Budget Resolutions — Amendment of the Law

– in the House of Commons at 12:31 pm on 22nd March 2006.

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Motion made, and Question proposed,

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

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

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

(b) for refunding and amount of tax;

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

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

(ii) so far as it is applicable to services, applies to services of every description—[Mr. Gordon Brown.]

Photo of David Cameron David Cameron Leader of Her Majesty's Official Opposition, Leader of the Conservative Party 1:34 pm, 22nd March 2006

Well, we wondered today whether we would get a Budget or a leadership bid, and I have to say that we did not get much of either. One can tell how big the crisis in the health service is—the health service did not even get a mention. If we cut through all the rhetoric, what we have is a Chancellor who has taxed too much, borrowed too much and is the roadblock to reform. He is a politician completely stuck in the past.

Of course, there are some things in the Budget that we welcome—not least because we proposed them. I particularly welcome what the Chancellor had to say about independent statistics and youth volunteering. We will look carefully at the detail, but I like what is happening: I come up with the ideas and he puts them in his Budget. [Interruption.] Bye-bye.

The Chancellor made a lot of the changes to the climate change levy, but he still has not addressed the real problem: it is a tax on energy, not a charge on carbon, which is why carbon emissions keep going up.

The Chancellor has just announced a new environment institute, but this is the same Chancellor who is closing the very laboratories that do the research into climate change. This was not a genuinely green Budget, and that is not surprising, because this Chancellor has not made a single major speech on the environment in 11 years. In a carbon-conscious world, we have got a fossil-fuel Chancellor.

I congratulate the Chancellor on what he had to say about the Olympics. I do not want to overdo it, however, as he has just spent an hour congratulating himself.

The Chancellor told us that his borrowing forecasts were correct. Yes, he correctly forecast that the public finances are in a mess. He is borrowing £37 billion this year. He told us that his economic growth forecasts were correct. Yes, he correctly forecast that Britain would grow more slowly than the United States, Canada, the G7, Spain, Ireland, the countries of the Organisation for Economic Co-operation and Development, and Australia. [Interruption.] I know that the Chancellor and the Prime Minister get to talk to each other only once a year, on Budget day, but they ought to listen to this bit.

We will study the rest of the Budget carefully because, after 10 Budgets, we know that this Chancellor's Budget speeches bear very little relation to the Budget itself. He told us about the savings culture, but why did he not tell us that according to page 238 of the Red Book—or, in the Prime Minister's case, the unread book—the savings ratio is only 5.75 per cent.? That is half what it was when he took office. Why did he not tell us that business investment, at 9 per cent., is at a record low? And he did not tell us that today he has revised the figure downward compared with three months ago. [Interruption.]

Mr. Deputy Speaker, there are two central facts that tell us the real story of this Budget. [Interruption.] First—

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

Order. I am sorry to interrupt the right hon. Gentleman. The Chancellor was listened to with very—[Interruption.] Order. John Robertson will be removed if he behaves like that. One expects a certain reaction to these things, but the Chancellor was heard in relative silence and the same courtesy should be offered to the Leader of the Opposition and to the leader of the Liberal Democrats afterward.

Photo of David Cameron David Cameron Leader of Her Majesty's Official Opposition, Leader of the Conservative Party

There are two central facts that tell the story of this Budget. First, the tax burden is at its highest ever level in the history of this country: higher than when Denis Healey made the pips squeak; higher than when Ramsey MacDonald sat where the Prime Minister is sitting now.

People who listened to the Budget will have noticed the second fact: even with the highest tax burden in Britain's history, the Government are borrowing £175 billion over the next six years. I know that the Chancellor is a man in a hurry, but that is no excuse for belting out figures like a supercharged bookmaker. Let me go through the figures in turn. He is going to borrow £37 billion this year, then £36 billion, then £30 billion, then £25 billion, then £24 billion, then £23 billion. That is £175 billion over six years. This Chancellor is mortgaging this country's future. That is more than £6,000 of debt for every household in this country. Those are the facts. After all the years of spin about enterprise and prudence, we have finally got to the truth. He is an old-fashioned, tax-and-spend Chancellor, and that approach is completely out of date. The story of this week is of a Prime Minister and a Chancellor up to their necks in debt, making promises that they cannot keep and not knowing whether to work together or fight with each other as the ship starts going down.

The real challenge facing this country is competing in the new global economy. The Chancellor has given us the biggest tax burden in Britain's history, and cannot be the right person to meet that challenge. We used to have the 10th lowest business taxes in the developed world, but we now have the 10th highest. The Chancellor has had 10 Budgets to boost science, but science departments in our universities are closing. He has had 10 Budgets to improve transport, and some of our motorways look like car parks. He cannot be the change that this country needs, because he is the architect of the policies that have put us where we are.

This country also faces a huge challenge to reform public services. The Chancellor, who has squandered billions of pounds on unreformed public services, cannot be the right person to meet that challenge. He has doubled spending on the health service but this weekend one hospital sacked almost 1,000 staff. Deficits across the NHS have now reached £1 billion. The Chancellor has doubled spending on education, but more than half of our children leave school without attaining the required standard.

Billions of pounds have been raised and spent, but we have no idea where the money has gone. With a record like that, the Chancellor should be running for treasurer of the Labour party.

In his Budget, the Chancellor mentioned pensions. After everything that he has done, millions of people in this country will think that he has got a nerve. This is the Chancellor who took £5 billion out of the nation's pension funds, and whose means testing destroyed savings. No mention was made of whether his pre-election bribe of £200 would be continued: I expect that we will have to find that in the Red Book.

This is the Chancellor who caused Mr. Field—the Government's first pensions Minister, and the only one who was any good—to say:

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

The Chancellor who smashed up the pension system cannot be the right person to rebuild it.

Labour MPs may think that the Chancellor is their salvation from the mess that they find themselves in this week, but the big policy failures of this Government—as opposed to the sleaze and the spin—are his failures. The failure to spend money wisely, to reform public services, to protect people's pensions, and to prepare for Britain's future—those failures are made in Nos. 10 and 11 Downing street.

The Chancellor may see himself as the rock on which Labour can rebuild its church. Instead, he is the roadblock stopping Britain from meeting the challenges of the future. He is an analogue politician in a digital age. He is the past. [Interruption.]

Photo of Menzies Campbell Menzies Campbell Leader of the Liberal Democrats 1:43 pm, 22nd March 2006

It is a fearsome task to follow such a constructive contribution as the one we have just heard, but I must begin by congratulating the Chancellor on the presentation of his 10th Budget. That he did so with great enthusiasm is hardly surprising, as he has a particular affinity for the number 10.

Let us look at the Chancellor's legacy. Levels of inequality are worse than under Mrs. Thatcher. Our pensions system is in crisis, and consumer debt is at £1 trillion. In spite of what the right hon. Gentleman has said today, there is complacency about the threat to the environment, and he presides over a Treasury that cannot manage even its own tax credit system.

Of course we welcome the changes in child tax credit and acknowledge the stability in inflation and employment, but we are entitled to remind the Chancellor that that stability is based on the independence of the Bank of England. The right hon. Gentleman derided that policy throughout the 1997 general election campaign, but he implemented it within 48 hours of entering the Treasury. Against that background, there is no room for complacency or time to tread water.

I return to the issue of inequality, to which our mutual friend John Smith would have attached the highest priority. The wealthiest 1 per cent. in this country owns 23 per cent. of the assets—more than in 1997—while the poorest 50 per cent. own only 6 per cent.—less than in 1997. The top 20 per cent. of earners pay less of their income in tax than the bottom 20 per cent., while the tax system remains unfair and complicated.

Why does the Treasury tinker with a tax system that is so fundamentally unfair and requires such radical reform? Every time that it does so, it adds layer upon layer of complexity and creates an incitement to, and opportunity for, fraud.

The most unfair and regressive tax of all remains the council tax. Having read the Red Book, we can confirm that it contains no provision for the £200 rebate made available last year. If there is to be no council tax rebate, we know that some of the most vulnerable will suffer. They will ask why they deserved help immediately before a general election, but not a year later.

The lack of reform to the council tax is not the Chancellor's only failure to act. Under this Government, green taxes have fallen as a share of overall taxation. The measures announced today will make little impact on that. If the Chancellor needs any external reference, he need only examine yesterday's report from the Environmental Audit Committee.

We need simplicity in environmental taxation, and a proper system of green economic incentives that encourages people to change their habits and the way that they live. Such a system should express and implement the principle that the polluter should pay. It was notable that, in the course of his observations about the environment, the Chancellor made no reference to the impact made by aviation, nor to the crying need to address the problems of continued expansion in the aviation industry.

The fact is that CO 2 emissions are higher now than in 1997. The additional vehicle excise duty to be paid by drivers of 4x4 vehicles applies only to new vehicles. By my reckoning, it is rather less than the cost of half filling the petrol tank. That is hardly likely to operate as a disincentive for people sufficiently well off economically to be able to afford such vehicles.

As for public spending, the Chancellor prepared the ground well in his pre-Budget report. He conceded the error in his growth predictions, changed the economic cycle, pointed out that he was going to raise taxes and acknowledged the slowdown in public spending. He got a lot of cheers today when his speech seemed to foreshadow increases in public expenditure. What many of those who cheered did not realise is that the spending plans pencilled into the pre-Budget report will mean that there will be announcements of real-terms cuts in many Government Departments next year.

Despite all the extra investment, public spending is still not reaching the front line. Treasury targets have led to NHS trusts, and to the drive to reduce waiting lists at all costs that has meant that care in other areas has been cut.

Of course, tough choices have to be made and spending prioritised. For example, the industrial subsidies that the DTI has been giving to the nuclear power industry could be cut, and the money going to what is colloquially described as the baby bond scheme—on which the Chancellor enlarged today—would be much better spent on early-years education now than on a bond in the future. In addition, the right hon. Gentleman could decide not to proceed with spending millions and perhaps billions of pounds on an identity card scheme that is unnecessary and unworkable.

The British people want better public services and are willing to pay for them. What they do not understand is how so much can have been spent with so little to show for it. Operations have been cancelled, wards closed, local hospitals threatened and nurses have even been made redundant.

