which has been balanced with consumer spending, is in line with trend gross domestic product since 2000. Business investment is growing twice as fast as consumer spending last year. Manufacturing is now growing at its fastest for four years. With our lowest inflation for 30 years, the lowest interest rates for 35 years, and unemployment the lowest in the G7, we can and must make the necessary investment to secure the economy for the long term.

This hard-won economic stability has enabled us over the past eight years to invest in our public services and in our nation's infrastructure. The Conservative party cannot be trusted to make, let alone match, the scale of that investment. We do not need to read the account of the Opposition's spending plans, which they have made only too clear; we can look at their actions when they were last in government. But first, let us consider what they said. We are more than happy to rise to the challenge thrown down by the shadow Chancellor in his winding-up speech, and to examine the exact words that he has uttered on the issue over recent months.

On 28 November 2004 the shadow Chancellor said:

"Our plans provide the ability over a six-year period for us to be spending about £35 billion less per year in the sixth year than Gordon Brown's plans provide for."

The right hon. Gentleman nods. On "The Daily Politics" show on 18 January 2005 he said:

"Our plans provide for us to continue growing public spending 1 per cent. slower each year than Labour, and by the end of the parliament, 2011–12, the end of the economic cycle, we'll be spending about £35 billion less than Labour."

Those statements were confirmed again, for the avoidance of doubt, only last week. When asked whether he would cut public spending by £35 billion, the shadow Chancellor replied:

"You get to those vast figures by the fifth year".

If he is not denying having said any of those things, why does he ask us where we get the figure of £35 billion from? That is where we get it—from his own mouth. [Interruption.] Someone says from a sedentary position that those are not cuts.

Opposition Members are always inviting us to listen to what the Institute for Fiscal Studies says. We do listen. I said so when I last addressed the House, at the time of the pre-Budget report, so I should like Opposition Members to listen to what the Institute for Fiscal Studies says. Mr. Robert Chote said on 18 March:

"If by 2011–12 the Conservatives have got spending down to 40 per cent of national income, and Labour is spending 42 per cent of national income, then it clearly is a spending cut of £35 billion, in 2011 prices, in relation to what Labour is spending".

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Jane Kennedy, Minister of State), Department for Work and Pensions

I am loth to remind some hon. Members of the Ireland-Wales game at the weekend, but if, during that glorious spectacle, I had gone to the bar and been told by the barman, "I'll give you two pints of Guinness. By the time I've finished pouring, one will be full to the brim and the other will have such a massive frothy head on it that you'll only get three quarters of a pint," which one would have been the full pint?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I could not have put it better myself.

The shadow Chancellor has told us—again, he can deny it if it is not true—that he would find the cuts by cash freezing departmental expenditure limits for all Departments except schools and hospitals. Let me read to the House what he said, so that Opposition Back Benchers are clear about the policy that they will have to defend on the doorsteps. The right hon. Gentleman said on 16 February 2004 that he has

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

He went on to declare in the same speech that he appreciated that that represented a "tough constraint" for his colleagues.

My right hon. Friend the Secretary of State for Transport managed to extract from the shadow Pensions Minister an admission that the cash freeze stood as Opposition policy. If it does not, we would like to hear it. Mr. Willetts said:

"We never intended it to be Department by Department—we were referring to the envelope within which public spending would be made."—[Hansard, 17 March 2005; Vol. 432, c. 425.]

Why then did Mr. Flight, who was the shadow Chief Secretary at the time that the medium-term expenditure strategy was announced, say in a letter to Tory business supporters that Tory plans meant real reductions in areas other than health, education, pensions and welfare? That is what the shadow Chief Secretary told a Conservative City group.

The shadow Chancellor has attempted to use the James review to indicate that he would offset the effects of the departmental cash freeze. We are still waiting for the James review to be published, although we have had the slides. Slide 31 concedes that the Opposition plan to cash freeze the defence budget. Is that correct or not—or is there more to slide 31 than we have seen?

Photo of Oliver Letwin Oliver Letwin Shadow Chancellor of the Exchequer

The Chief Secretary is obviously struggling, so let me help him. In those years defence expenditure will increase by 9 per cent., transport expenditure by 10 per cent., international development expenditure by 18 per cent., police expenditure by 12 per cent., schools expenditure by 13 per cent. and national health service expenditure by 21 per cent.. Those are huge increases. He is quite wrong about other spending items, too—we will not freeze spending on certain Departments, but reduce it. DTI expenditure will decrease by 10 per cent. and DEFRA expenditure by 27 per cent., because we do not need four fifths of the people currently at the DTI, we do not need £120,000-worth of potted plants, and we do not need more DEFRA officials than there are dairy farms in England.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

We will not pay for our defence by getting rid of potted plants. The reality is here in front of me; is there something else that we need to know? The James review—[Hon. Members: "The slide."] Well, this is all we have been given. The top figure here is £27.6 billion; £27.6 billion; £27.6 billion—that is a cash freeze. If it is anything else, we want to know.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I shall give way in a moment; do not worry.