It is clear that trust in fiscal policy must be restored. That could have been achieved by widening the remit of the National Audit Office so that it can provide transparent and independent scrutiny of all Budget assumptions and forecasts. Some progress has been made today in respect of statistics, but that is not enough. The Chancellor has a good record of listening to our advice, rejecting it, and then accepting it. Perhaps, on this occasion, we will once again prevail.

I welcome what the Chancellor said about housing and the shared equity fund. The question is whether any of that represents new money. We have to address the issue of those who simply cannot afford to make the contribution that is necessary to participate in a shared equity purchase of a house.

I declare a retrospective interest in the Chancellor's provisions for the Olympic games. It is essential that those games are a success for London and the whole of the United Kingdom. He will have universal support for what he announced in that regard. However, it is not true to say, as has been rumoured, that my hon. Friend Julia Goldsworthy is already positioning herself to make a bid for the British team.

One issue that the Chancellor said nothing at all about was that of personal debt. Consumer debt is now approaching £1.2 trillion—practically identical to the gross domestic product of the United Kingdom as a whole. Of course, consumer debt has underpinned the economic boom, but the legacy for many families will be disaster. Nearly a fifth of all income is being used to service debt. That means that it is back to the level that it was at when the economy crashed under the Conservatives in the early 1990s. The immediate signs of that stress are clear: rising bankruptcies and rising repossessions.

The other side of that is the poor recent record of private business investment. Under its current leadership, the CBI has been a great deal more supportive of the Government than in previous years, but I suspect that it will react to this Budget more in sadness than in anger—sadness at the way in which regulation and tax complexity are squeezing British business. The Budget does nothing to deal with that. Enlightened British companies understand the need to pay taxes for investment in education and infrastructure; what they do not understand is why those taxes do not deliver the goods.

The Budget failed to deal with the most glaring issue before us today: the crisis in pensions. Last week we learned—the Leader of the Opposition already referred to this—that the Government would not follow the ombudsman's recommendations and compensate those who were foolish enough to believe in Government information. The ombudsman said that the Government had provided information that was

"inaccurate, incomplete, unclear and inconsistent"— if I may jog the Chancellor's memory. If an independent report had made a similar judgment about the actions of the Tory Government when the Chancellor was in opposition, his wrath would have been wondrous to behold.

We know that there is a broad consensus of agreement around the recent report by Adair Turner and that there is an existing blueprint for pensions reform that is available and capable of implementation. It seems that it is only the Treasury that stands in the way. Of course, chairmen of commissions cannot expect automatic acceptance, but Adair Turner is entitled to a real sense of grievance. The problem of pensions is set to get worse as the demographic balance of this country changes.

The Budget was an opportunity. In a period of relative stability, with low inflation and stable employment, the Chancellor had an opportunity to show his worth. He could have tackled the unfair tax system; he could have made the environment a priority; he could have faced up to the pensions crisis; and he could have addressed the problem of personal debt. He has declined to do any of those things. This a legacy from which it will be difficult for him to escape. [Interruption.]

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Will Members who are leaving the Chamber please do so as quickly and quietly as possible?

Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee 1:53 pm, 22nd March 2006

It is a pleasure to contribute to the debate. I congratulate the Chancellor on his 10th Budget. He spoke for about 60 minutes and enlightened us. Sadly, the Leader of the Opposition spoke for eight minutes, so he has an awful long way to go to give us an insight into what the Conservative party's thinking is on the economy. It must be the shortest speech on record. I think that that is rather disgraceful and a discourtesy to the House.

In 1997, The Times described the Chancellor's first Budget as a

"common sense budget that deserves support".

We can echo that today, 10 years later. I note that he broke with tradition then. He held his Budget on a Wednesday and eschewed the traditional right of a Chancellor to drink Scotch whisky when he presented it. Instead, he favoured Scottish mineral water. I congratulate him, though, on being consistent on Scotch whisky and having a freeze on duty for all these years. That is good news for constituents in my area, where we have whisky plants. I also note that the FTSE 100 was 4,751 on the day of the Chancellor's first Budget and is now 5,985. That underlines a decade of economic prosperity and stability.

I also note that the Chancellor described 2005 as being the toughest year of his chancellorship, with the virtual doubling of oil and commodity prices, as well as a slow-down in the UK's main export market, which is Europe, and the country having to adjust to a more sustainable house price growth in the UK housing sector.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

Is the right hon. Gentleman aware that since 1997, our stock market has been one of the worst performing stock markets of any major industrialised nation in the western world? Does he think that the Chancellor should take some responsibility for that?

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

Only in the past week or two, I had the opportunity to have meetings with people from the London stock exchange and such comments never passed their lips. In fact, they said that they are on a high, that equities are good and that they are looking forward to keeping themselves independent and not having NASDAQ or Macquarie coming in. The vibrations from the City are very good. I suggest that the hon. Gentleman follows my example, goes to the City, speaks to people and gets an understanding of what the City is about.

Photo of Ian Austin Ian Austin Labour, Dudley North

In addition to the Leader of the Opposition's speech being the shortest that any of us can remember, does my right hon. Friend agree that it was also the most feeble, because it failed at any point to respond to any of the measures that the Chancellor had outlined?

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

I would not want to be discourteous to Mr. Cameron, but what I can say is that I was left bemused about the future direction of the Conservative party on economic policy. We all found that. It is about time that the Conservatives came up to the plate and explained to us what their actual policies are. As one politician said in American, where is the meat? That is what we are looking for.

I welcome the investment in education that the Chancellor announced today. I did not hear about this from the official Opposition, but the fact that we have an ambition to match spending in public schools with that in private schools must be a good thing. I hope that they go back and, in their clubs and social events, mention that the country has made a great innovative move. There are other people in society who will benefit from their education in the same way as they have done. I can only commend that move by the Chancellor.

I also commend the extra investment in science and infrastructure. I speak as a former science teacher and I know that, as someone from a science and engineering background, I am in a minority in the House. If we are to tackle the competitive issues that face the country, which the Chancellor has outlined, we need to ensure that we increase the number of science and engineering graduates in this country. We should be mindful of the fact that the Chancellor said that China is producing 4 million graduates.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I would be interested to know what the right hon. Gentleman feels about the Government not supporting Sussex university, which is to close its five-star chemistry department.

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

It is a matter for universities to decide what they do and on what particular issues they focus. What I would be concerned about is if the country as a whole—UK plc—was not facing up to and addressing the national shortage of science and engineering graduates. We must focus on the big picture.

As well as the science infrastructure, I welcome the investment in the Olympics, as Sir Menzies Campbell mentioned. It is important to give our young people opportunities and ambitions. That investment, as well as the investment in child tax credits and child trust funds, can only be well used. Inculcating the savings habit in young people is increasingly important, and ensuring that those on lower incomes enjoy being involved in the savings environment is also extremely important.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Does the right hon. Gentleman agree that as the Chancellor of the Exchequer inherited the strongest economy in Europe, he should have been in a position to deliver the first target for the reduction in child poverty by 2004–05? Does he join me in decrying the fact that hundreds of thousands of children remain in poverty when the Government had the means and stated the aim of doing away with it?

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

I am aware that in 1997 the Labour Government inherited an unemployment rate of 3 million. Since 1997, we have produced 2 million jobs, and that is the best antidote to poverty. I speak as an ex-school teacher, as I mentioned earlier, and one of the sad features of life when I was teaching in the 1970s and 1980s was meeting young people five or 10 years after they had left school who had yet to get a job. If people do not have a job, they are not fulfilled and they do not contribute to society—it is a spiral of decline. It is important to provide jobs, and I commend the Government on those extra 2 million jobs.

This was the first Government with the stated aim of reducing child poverty. The Chancellor mentioned the 700,000 who had been lifted out of poverty, and that can only be a good thing. Is there a bigger hill to climb? Of course there is, and I would like to think that we could all tackle it together.

Photo of Andrew Smith Andrew Smith Labour, Oxford East

Would not comments from the Opposition about child poverty have greater credibility if they would make the pledge to eradicate child poverty in a generation and match our commitment to help the poorest families out of poverty? Is not the reason they do not do that because under their third fiscal rule they would not make the spending available to conquer poverty?

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

I agree that if we could achieve our aims and ambitions on a consensual basis it would be good. The Leader of the Opposition has still to flesh out his economic policy, and that is one suggestion that he could take on board.

Photo of Edward Balls Edward Balls Labour, Normanton

Perhaps we should be more understanding of the Leader of the Opposition's position. He has asked Mr. Redwood to discover his economic policies for him over the next two years. Until the right hon. Gentleman has come up with the plan, it will be hard for the Leader of the Opposition to respond to any Budget. However, the third fiscal rule will make it very hard for the Conservatives to match our pledge on education spending. If they intend to cut spending as a percentage of GDP, it will result in lower spending on science and education.

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

I look forward to the recommendations that Mr. Redwood produces, because to use skiing terminology, he is exciting and he goes off piste a lot. I am sure that we may look forward to some innovative suggestions in the future.

The Treasury Committee is considering savings issues at present and recently examined the issue of tax credits. Tax credits are a good scheme, but they must be delivered in practice. My right hon. Friend Mr. Field gave evidence to the Committee and I know that my right hon. Friend the Paymaster General has read the transcript, but it is worth underlining what he said. I suggest that trying to modify the tax credit system runs the danger of it starting to perform like the Child Support Agency. The choice is between a flexible system or a fixed award. As my right hon. Friend the Member for Birkenhead pointed out, if we change to the fixed award, Members of Parliament will be inundated with complaints about the unfairness of a scheme that does not quickly take into account changed circumstances. I suggest that my right hon. Friend the Paymaster General stays the course.

The Committee visited Preston to examine the IT in the tax credit office. From our experience and that of our constituents, we know that not all the information is on the computers when they telephone that office. The IT system is in much need of repair, so I hope that my right hon. Friend takes up the comments made by the Committee on that point.

The Committee is also holding a short inquiry on the Turner report and the pension recommendations. It will be short because we want to be able to publish our report before the White Paper is produced. Our focus will be on the design of the national pension savings scheme and the role of financial services regulation.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I am delighted that the right hon. Gentleman has raised, openly and transparently, the matter of pensions. Would he comment on the tens of thousands of people in occupational pension schemes who have lost their pensions, especially since the Chancellor took more than £5 billion a year from them, from his first Budget onwards, by the changes to advance corporation tax? Does the right hon. Gentleman think that it would have been a good investment, among the Chancellor's largesse today, to allow those people to benefit from the findings of the parliamentary ombudsman, Mrs. Abraham, in their favour, due to maladministration by the Government?

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

The hon. Gentleman has conflated two issues. On the first issue, I believe that some 85,000 workers are involved, including some of my constituency. One can have nothing but real sorrow for their plight. However, when it comes to macro- economic issues and Government commitments on public expenditure, it is evident that neither the Government nor the Opposition are willing to make a proposal. My right hon. Friend the Prime Minister asked last week whether the taxpayer should pick up the bill for those schemes. I accept that point, but I hope that discussions will continue because it was only yesterday that many of those affected came to lobby us on that issue.

Photo of Jo Swinson Jo Swinson Shadow Secretary of State for Scotland, Liberal Democrat Spokesperson (Scotland)

Does the right hon. Gentleman share my disappointment that pensioner poverty was largely ignored in the Budget? In particular, the opportunity was lost to introduce a decent state pension for all pensioners. Many of those eligible do not claim the means-tested pension credit, so should not the proposals by Adair Turner be implemented instead?

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

That may be so, but the hon. Lady's constituency is more affluent than mine. Irrespective of where I go in my constituency, including social clubs for pensioners, people are grateful for the pension credit that the Government have introduced. There is now much more money in pensioners' pockets. If the hon. Lady is suggesting that there is a case for examining the position in the medium and long term, I agree, but a short-term solution has been found to pensioner poverty. We may have to embrace the medium and long-term issues in the pension report.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Does the right hon. Gentleman agree that 1.7 million pensioners who are entitled to pension credit do not receive it and that that is a scandal that needs urgent attention?

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

I recommend that the hon. Lady does what I and several other hon. Members have done. In conjunction with the Pension Service, we have held meetings in our constituencies to encourage people to apply for the pension credit. The Department for Work and Pensions has been very helpful to me and other hon. Members in organising such open days.

The Turner commission report raised two or three other important issues, including industry regulation. We know that the industry's commission-based model has produced inherent conflicts of interest that successive Governments have used regulation to manage. The mis-selling scandals led to tighter regulation, which, while protecting some consumers, has increased distribution costs and made it uneconomic for the long-term savings industry to service consumers on below-average incomes. Embracing the needs of lower-income consumers is one of the issues with which Turner, the Government and others will have to grapple. As Turner pointed out,

"it is very difficult for the financial services industry to sell pensions to people of average earnings and below, working for small and medium size companies, or even to sell pension schemes to their employers, at annual management charges sufficiently high enough for them to make a profit but sufficiently low enough to represent good value for money for the person saving".

That highlights the need for two solutions: first, the Government need to make the pension system simpler, to reduce the cost of regulated advice; and secondly, the industry needs to develop and encourage the take-up of simple, low-cost stakeholder products for that larger market.

The Financial Services Authority has a role in that regard. It did not go as far as it could on simpler regulation for stakeholder products—we have to get regulation right before we start considering the management costs, which must be low. Turner recommended 0.3 per cent. and at the weekend Aviva became the first insurance company to propose a figure, which was 0.6 per cent. However, we should be striving to reach Turner's figure.

The fiscal policy framework has stood the test of time. The Chancellor mentioned that the golden rule had been met, but the Treasury Committee and the International Monetary Fund consider that current fiscal rules may need strengthening towards the end of an economic cycle, to reinforce the credibility of the framework. The Committee will reconsider that issue over the next few months.

Some of the challenges to the framework will come in the form of the spending pressures to which the Government will have to respond in the 2007 comprehensive spending review. Their capacity to do so successfully will be enhanced if their preparations are transparent and Members and Select Committees can both examine and contribute to the process, so I welcome the announcement about independence for the Office for National Statistics. I received a letter about the proposals from my hon. Friend the Financial Secretary to the Treasury, which stated that the Government are

"entrenching independence in legislation . . . introducing direct reporting and accountability to Parliament, rather than through Ministers".

So I presume that it will be through the Treasury Committee. The letter noted that the Government were

"placing a statutory responsibility on a new independent governing board to assess and approve all National Statistics against the code of practice, also backed by statute" and

"making key appointments to the board through open and fair competition".

As the Minister knows, an open and fair appointments system is important. Next year will be the 10th anniversary of the establishment of the Monetary Policy Committee, which may be a good time look at openness and transparency in appointments to such bodies. Given our experience of the work of the MPC over the past 10 years, I want Ministers to anticipate issues and problems, so that if they come up in Parliament the appointments system can be seen to be open and fair.

It is important that statistics services are seen to be independent. In February, a MORI survey of public opinion on statistics for the Statistics Commission found that there was

"little consensus on whether the statistical service is subject to undue influence from the Government. Many, in particular those with a connection to Parliament, are confident that the statistical service operates independently and with integrity".

I am sure that we would find that view in the House—but it is not the House that matters, it is the outside world. The survey continued:

"However, for those outside the 'Westminster sphere of influence', there is far more scepticism as to whether this is actually the case. While most still regard the ONS as an authoritative, trusted source of information, there are doubts over the validity of figures produced by individual Government departments."

As the Finance Bill goes through the House, it is important that Ministers take account of that point, which will also be of interest to Members in Committee.

The Chancellor was correct to stress the measures we need to adopt to enhance the UK's global competitiveness. That is welcome, not least for women. The women and work commission produced a report in February, "Shaping a Fairer Future", which set out 40 practical recommendations to tackle job segregation and the gender pay gap, which still exists despite 30 years of equal pay legislation. The only way that we will respond to global challenges on competitiveness is to ensure that we upgrade our skills, so I welcome the continuation of the new deal and the upgrading of skills, especially for women in low-paid employment.

The Treasury Committee has been seized by what globalisation will mean for the UK. We have undertaken an inquiry into globalisation, to which both the Governor of the Bank of England and the Chancellor have agreed to give evidence. Part of our inquiry will look at the role of the IMF. The Chancellor and the Governor—in a speech a month or so back—have both focused on the IMF, about which there are a number of fundamental questions.

What is the fund for? Do we need an IMF? Is there a role for a multilateral monetary system and, if so, what is it? In 1946, the international monetary system was built around fixed exchange rates and controls on capital investment, and each country met its international responsibilities by running a balanced current account. That is a world away from the situation faced by financial services in the 21st century. The IMF is increasingly seen as the lender of last resort, and until the repayment of loans by Argentina and Brazil, 70 per cent. of its outstanding loans were to only three countries. The IMF lending book is the lowest that it has ever been, and we can be sure that the Asian economies, including Japan, having built up their foreign exchange reserves, will not be coming back to the IMF. They were scarred by the experience of the 1990s.

The IMF has a number of tasks, especially at a time of such massive global imbalances. It should be a forum for transparent discussion of the way forward with national Governments about risks to the world economy. Recently, the Treasury Committee visited the United States where we had the opportunity to talk to a wide number of people. One issue relating to economic risk is trade protectionism, and the possibility of its being translated into policy change in the US should not be dismissed. It is a risk and a Bill proposing further protectionism is currently before Congress. However, it is important that we emphasise to our US colleagues that protectionism will not get us anywhere.

There is also a risk of sharp adjustments in US current accounts spilling over to sharp adjustments in assets, markets and energy prices. The high and volatile energy market remains a concern in a globalised world where new alliances are being formed in the global economy.

A new world order has been established, as people have indicated, and the US economic hegemony is being challenged by the rise of the new economic superpowers, so an understanding of global economic development no longer needs to begin in Washington—hence the Treasury Committee in its inquiry has already visited China and, in June, hopes to visit India, which has been labelled the new China. I will not go over all the statistics on China—most hon. Members are familiar with them—but the UK needs policy responses to them.

The Government have indicated that they have a UK-China task force and have identified five key issues, with which I agree—energy, financial services, water, health care and information and communications technology—but I suggest to Ministers that we should also take on board both education and legal services. On a visit to Hong Kong in September, at the invitation of the Hong Kong Government, it was obvious that there are opportunities in education and legal services, and Hong Kong is a good base for us to be involved in that exercise.

We have globalisation at a time of threats in the US and in Europe. We saw the almost xenophobic response by people in France and Belgium to the possible takeover of the steelmaker Areclor by Mr. Mittal. We saw the US reaction to the P&O takeover by Dubai Ports World. Only in the past couple of weeks, we have seen the locking out of an Italian energy company by the French, who designated 11 sensitive sectors that must be safeguarded against foreign bids.

We must avoid a perilous collision between nationalism and globalisation. Therefore, it is very important to have a cross-party view on the issue so that we can respond to the long-term challenges, which have a habit of coming sooner than we expect. The Chancellor is right to focus on those long-term challenges, but we also have short-term challenges, on which the Treasury Committee will, no doubt, examine the Chancellor. Over two and half hours, all of us who serve on the Committee will have an opportunity to pinpoint those issues.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

The right hon. Gentleman is the Chairman of a very important Select Committee and he has just referred to international business takeovers. Does he think that the people and Governments of countries must take a view on globalisation and decide whether every takeover will be beneficial? Does he agree that they should consider not only the long-term survival of the company in question, but the impact on employment in the communities where the companies are being taken over and the benefits or disbenefits that the takeover might bring to those localities and countries? That is not just nationalism, it is good sense.

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

I agree with the hon. Gentleman. At the end of the day, globalisation has been a good thing. For example, consumers have found that electrical goods and clothing have been cheaper as a result. US consumers have been able to spend because China and other Asian countries are holding the dollar as their foreign exchange reserves. There are good aspects to globalisation, but there are drawbacks as well. Increasingly over the years, some of our communities will be affected by them.

Do we have a policy response to the trends that will take place in the future? It is important to have such a debate now. The Treasury Committee is looking at the issue now and we share our information with the House. There is no doubt that a number of us will experience the local effect of the downsides of globalisation, but I am sure that we can debate that as time goes on and consider those issues with a common view, so that we find both an understanding of what is happening in the world and an appropriate policy response for our country, which will help both its competitiveness and prosperity in the future.