The issue goes beyond that—

Photo of George Osborne George Osborne Shadow Chief Secretary to the Treasury

I am grateful to the Chief Secretary for finally giving way. Will he read out what is five columns down his document, which compares the actual Conservative and Labour plans and shows that the Conservatives plan to spend more on defence than the Labour party in 2007–08?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

The difficulty is—[Hon. Members: "Ah!"] Hold on a minute. The Conservatives say one thing in answer to one question, but they have put another thing on the slide. The reality is that their defence budget is frozen for 2005–06, 2006–07 and 2007–08, and no amount of wriggling can get over that.

Let us go beyond what the Conservatives have said on slide 31 and look at the record. We heard a typically bravura performance from Mr. Clarke.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

If I can just finish, then by all means the right hon. and learned Gentleman will have his chance to defend his reputation. Under his Budgets, when the Conservatives were last in office, the average rate of real growth in the NHS was just 1.6 per cent. In his last three Budgets, he cut education spending by £80 a pupil in real terms. Let us hear him defend that.

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee)

In those Budgets, we debated the Budget measures and the spending costs. The Chief Secretary, for whose remarks I am personally very grateful, spent three minutes describing the Budget in standard terms, saying that it was building in stability, and then, 12 minutes ago, started on this absurd dissection of what a Conservative Government might be doing in 2011. We all know that we have no idea what any Government will be spending in 2011 unless six intervening Budgets, six public spending rounds and global economic circumstances make no change, whoever is in power. Will he address the fact that under the plans published in the Budget, taxation is going to be raised by fiscal drag—by about £2.4 billion a year—and that, even after that, the Institute for Fiscal Studies says that taxation will have to be put up by the equivalent of about 1 per cent. of GDP?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

What the right hon. and learned Gentleman is not prepared to address is the fundamental strength of this economy—the fact that we are able to take in more tax because more people are in work and companies are more profitable. Above all, we are able to do that while maintaining our fiscal rules and ensuring that our borrowing is for investment and is affordable. We remember that in the last year of his stewardship of the economy, the Conservatives were spending more on servicing their debt than on schools.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I will not give way now; I will finish my argument. That is the record of right hon. and hon. Conservative Members, and we will take no lessons from them in that regard.

I turn to regulation, about which we heard a great deal from the shadow Chancellor, who alleged that we had failed to address regulation in the Budget. We have done nothing of the sort, but let us look at the Conservatives' record on regulation. According to the right hon. and learned Member for Rushcliffe,

"We kept trying"

—to reduce regulation, that is—

"we never really succeeded."

According to Mr. Portillo,

"We were rather notable regulators. We passed volumes of new rules and laws interfering with almost every aspect of business and social life."

The Leader of the Opposition has said:

"Conservatives too were less responsive to these concerns, and less effective in deregulating, than we should have been."

That is the reality of the Conservatives' record on regulation. Our proposals on regulation, contained in the Budget, mean a 25 per cent. reduction in form-filling, the creation of a national regulatory forum, and a better grip on regulators' performance at the centre, with a better regulation executive. My hon. Friends the Members for Crosby (Mrs. Curtis-Thomas) and Dundee, East (Mr. Luke), among others, have talked of the importance of these measures to small and medium-sized enterprises in reducing the burden of regulation.

We have here a Budget that contains deregulation measures that have been praised by no less a person than the CBI director general himself, who described them as worthy of applause and

"at the heart of the UK's battle to be competitive . . . Both the Hampton Report and the Better Regulation Task Force contain practical ways . . . ensuring that the proposals will be workable, and looking forward to their being workable."

As I have said, that is not praise from us; it comes from the CBI director general. For the same reason the World Bank has found that Britain is the best European Union country in which to do business, and it is what marks us out from our competitors in the EU. We have been successful in growing our economy, and continuing to do so.

The Budget is good news for pensioners, all of whom will benefit by about £11 million from free bus travel alone. Those in need will gain most. Under the Tories, the wealthiest would gain three times as much as the poorest. It is good news for home buyers, of whom an additional 300,000 will be exempted from tax each year—more than 50 per cent. of first-time buyers. It is good news for hard-working families: those with children will gain most. We are on target to reduce by a quarter the number of children living in low-income households by 2004–05. Under the Tories, so many of them were trapped in poverty. It is good news for our youth and the next generation: there will be better education facilities and better access to skills, whereas under the Tories so many were failed. It will bring real benefit to business too, securing our hard won stability by maintaining the push for productivity and growth with practical measures on regulation and training.

Business, pensioners, youth and hard-working families are not thinking what the Conservatives are thinking, but not forgetting either: in fact, they are remembering. They are saying "No more boom and bust." They are saying "no" to cuts and charges. They are saying "Forward, not back". That is the record and the reputation that we will take out to the country whenever we are called on to do so. We will be going forward, not back. We are proud of what we have done for business, proud of what we have done for hard-working families, proud of what we have done for pensioners. Forward, not back! I commend the Budget to the House.

Question put and agreed to.


(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.

(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting a supply, acquisition or importation;

(b) for refunding an amount of tax;

(c) for any relief, other than a relief that—

(i) so far as it is applicable to goods, applies to goods of every description, and

(ii) so far as it is applicable to services, applies to services of every description.

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