Photo of John Redwood John Redwood Conservative, Wokingham 2:24 pm, 22nd March 2006

I have declared my interests in the Register of Members' Interests, and I should like to remind the House that I am a director of companies in both services and manufacturing and I am a director of a pension trustee company of one of those companies.

It is a great pity that the Chancellor of the Exchequer presents his case in such a selective way. I certainly welcome in his remarks today the proposition that we should have a independent eye cast over how the figures are compiled, and I hope that that independent eye will also be able to give advice to the Chancellor, which we can know about, on how the figures should be presented on big occasions such as this. It makes for a much better debate if we have an honest and full account of what is going on in the economy. For our part, we can accept that not everything is bad, but we would like the Chancellor to agree that not everything is good.

It is extremely good that we are debating the economy yet again against the background of continuous months, quarters and years of output growth, since we righted the economy after the bad mistake of the exchange rate mechanism—a policy recommended by Labour to the then Conservative Government, but a policy that Labour seems to have forgotten that it was part father and mother to. Since we came out of that most unfortunate experiment and since the Conservative Government put in place the foundations of fiscal discipline and greater productivity growth, the economy has grown extremely well. The continuous growth under Governments of both parties is extremely welcome.

If we look at the Chancellor's views on growth, we must accept—I trust that Labour Members will accept—that we are reviewing a disappointing year. In 2005, the Chancellor tells us that output growth was down to only 1.75 per cent., compared with, as he helpfully tells us, real GDP growth that averages 2.5 per cent. in the major seven countries and 4.5 per cent. in the world overall. So that shows Britain growing not only at under half the world average rate, but at considerably below the growth rate of large, advanced countries.

If we turn to the Chancellor's forecasts, we see that he thinks that the economy will grow by between 2 and 2.5 per cent. this year. If we are charitable and say that he thinks that it will grow at 2.25 per cent.—I fear that he thinks that it will grow at 2 per cent.—that compares again with what he thinks will be a rather better performance by the major seven countries, with growth at an average of 2.5 per cent., and an overall world performance of 4.5 per cent. yet again.

The first question that we need to ask in reviewing the Budget measures is whether the Chancellor is now planning to put in place measures that are sufficient to get Britain at least up to the average growth rate of the major countries in the world, or even better, to get us above the average of the major countries of the world, because we have clearly slipped some way below them in recent months and recent quarters.

The Chancellor also gives us the latest projections on his borrowing. The Leader of the Opposition, my right hon. Friend Mr. Cameron gave a superb response to the Budget, and its brevity was matched by its brilliance. There is no need for the Leader of the Opposition to give a very long speech if he has gone to the trouble of preparing an excellent short speech that makes all the crucial points. One of the crucial points on which my right hon. Friend immediately homed in, although he did not have very long to read the documents, was the way in which the Chancellor intends to borrow so much money over the review period set out in the Budget forecast that we have just received.

My right hon. Friend said that the Chancellor plans to borrow £175 billion, on the published figures, through the public sector accounts over that period. Like my right hon. Friend, I think that that is very dangerous. If we are going to live through a period of reasonable growth, surely that is exactly the point in the cycle where we should cut public borrowing rather more sharply than the Chancellor forecasts, preferably by the growth in revenues from faster economic growth, but also from pursuing the initiatives that the Chancellor always promises that he is taking to gain greater efficiency in the public services and public sector and to cut the public overheads.

The Chancellor suggests instead very slow progress indeed: £37 billion of borrowing in the year just finishing; £36 billion of borrowing in the year about to start; and another £30 billion of borrowing in 2007–08. If only that were the end of it, I suppose that it would meet the wishes of the Labour party, but of course that is not the end of it because we know that there will be an awful lot of off-balance-sheet borrowing, too. There is no reference in the stock of debt figures to the £20-odd billion of borrowings and guaranteed moneys that have already been pushed the way of the effectively renationalised railway company. Strange accounting procedures are followed for all the private finance initiative and public-private partnership projects in which the Government have indulged on a grand scale.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

Does my right hon. Friend agree that many British taxpayers will get a nasty shock over the coming years when they find that they suddenly have to start paying for hospitals that they thought that their new and extra taxes had already paid for?

Photo of John Redwood John Redwood Conservative, Wokingham

My hon. Friend makes an excellent point.

From rough mental arithmetic, the published figure of £175 billion represents about £3,000 for every man, woman and child in the country. The Chancellor is thus asking every one of us to sign up to an additional £3,000 mortgage. On top of that, there will be additional mortgages for PFI, PPP and off-balance-sheet items, including the railways, which will probably be another £1,000 or £2,000. There will thus be a substantial increase in the national mortgage per head on top of the billions that the Chancellor has already borrowed and accounted for and those for which he has not accounted. Given that there is already quite a lot of debt in the private sector, the Chancellor should be more careful when building up public debt. After all, public debt is tax deferred; we or our children have to repay all that money with interest.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I would be interested to hear my right hon. Friend's comments about the fact that up to £800 billion might be held off balance sheet. Should not the Chancellor be far more transparent in his accounts? Is that not the issue with which we should be dealing?

Photo of John Redwood John Redwood Conservative, Wokingham

My hon. Friend is right to extend my argument even further. He is pointing out that we should account properly for not only borrowings that are guaranteed but not in the documents, such as the railway borrowings, and the contingent liabilities of all the PPP and PFI projects, but the massive contingent liabilities in the pensions area throughout the public sector.

I will accelerate my argument because of my hon. Friend's question, although I was going to refer to this matter later. The Government have just said to all private businesses that they must not only have recent calculations of the deficits in their pension funds, but write those deficits on to their company's balance sheets. I understand the logic of that, and FRS 17 is the standard under the Government's requirements. My plea is not that the rule is changed for companies, but that the same rule is applied to the Government. It is obvious that the Government have a massive deficit on the pension account because they—Governments of all parties have done this over the years—have built up huge liabilities, but not provided any assets on the other side of the account to pay for them. We need honest public accounts that match the clarity and honesty of private sector company accounts to show us the contingent liabilities of all the pension funds.

The Government may well counter my point by saying that one can deduce, by reading carefully the Red Book and other sources, the annual payments under the PFI and PPP contracts. However, that is not sufficient because it is a flow—an income statement—for each year. We need to know the contingent liability, which is how many times the income must be paid to get rid of the contract, or how much would have to be paid to rescue the contract if the company went bust or the contract went wrong. It is how much would need to be paid to reinstate the service if there was a breakdown. We need an accurate figure for that kind of contingency.

We know that sadly such contracts go wrong from time to time. We can expect new Governments to be elected who would like to change the arrangements, but there would be a substantial price for doing so. For example, it might prove penal to get out of the London tube contract because it is very bad. We need on the face of Government accounts a clear statement of what the contingent liability costs of all the private arrangements would be, in addition to the guaranteed borrowings and the pension liabilities.

My concluding point on debt is simple and echoes the comments of my right hon. Friend. We are borrowing too much as a nation both through the public accounts and outside the public accounts under Government initiative and with Government encouragement. As a period of moderate to reasonable growth of the economy is forecast, we ought to rein back that debt more quickly.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I think that the right hon. Gentleman has been drawing on the information in table 2.4 on page 31 of the Red Book. If he looks at the back of the Red Book, he will see a table on previous borrowings. The Conservatives were in office between 1979 and 1997, and during 11 of those 18 years, the percentage of GDP that borrowing represented was considerably higher than it has been in any year under this Government since 1997. I think that I am right in saying that in all those 11 years, borrowing was well over 40 per cent. of GDP. Does the right hon. Gentleman decry the past of his party, during some of which time he was in government.

Photo of John Redwood John Redwood Conservative, Wokingham

I have already said that an economic mistake was made during the Conservative years. The mistake was backed and encouraged by the Labour party, but I never supported it. Yes, we borrowed more than we would have liked because of that mistake. The hon. Gentleman makes a party political point while I am trying to give a sensible analysis of the true position, so I would say that quite a lot of that debt was incurred to clear up the mess that Labour left behind in 1979, when we inherited a grossly over-borrowed and overtaxed country. Of course, the borrowing was especially high because Labour did not want to confess just how much it had to put up taxes to pay for the spending on its accounts.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Perhaps I can help my right hon. Friend in answering the question raised by Rob Marris. The problem goes back to the point about transparency that I made earlier. If one adds together the money that is off balance sheet and the amount that is on balance sheet, it comes to roughly £1.3 trillion, which is 105 per cent. of GDP, not 35 per cent.

Photo of John Redwood John Redwood Conservative, Wokingham

Once again my hon. Friend makes his point extremely powerfully. I note that the amount has gone up by several hundred billions while he has been sitting next to me. I have seen the figure of £1.3 trillion in public commentaries and the press. It must be right if it has appeared in the newspapers, must it not? Although I have not done the calculations myself, the figure feels about right. We can leave the House with the clear understanding that there is £1 trillion or so of liabilities, many of which are not stated in the figures. Such liabilities are serious for all taxpayers and our children, so a more honest recognition of the situation would be helpful.

I will make a final comment on the fiscal balances in table 2.4. It is a great pity that we do not have an honest account from the Chancellor of exactly what the cycle is. It is also a great pity that he does not stick to the same cycle each time he presents his figures because that would give far more cogency.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

I want to be sure that I have not misheard the right hon. Gentleman. Did he say that he thought that there was £1 trillion of off-balance-sheet liabilities?

Photo of John Redwood John Redwood Conservative, Wokingham

I am saying that there are about £1 trillion of liabilities, which are mainly pension liabilities. The hon. Gentleman should realise how expensive many public sector pensions will be and that practically all of them are without a fund. Fortunately, the House of Commons is not in that category because we have a properly funded scheme to which Members contribute and local government is also not in that position, although there are some deficits in local government schemes. However, there is nothing but deficits when it comes to all the unfunded schemes, and there should be a recognition of that in the accounts.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Just to be accurate, I believe that approximately £436 billion is on balance sheet and about another £150 billion is off balance sheet, which is where we get the figure of £1.3 trillion from— [Hon. Members: "What?"]

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Not £450 billion; £850 billion.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Despite the enthusiasm of Mr. Newmark, Mr. Redwood has the floor.

Photo of John Redwood John Redwood Conservative, Wokingham

I am grateful to you, Madam Deputy Speaker, for your usual courtesy.

Chris Huhne should do some more homework. I know that he has been busy losing the leadership of his party, but he should do a little bit of reading. If he reads the figures in the Red Book on the amount of outstanding national borrowing and adds to that the pension deficits of the funded public sector schemes, the PFI and PPP contingent liabilities, the debt that has not gone through the books that should have done so, and the very large figure for unfunded pension liabilities, he would not have change out of £1 trillion. It is a good round figure that should help to inform the debate. I will leave it at £1 trillion because I have not myself done the calculation down to the second decimal point. However, I have looked at the general arguments and I am satisfied that that is the order of magnitude to which the Chancellor needs to face up.

That brings me to box 2.5—a fascinating little aside in the Chancellor's rambles through the state of the British economy—with the catchy title "Low yields and the Government bond market". Normally, one's eyes would glaze over and one would pass hurriedly on, because it is usually a subject for anoraks only and I do not regard myself as being in that category. [Hon. Members: "Oh!"] I know that I have been regarded as an interesting skier off-piste, which I found fascinating as I have never taken to the slopes on the continent of Europe in that way.

However, I am interested in that box, and the House should be interested in it, too, because there is a serious danger that we are living through unnatural times in the bond market. Those unnatural times are already having a dramatic impact on the real economy, and they could have an even more dramatic and adverse impact on the real economy if the problem is not handled well.

The problem began when the Chancellor, encouraged by the Prime Minister no doubt, thought that he had discovered that elixir of Labour Chancellors—a stealth tax that would raise a huge amount of money which would do no damage and which no one minded. He introduced a tax on the dividend income of British shares held through pension funds and other charitable funds. He has never published an accurate figure for how much that takes.

Photo of John Redwood John Redwood Conservative, Wokingham

The general £5 billion-a-year figure is in common circulation. It started at rather less than that, to be fair to the Chancellor, but it is probably now more. It is growing. Let us take it at £5 billion, however, because he will not give us the accurate figure. He would, I am sure, concede that it is a large sum.

If we take £5 billion a year out of pension funds for, say, 10 years of the policy, before Labour loses power, that is £50 billion out of pension funds. That is £50 billion that has not been invested, so perhaps another £20 billion would have been made on that from investment gain in income if it had been available to reinvest. We should then factor in the obvious point, which I made at the time, that the change was bound to hit share values—share prices valued as a stream of income from a company—and that if we tax that stream of income more heavily, it is worthless. I did a back-of-the-envelope calculation when the Chancellor proposed the tax and said that with the market valuing income at 20 times its rate, as it did at the time, the £5 billion off the stream of company income would mean a £100 billion fall in share values. Compared with the fall going on elsewhere in the German, French and American markets at the time, the fall in London was about £100 billion extra for a variety of global as well as national reasons.

Basically, the Chancellor decided to hit the pension funds by about £170 billion over a 10-year period as a result of capital loss income and income reinvested forgone. We now see that the actual deficits may be a bit lower than that, I am pleased to say, because the stock market has started to pick up some of the lost ground that the hit and other factors caused originally, and companies have put a lot of extra money in to try to make good some of the losses caused by the Chancellor. I think that everyone agrees, however, that there is still a serious pension deficit problem.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

Just so that I can follow the right hon. Gentleman's argument, perhaps he can explain something. It is curious that he should say that there was a fall unique to the UK market given that we do not have capital controls, thanks to a move that I am sure he supported. Surely foreigners would have been buying our shares if they were such tremendous value, and there would not have been such a fall in the UK market.

Photo of John Redwood John Redwood Conservative, Wokingham

The main holders of UK shares at the time the change was made were British people and companies, especially their pension funds. There was bound to be a weight of selling to adjust the market value of those shares which exceeded the appetite from abroad. Hon. Members should remember the background. A fall in the world market took place shortly afterwards, so there was not a great appetite for what foreign companies perceived to be higher-risk overseas shares in a foreign currency at the time when adjustments were made in British portfolios to reflect the diminution in share values.

Photo of John Redwood John Redwood Conservative, Wokingham

I do not think that the hon. Gentleman understands the situation. It is obvious that share prices were going to fall. He does not have to believe me; he merely has to look at what happened. What is the explanation for the additional fall of the London market if it is not the Chancellor's tax policies, taking income out of the hands of companies and savers?

Photo of John Redwood John Redwood Conservative, Wokingham

If the hon. Gentleman really wants to be knocked again, then fine.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

Clearly, there would be some home currency questions, but the idea that it was one for one is simply absurd. There is no support for that in any literature or in what happened.

Photo of John Redwood John Redwood Conservative, Wokingham

The facts are clear: the London market fell rather more than other markets. I gave my sum. If the hon. Gentleman has an alternative sum to explain that decline, I look forward to hearing it in his speech if he catches your eye, Madam Deputy Speaker, and if he has done his homework by then, but he has come here not having done any homework and is just hoping to tell his local papers that he is back doing the normal day job.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

I wonder whether one reason for the fall was the growing uncertainty over the Chancellor's performance and the fact that he will change his mind about policies, such as the inclusion of property in self-invested personal pensions. Increased uncertainty about regulation can only harm our economy.

Photo of John Redwood John Redwood Conservative, Wokingham

I am reluctant to disagree with my hon. Friend, but I am not sure that that was a factor when we had the major fall in the stock market. I have set out my views. Perhaps she can set out her views in her contribution.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

On pensions, the Government apparently exhort people to save, in particular for their retirement. Does my right hon. Friend, to whose speech I am listening extremely carefully, believe that withdrawing the dividend tax has helped and encouraged people to save for their future, because that is critical?

Photo of John Redwood John Redwood Conservative, Wokingham

I was going on to say that it clearly did not. In fact, it did the opposite. As a result of that, a large number of companies—well intentioned towards their work force—have said, "We can't afford this any more, so we are going to close our funds." In some tragic cases, as we heard recently in the House, funds have folded altogether because a company has gone bust or is unable to make the contribution, and the funds do not have sufficient money to meet the requirements. A new generation of people who are going into work or are in junior positions in industry or commerce no longer have access to a final salary scheme. They are probably saving proportionately less, with the help of their employers, than under the old regime.

Worse still, the regulators and actuaries now say that because those funds are very mature, they should be invested not in equities, but in bonds. They have triggered either a mass exodus out of shares into bonds, or they have persuaded or required funds to buy only bonds and not shares. We now have a huge build-up in bond commitments and a run-down in equity commitments. That has had two unforeseen consequences—I think that they must have been unforeseen; I should not think that the Government wanted them.

The first unforeseen consequence is that corporate Britain is up for sale because equities in Britain appear to be relatively lowly rated compared with equities elsewhere. Many great British companies are successfully bid for from overseas because the natural buyers of shares—the pension funds—are not there to take the values up to levels that overseas buyers would find less attractive. We have seen O 2 , P&O, BOC and various others companies sold out, for premium, to overseas buyers because the UK equity market is relatively lowly rated—a direct consequence of the tax raid and the pension fund position. I see Labour Members getting uncomfortable. They obviously do not like corporate Britain being bid for, but they have no other explanation.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I am interested in what the right hon. Gentleman says about the balance between equity markets and bond markets. Surely the biggest blow to equities was given by the collapse of the market following the horrendous speculative piece of adventurism, which in 2001–02 saw £250 billion of UK workers' pension funds wiped off because money had been used in a cavalier fashion, pushing share values through the roof, well beyond any realistic price. As a result of that and the unregulated market, which we created, people have lost their pensions and seen the money pilfered by everyone apart from the brokers who made the money out of the transactions.

Photo of John Redwood John Redwood Conservative, Wokingham

The figures show that the tax rate was far more important, but I agree that value was destroyed in global capital markets around 2000. The high-tech sector had been bid up to levels that proved unsustainable. That was particularly true of companies that had little turnover and no prospect of a profit. There was a big blow-off in the United States of America, but a lesser one in the UK because the situation had developed less dramatically. A special factor in the UK led to the collapse in share values in telecoms and high-tech areas, and it goes right back to the door of the Treasury: the Chancellor's decision to target telecoms for another of his stealth taxes that would do no damage. If one takes £21 billion-worth of tax in a single go out of the lead sector—[Hon. Members: "It is not tax."] We are now told that money going from companies involuntarily to the Treasury is not a tax. I do not care what Members wish to call it, but it looks like a tax and it feels like a tax.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The right hon. Gentleman has just made an extraordinary statement. He used the adverb "involuntarily". The transactions to which he referred were not involuntary; they were bids in a free market by telecoms companies. In retrospect, most people would agree that they over-bid, but they made the bids. It was not a mandatory tax; it was an optional purchase.

Photo of John Redwood John Redwood Conservative, Wokingham

It was effectively a mandatory purchase. The companies were bidding for monopoly licences and rights to the airways, and if they had not done so they could not have stayed in that kind of business. Of course they had to pay. If one offers fewer licences than there are companies wishing to buy, one will raise a very large sum. Indeed, I pay full tribute to the Chancellor and his advisers for optimising the take for the taxpayer by the brilliance of the auction that they worked out. It just happened to do enormous damage to our lead sector, and therefore to share prices in companies such as BT and Vodafone, which happened to be the leading investments for pension funds at the time. Alan Simpson is right that pensioners and future pensioners suffered badly from that, but the Chancellor once again played a prominent role, causing that problem.

We have undervalued companies that are now being subject to aggressive overseas bids, often when we do not have reciprocal rights in overseas markets, and bonds valued on tiny yields, which in turn increase pension fund deficits. That has created a virtuous circle for the Chancellor—take more money out of funds, damage the funds, get them to buy bonds, take the price of bonds up so that the Chancellor can pay for his borrowing more cheaply—and a vicious circle for pensions: get them to buy more bonds, value the bonds pessimistically, increase the deficits, demand they put more money in and pay more bonds. It is not a healthy situation.

I was very pleased to see the well known commentator, Anatole Kaletsky, this week at last putting that into the newspapers, explaining that the regulatory system could be creating a future large-scale crisis in pension funding. Therefore, my serious message to those on the Treasury Bench is: please look at the bonds spiral and the role of the regulators, and see whether there is a way of avoiding a future funding crisis. What if at some future date people decide that bonds are overvalued and yields go from, say, 4 to 5 per cent., which is not an impossible scenario? That would wipe out a quarter of the total value of pension funds. Is it true to say, at those levels, that bonds are risk-free, a safe investment and the right way to match future liabilities, given that the bond has a fixed income and liabilities have a rising price?

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Does my right hon. Friend agree that at the end of that series of complex financial transactions, there is a human cost—compounding damage to those who put money aside for security in old age? There may be sniggering on the Labour Benches but there is a clear, logical link between the tax on pensions and the impact on companies and the drive on to bonds. That is why people are no longer saving for their old age and there is the horrifying prospect, about which Labour Members seem to be happy, of 70 per cent. of people in this country being dependent on means-tested benefits by 2050.

Photo of John Redwood John Redwood Conservative, Wokingham

My hon. Friend makes an extremely good and different powerful point, with which I entirely agree. It is a great worry. The lack of a proper savings culture, which has probably been influenced by all the uncertainty and damage to pension saving, is certainly not helpful.

I hope that those on the Treasury Bench have understood that there is a serious national problem. I put it to them in that spirit; I am not making a party political point. They need to tackle the matter urgently.

Photo of John Bercow John Bercow Conservative, Buckingham

Before my right hon. Friend moves on to his next topic in what is proving to be an extremely interesting disquisition on the state of the British economy, may I invite him to underline in clear terms what is now a worrying apartheid between the public sector and the private sector? He has described what many companies have faced as a result of the perverse and iniquitous taxation policy of the Chancellor. Is it not disturbing that the wealth-creating sector has been so savaged, while the Chancellor has been unduly preoccupied with the creation of new jobs in the public sector, which is the sector for which the wealth-creating sector is obliged to pay?

Photo of John Redwood John Redwood Conservative, Wokingham

I quite agree and I shall come briefly to that very issue of public sector efficiency and productivity.

In chapter 3 of the report there are measures to meet the productivity challenge. The main issues seem to be addressed in the Chancellor's mind to the private sector, but if one splits the disappointing figures for productivity growth in the past year or two, one sees immediately that productivity growth in areas such as manufacturing has been pretty good—it has had to be, because it is an extremely competitive global world out there—whereas productivity performance in the public sector has been poor to abysmal. The Government think that the figures are so bad that they have decided to call them in for re-examination and re-presentation. That is how serious it is. The figures are beginning to hit them in the headlines so they will need to be recalculated or suppressed.

On the figures that we have had so far from the Government, it appears that productivity in the health service has been falling by 1 per cent. a year against the background of a massive increase in spending, which the Government rather foolishly call investment. There is a lot of investment going into the health service—that is in capital expenditure and it ought to be increasing productivity, but it does not seem to be working. There has also been a lot of increased spending, but much of it appears to be on unnecessary jobs and activities that are not related to front-line actions. That is one of the reasons why there are not more beds, more operations and more treatments. I hope that the Government will therefore regard productivity as especially a public sector challenge and that they will understand that merely presenting Gershon as a nice idea is not sufficient. They have not only to implement Gershon—we hear of stumbling progress; I think that they are a long way from full progress—but to introduce son of Gershon very quickly.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

Is my right hon. Friend aware that the Department for Work and Pensions, for example, is to spend £500 million on voluntary and involuntary redundancy schemes over the next two to three years? Does he agree that that is clearly an ineffective way of running a Department?

Photo of John Redwood John Redwood Conservative, Wokingham

It is horrifying; what a waste of money. The rate of run-off and natural turnover in public sector employment is very high in most such departments. Surely it is possible for the Government to cut staff numbers in administration and unnecessary activities quite rapidly by ensuring that they do not replace staff and that where genuine vacancies occur for real jobs people are transferred from less important posts. It can be extremely good for morale in a department to have a staff freeze, because it creates promotion opportunities for those who remain. It is certainly better for morale in a department to try to run the change and to gain savings by a staff freeze and by transferring people to jobs that really matter than to embark on mass redundancy programmes. It clearly makes a lot more sense for the taxpayer than would spending the money on voluntary or compulsory redundancies.

The Chancellor understands that productivity also needs to be improved through working away on education. It is wonderful to share the Lobby with him in order to try to secure some reforms to our schooling system, which I hope he will want to take considerably further. It is a slight move in the right direction, but I am impatient to go a lot further and faster, and I always think that we are so much better when we are at our boldest. I would like my party to be much bolder on all those things.

Photo of John Redwood John Redwood Conservative, Wokingham

Yes, selection is very important, which is why I support the view of the Leader of the Opposition that we should select on ability as well as aptitude. We should select across disciplines, as specified in our policy, and we should defend our very good grammar schools, of which people are rightly proud. Many hon. Members are here only because they went to very good grammar schools or direct grant schools, as I did. We are grateful for that opportunity, so we do not wish to pull up the ladder on such proposals.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Tell us more—the hidden agenda on selection is revealed.

Photo of John Redwood John Redwood Conservative, Wokingham

The Minister is heckling me, but he clearly has not studied Conservative policy carefully enough. The Leader of the Opposition is keen to preserve all the great grammar schools in this country and in Northern Ireland, as I am. He is keen to introduce sensible selection in our comprehensive system, and effectively to create a grammar school stream at the top of every comprehensive, which is a very good way of raising quality. Indeed, it is the Minister's own policy for certain disciplines, such as modern languages, where he does believe in selection on aptitude, which is another word for ability, as we all know. When I asked the Prime Minister what the difference was between aptitude and ability in modern languages, his answer was notably deficient. I am glad that the Chancellor, in the guise of the Secretary of State for Education and Skills, said that more needed to be done in further education. He said that we need to take skills education much more seriously, and we may find common ground in trying to achieve such improvements.

The Government could make an important contribution to improving our productivity and efficiency if they sorted out a couple of things for which they have prime responsibility. They have been in power for nine years, but we still lack an energy policy. They play an important role in energy, as they need to send the right signals in their tax and market-influencing policies, and they issue planning permission for new power stations. The Chancellor glided over the matter in his speech and in the document, but it is high time that we had an energy policy. If we wish to develop process industry in this country we need better answers on energy availability and price. In the past few weeks, there has been too much reliance on the spot price, which has gone all over the place because of the imperfections of the continental market.

The Chancellor and the Secretary of State for Trade and Industry have both said that the Government intend to push for proper competition inquiries in Europe to try to free the market so that we can achieve access to a good supply of gas and other power at sensible prices. When will the Government persuade their partners to do so, and when are things going to be open? This is an urgent matter—it is no good saying that it may happen next year.

The Government often play a lead role in transport. We have a 21st-century economy and a very good private sector, but we have a mid-20th-century transport system that is in desperate need of more capacity and modernisation—a word that the Government usually like but which they misinterpret. I hope that they will soon come up with a way of increasing transport capacity on both the road and the rail system, and I hope that it will harness private finance. I am not putting in a bid for extra public spending, as a huge amount of money is available for sensibly worked-out road schemes to expand transport capacity. The bipartisan project for the relief road around Birmingham offers a good model, and we need more of those projects. I hope that the Chancellor accepts that if we are to improve the country's economy and productivity we must tackle those road blocks, which hinder the movement of goods and people.

Finally, I would like to raise the issue of regulation. In his Budget statement and in the supporting papers, the Chancellor talked about the need for better regulation. Indeed, at times, he even talks about the need for deregulation. In the past, I have warmly welcomed his conversion and that of the Prime Minister to the view that we are a greatly over-regulated society. I welcome their conversion to the notion that certain regulations are unnecessary—some of them achieve the opposite of what they set out to achieve and other regulations are simply too expensive, given the aims that they set themselves.

We have heard fine words and speeches, and the first of two promised Bills on deregulation has finally been introduced. It is therefore an enormous disappointment that there are two problems with the Legislative and Regulatory Reform Bill. First, it does not include any provisions on deregulation. With the agreement of all my Conservative colleagues, I have proposed 63 things that we would like to deregulate immediately. Personally, I could cite another 100, and I may persuade my colleagues to back them in due course.

Photo of Bill Cash Bill Cash Conservative, Stone

Would my right hon. Friend not like deregulation of European legislation as well?

Photo of John Redwood John Redwood Conservative, Wokingham

Of course, I would. There are some European items among the 63 in the agreed party programme, as it is impossible to deregulate in Britain without deregulating matters with which Brussels is involved.

The second big problem with the Bill is the inclusion of an offensive group of clauses that gives Ministers the right to legislate without reference to Parliament. The Bill does not even specify that it has a deregulatory purpose. We were invited to accept a Bill that could re-regulate Britain, taking more of our freedoms away without due process. I hope that Ministers accept that that was a gross error and a huge misjudgment. The country desperately needs proper deregulation, and a Bill is proceeding through Parliament that would allow us to achieve that. We would be delighted if the measure were subject to major amendments and surgery. We would be willing to co-operate if the Government dumped the clauses that give them too much power to legislate by the back door and included in the Bill some genuine deregulation.

Photo of John Bercow John Bercow Conservative, Buckingham

My right hon. Friend will probably recall as well as I do that Mr. Byers talked about the case for sunset regulation as long ago as 2000, but little has happened since. Given that more than 99 per cent. of businesses in this country employ fewer than 100 people but account for approximately 50 per cent. of the private sector work force and generate two fifths of national output, does he not agree that it is time that the Government looked at, and learned from, the experience of the United States by studying the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996? If they did so, they could learn a great deal.

Photo of John Redwood John Redwood Conservative, Wokingham

My hon. Friend makes an extremely good point, and I agree with him. I would, however, like to go further, as I do not want to deregulate just one sector of trade or commerce, or one size of company. I accept that small companies are badly oppressed by too much regulation, but we could strip out some major regulations for everyone. Earlier this week, the Minister and I debated the regulation of financial services in Committee. I made the point that I agreed with the Government's rhetoric on the system of regulation for the European Union as a whole and the United Kingdom in particular. The Government said that competition was better at regulating than regulators and that greater freedom produced enterprise and flexibility. The Minister said that I did not need to tell him that competition was the best regulator, as the Government understood that intuitively.

I am delighted that we agree about what we wish to do, but the difference between us in our current roles is that the Minister has the power to do something about it, but I do not. Now that we have agreed on the remedy, I urge Ministers who have the power to put it into effect to get on with it. We all know that the country is crying out for less regulation and that far too much regulation comes from Brussels. Treasury Ministers say that they have a unique relationship with their European partners; they have enormous influence and Europe is going their way. They say that they want a less but better regulated Europe. When will those fine words translate into action? Since the Prime Minister last spoke about the need for a deregulated Europe, 2,000 new regulations have been introduced. Why did the United Kingdom sign up to all those regulations? Why did we not use our influence to say no? Why have we signed up to a 72-point action programme for financial services in Europe when the required regulation is either already in place nationally or will be put in place globally? When we know that we need to compete in a global marketplace, is it not much better that regulation is put in place globally, so that we are competing on a level playing field with the Indians, the Chinese and the Americans, as well as with the French and the Germans? There is no need for mezzanine regulation in big global areas such as financial services or some of the other leading globally organised industries. There may be some need for global regulation, and that surely is the level at which Ministers should concentrate their attention.

The Chancellor rightly said that the world is changing extremely rapidly. He rightly drew attention to the growing competitive challenge from India and from China. He may also have mentioned Brazil and Russia. The new large economies are growing very quickly. They are importing a great deal of technology and ideas, and in some cases they are exporting a great deal of capital because they are generating very large surpluses. The pattern of world trading is changing extremely quickly. We must understand that for Britain to have a prosperous future, as she has had a prosperous past, we need to turn our attention much more to countries of the size and pace of change of India and China.

Britain's great advantage in the next 30 or 40 years is that we have a special relationship with India. We have strong ties, a common language for business and political purposes, and quite a lot of common systems as a result of our shared history in the 20th century. We need to turn that to good effect and play the game in the spirit of the recent cricket exchanges, where India won one and we won one. We need to develop that relationship as strongly as we can, because it will help pay the livings of our children and grandchildren in the future.

Photo of Andrew Love Andrew Love Labour, Edmonton

I have followed the right hon. Gentleman's speech with interest. On the productivity challenge, which I accept, he has not touched on the conundrum of business investment. Companies in the UK are making what some would consider record profits. Interest rates are low. There is a crying need to improve our productivity, even in the private sector, although I take some of the points that the right hon. Gentleman makes about the public sector. How do we overcome that problem?

Photo of John Redwood John Redwood Conservative, Wokingham

That is a very good question. I have shortened my remarks because I know that other hon. Members want to speak. The point of my argument about pensions answers the hon. Gentleman's point about investment levels as well. The main reason that British companies are not investing more in plant, equipment and new ideas is that every spare pound they generate is likely to have to go to make good the deficit in their pension funds—deficits that are being exaggerated or made worse by the actuarial advice on and by the method of compensation of the value of assets and liabilities.

If the Chancellor takes the pension fund problem seriously and can find some kind of regulatory amelioration, the hon. Gentleman will find that more of that cash flow will become free for expenditure on improving the real assets of the country and generating more wealth. Similarly, more money will be available for equity investment through the stock exchange. There is not so much equity investment available from British sources through the stock exchange for exactly the same reason—people are told to put their money into bonds, not into new share issues by companies, which could otherwise finance new ideas, new technology and extended ideas for companies.

My concluding point is on the change in the world. According to the European Union's projections, which are a little out of date as they were issued in 2002, the 15 main EU economies, which represented 18 per cent. of world output in 2000, would represent only 10 per cent. of world output by 2050. I think that is a wildly optimistic forecast on the part of the European Union. If one looks at the pace of change, the relative decline of some of the continental economies and their populations, and the enormous success of India, China, Brazil, Russia and the other emerging countries, one realises that there is no way in which the EU 15 will still represent 10 per cent. of world output by 2050.

Photo of Bill Cash Bill Cash Conservative, Stone

Did my right hon. Friend notice the way in which the Chancellor of the Exchequer in his speech this afternoon distanced himself from the eurozone, but did not go one step further and say that the Government had made a terrible mistake in committing themselves to the euro, the ERM, the constitution and all that goes with it? For practical purposes, he is prepared to criticise the European Union but not prepared to go that step further and say that we will have nothing to do with that aspect of it.

Photo of John Redwood John Redwood Conservative, Wokingham

My hon. Friend is right. An honest Chancellor would have said, "The game is up. I now realise that joining the euro would be quite inappropriate for Britain and we would be much better off getting our regulations into line with the leading countries and power blocs in the world, not regulating at the mezzanine level in the European Union." This is the point. On its own figures the EU will almost halve as a proportion of world output. On more independent figures, it will not do that well. It will fall even more, and we will not be earning our living sufficiently if we hitch our wagon entirely to the European train or bus. We need, instead, to be aware that the life and growth in the world economy will be in America, India, China and the other emerging countries. Our foreign policy should be geared to that, and so should our economic and regulatory policy.

For the information of Labour Members, I have spoken as the Member of Parliament for Wokingham. I have not bound the Front Bench team by what I have said, nor have I bound my economic competitiveness policy committee. We will report, I trust, next summer and it will give me great pleasure then to speak for that. I am not backtracking on anything. I have expressed my views in my capacity as the Member of Parliament for Wokingham, the proudest capacity of all that I hold, and if they in due course are adopted by the committee, I shall be delighted. If the committee's recommendations in due course are adopted by my party leadership, I shall be delighted. I thought Labour Members should know that.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 3:16 pm, 22nd March 2006

I pay tribute to Mr. Redwood. He is right, of course. The world might fall in tomorrow. On present trends, I disagree with him. I shall give him a small example with a statistic that he used towards the end of his speech—the position of the EU 15 in 2050. He had severe doubts whether we would have 10 per cent. of world trade by then. It is difficult to predict, but on current population projections, the population of the 15 in 2050 will be approximately 5 per cent. of the world population. To suggest that as the rich west we would be batting double at 10 per cent. of world trade seems to me to be entirely credible. It may not happen. I hope I am here with the right hon. Gentleman to check. It is true that the world might fall in tomorrow, but I do not think it will. Nor does the Organisation for Economic Co-operation and Development.

The OECD last October, five months ago, stated:

"The UK is a leader in the quality of its monetary and fiscal policy frameworks amongst OECD countries."

It continued:

"The framework has played a key role in improving macroeconomic stability relative to both the past and to other OECD countries."

The International Monetary Fund last December commented:

"Macroeconomic stability in the United Kingdom remains remarkable . . . This impressive record owes much to good macroeconomic, financial, and structural policies, underpinned by sound policy frameworks".

In its "Audit of Assumptions for Budget 2006", the National Audit Office, at paragraph 67 on page 14 in relation to the underlying growth rate stated:

"Over the four year Rolling Review period since 2002, the rate assumed for underlying or trend growth for the purposes of making the fiscal projections was 2½ per cent. per year up to the end of 2006."

That is the rate assumed by the Chancellor and the Treasury. The NAO goes on to state that

"the assumption was reasonable and cautious".

It continues:

"Looking forward, the Treasury assumption of 2¼ per cent. from 2007 onwards is at the bottom of the range of external estimates . . . On this basis, the Treasury assumption currently appears reasonable and cautious".

Of course the world might fall in tomorrow. Past indications, like the stock market, provide only a limited indication of the future, but the indication is that the world—the roof—will not fall in tomorrow.

On borrowing, I share some of the concerns of the right hon. Gentleman, and I have done so for a number of years, as hon. Members know. I shall not recite the figures, but they were far worse under the Labour Government in the mid-1970s and under most of the Conservative Government through the 1980s and 1990s. There is a role for Government borrowing, but the focus should be either counter-cyclical or investment—I use the term "investment" in its commercial sense, and not in its somewhat devalued political sense, where it is used as a substitute for the word "spending".

Table C1 on page 250 of the Red Book lists net investment and public sector net borrowing. In 2003–04, net investment was 1.3 per cent. of GDP and public sector net borrowing was 3.2 per cent. of GDP, so there was less investment than borrowing, which is worrying for me. Similarly, in 2004–05, net investment was 1.8 per cent of GDP and net borrowing was 3.4 per cent. of GDP. The estimate for the financial year that is about to end is net investment of 2.1 per cent. of GDP and public sector net borrowing of 3 per cent. of GDP. The estimate for next year is net investment of 2.2 per cent. of GDP and net borrowing of 2.8 per cent. of GDP. In 2007–08, the estimate is net investment of 2.3 per cent. of GDP and net borrowing of 2.2 per cent of GDP. In 2008–09, the estimate is net investment of 2.3 per cent. of GDP and net borrowing of 1.7 per cent. of GDP. In 2009–10, the estimate is net investment of 2.3 per cent. of GDP and net borrowing of 1.6 per cent. of GDP. In 2010–11, which is as far as the table goes, the estimate is net investment of 2.3 per cent. of GDP and net borrowing of 1.5 per cent. of GDP. I think that that trend is healthy, and I welcome it.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

The hon. Gentleman is underpinning his argument with lots of forward-based statistics on debt and borrowing. What would happen to those figures if PFI borrowing were brought into the equation?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I cannot give the hon. Gentleman the exact figures. He has raised the question of PFI borrowing, and I think that in a commercial sense, which I am sure appeals to him, if one were to include PFI borrowing—I agree that we should have the full figures—it would to my mind, although perhaps not to his, be investment, because it goes on schools, hospitals and roads. Given my politics, I would call that investment, although I hasten to say that I do not know whether the Chancellor would include it in table C1.

Photo of John Bercow John Bercow Conservative, Buckingham

The hon. Gentleman has neatly elided into precisely the topic that I want to cover. Leaving aside both the sustainability and the cost of existing Government borrowing, is it not in any sense a source of concern to him that there is a huge disparity between the vast increases in public spending, for the purpose of which the Chancellor is borrowing so significantly, and the very poor increase in productivity? In the health service, spending has vastly increased, but, for example, the number of clinical episodes has not.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I refer the hon. Gentleman to box 2.2 on page 22 of "Productivity in the UK 6: Progress and new evidence", which was released with the Chancellor's papers today. I will not detain hon. Members with the figures, but, as I think that he appreciates, it is notoriously difficult to measure productivity in the NHS. Turning to what I take to be his case—he will correct me if I am wrong—he has done himself a disservice. We should all be concerned about public sector productivity, and I am convinced, although he may not be, that the Chancellor and the Government are concerned about that, too. He has done his case a disservice with his comment about the NHS—I made a similar comment to this on the first day of last year's Budget debate. If the average time allocated for a GP to see a patient goes up from eight minutes a patient to 12 minutes a patient, it is a significant decline in productivity, which I wholly welcome, and I suspect that Conservative Members welcome it, too. In a commercial sense, that is one example of declining productivity in the NHS, but I think it fantastic.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

One of the problems associated with longer GP times is the time spent using choose-and-book technology, which takes nearly twice as long to use as was originally expected when it actually works. As the hon. Gentleman knows, the Prime Minister's policy unit reported in 2004 that it felt that there had been a 20 per cent. drop in NHS productivity. This is the great crisis: in the early '90s, NHS productivity was growing strongly; under this Labour Government—I think that the hon. Gentleman would agree that Ministers should take responsibility for this—productivity has fallen on normal stable measures.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

As I said to John Bercow, I refer the hon. Gentleman to box 2.2 on page 22 of "Productivity in the UK 6: Progress and new evidence", which the hon. Member for Buckingham is avidly reading—the hon. Gentleman will probably seek to intervene on me again. Box 2.2 discusses

"The latest Health Productivity Article published in February 2006" and points out that it is extraordinarily difficult to measure NHS productivity—the report's authors are much more knowledgeable on public sector productivity than me. I have already said that I believe that the Chancellor and the Government think that public sector productivity is extremely important, but it is very difficult to measure whether an apparent decline in productivity in a particular part of the NHS is desirable in social terms.

Photo of John Bercow John Bercow Conservative, Buckingham

The hon. Gentleman's prescience is impressive indeed—he foresaw that I would want to intervene on him again, and he was right to do so. He is an extraordinary parliamentary specimen, because it is commonplace for an hon. Member to refer other hon. Members to statistics that support their case, but it is relatively uncommon for an hon. Member to refer others to statistics that directly contradict it. He knows that in the box to which he has referred the figures show a decline in productivity of between 0.6 and 1.3 per cent. a year between 1995 and 2004, but in the same box the Government complain that the figures

"take no account of quality improvement."

In other words, if the figures support the Chancellor, the Chancellor is content, but if they do not, he tries to rubbish them. Does that concern or preoccupy the hon. Gentleman, because it should?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I would be concerned, if the hon. Gentleman had not quoted selectively. I shall read out the whole sentence, which I dislike intensely because it starts with a conjunction:

"But these estimates take no account of quality improvement, as the Atkinson Review recommended should be the case."

The hon. Gentleman's implication that the Chancellor has adopted a pick-and-mix approach is not fair. I say to hon. Members in all honesty that I have no idea what the Atkinson review is, but it is presumably about NHS productivity.

Several hon. Members:


Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am not foolish enough to take interventions on what it is. Nevertheless, an apparently independent body that is dealing with productivity takes a view that is shared by the Chancellor.

Photo of David Taylor David Taylor Labour, North West Leicestershire

Mr. Stuart quoted with approval the increase in productivity rates in the health service in the period before 1997. However, it is a fairly well understood economic principle that when one brings into productive use resources that were unused on the scale that was the case under that Government, they are generally less productive, and therefore average productivity is bound to decline. It is the law of diminishing returns. There is nothing special about having high levels of productivity—that can be achieved by sacking the least marginal resources in any productive enterprise.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I agree with my hon. Friend, who, as a cost auditor by background, is much more knowledgeable about these matters than I am. As regards what was going on in the NHS in 1997, I was a trade union solicitor working closely with the Unison branch at the main acute hospital in Wolverhampton, as well as the branch at the health authority which became the primary care trust. The hospital was doing what in industrial terms would be called sweating the assets, which was wearing out staff.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

In response to David Taylor, in private business it would usually be expected that if one invested more, particularly if one doubled expenditure in an area, one would expect a step change upwards in productivity rather than the opposite.

To try to take a little heat out of the debate, I think that it is generally accepted within the NHS—and even among health Ministers—that productivity is a problem. That is one of the reasons why the record investment that has gone in is not delivering. We can all move forward if we at least accept that there is a serious problem. Whoever is in government in the next five to 10 years, we must all work together in this House to support common-sense steps to increase that productivity.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I would not agree with using the word "problem" about productivity in the NHS, but I completely agree that it is an issue that a Government of any colour need to address. All that I was saying—I did not want to get bogged down in this—was that it is very difficult to measure productivity in the NHS and that there is a social dimension because it is a public service.

Photo of Kevan Jones Kevan Jones Labour, North Durham

Although this anoraks' debate between my hon. Friend and John Bercow is important and enlightening, does he accept that the main thing that my constituents are bothered about is waiting times? When I was first elected to this House in June 2001, the average waiting time for elective surgery was 18 months to two years—now, because of the extra investment that has gone in, it is down to four months.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I entirely agree with my hon. Friend. There is a similar situation in Wolverhampton at the acute hospital, New Cross.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I will give way to the hon. Gentleman, but I should first say something that I should have said in response to his last intervention, when he kindly talked about my prescience. I thought that he might have acknowledged my prescience in terms of having been able to get as far as box 2.2 on page 22 of this obscure report, which was released only two hours ago.

Photo of John Bercow John Bercow Conservative, Buckingham

I am happy to pay due—indeed, elaborate—tribute to the hon. Gentleman for that capability. I do not intend to probe him on the details of the Atkinson review, of which I suspect both of us are pretty ignorant. However, it will be a very sad state of affairs if at the next election the Chancellor is reduced to trudging around the marginal seats of this country in his campaign bus chuntering, in response to any protesting elector, the slogan, "The Atkinson review! The Atkinson review!" I think that in such circumstances he will be thought to be in need of some assistance or treatment. Does the hon. Gentleman accept that the central issue—

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

Order. I am conscious that interventions are getting longer and longer. Many Members are waiting to catch my eye, so I think that that is enough from the hon. Gentleman for the time being.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I will not be tempted much further down this path save to say that as someone in a marginal seat, I will be more than happy during the next general election to welcome the Chancellor, whoever she or he may be.

Photo of John Redwood John Redwood Conservative, Wokingham

Is not the worry about the NHS that there has been such a large build-up in non-medical personnel at the time when all this money has gone in? Would not the investment be proving its worth if the new computer systems and administration systems showed that we could cut the number of administrative staff, where surely his quality objection would not come into play? We have more administrative staff than nurses or doctors, so should not we spend to reduce that burden?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I suspect that the right hon. Gentleman comes from a more commercial background than I do, but I too come from a business background—I spent the majority of my working life in the private sector. One should not simply rely on a commercial model as regards NHS finances and structures, and I am not suggesting that the right hon. Gentleman takes that view, but it can be illuminating to use it for comparison purposes. Arguably, the NHS was for years unadministered. The statistic that the right hon. Gentleman cites, which is commonly cited by Opposition Members, is one of those that can be extremely misleading in certain hands. For example, in some statistical, taxonomic sense—to use the kind of word that the hon. Member for Buckingham would use—a matron could be counted as an administratrix, to use the proper Latinate originate, or an administrator, in everyday terms. But most people, including, I suspect, the right hon. Gentleman, would not consider a matron—we reintroduced them, of course—to be an administrator or manager when looking at the figures to determine who is front-line and who is not.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

One example of the difficulty of setting productivity measures in the NHS is to be found in the parallel debate about productivity in health care that is taking place in France at the moment. There, people are arguing that it is productive to reduce bed occupancy rates because their measures of efficiency are to be based on reductions in readmission rates and hospital infection rates. So, to make the system less intensely used is to make it better, in terms of productivity in health care. To use strict numeric terms in regard to volume throughput might therefore miss some of the really critical health issues on which productivity ought now to be measured.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Absolutely. My hon. Friend makes an important point. It is extremely difficult to measure productivity, particularly in the social or public sectors.

Another measure of productivity—which Opposition Members, especially those on the Conservative Benches, never cite, but which I always have to cite in Budget debates—relates to our work force, and its participation rate of 75 per cent. There is indeed a gap between us and France in terms of output per person-hour. That is true. It is quite a significant gap, although we have halved it in recent years, as the Chancellor pointed out in his Budget speech. However, in terms of output per person of working age, there is almost no gap at all.

Economists have traditionally used output per person-hour as their primary measure of productivity, for understandable reasons; it is an extremely valuable tool for a business that is planning investment, for example. For society, however, it is much more important to look at the output per person of working age, because that tells us not only about relative measures—as productivity per person-hour does—but about the absolute size of the pie to be divided up for public services according to the national wealth. Productivity per person of working age is an extremely important measure, given our labour force participation rate and our achievements so far on skills, about which I shall say more later.

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells

An even more important measure is the rate of growth of productivity, not just its absolute level. In each of the three terms of this Labour Government so far, the rate of productivity growth has fallen.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am grateful to the hon. Gentleman for that intervention, because it illustrates the dividing line between his party and mine. Of course the rate of growth in productivity is important. I think that he said that it was the most important measure—he will correct me if I am wrong—but it is not the most important one to me. The most important thing for me is the size of the pie that we can divide up, as equally as possible, in our society. That is to do with the way people live, and their quality of life. To say that the most important measure of productivity is output per person-hour and to point to the slowdown in the rate of its growth are of course important, but that is not the most important thing to me. Those are dry statistics; I want to talk about people and the size of the social pie.

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells

Far from being dry statistics, these measurements go to the heart of the matter. I am not interested in the pie as it stands at present. I am interested in the future pie, and the growth in our productivity—compared with that of our competitors—determines the size of the pie to be divided up. The fact that the hon. Gentleman is concerned only with the past and the present is a poor comment on his ambitions for our country.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I did not say that I was just concerned with that issue. This is to do with where my primary concern lies; that is all. Of course I am worried about the future. I also worry about the present more than the hon. Gentleman does, because it is my Government who have to deal with the present. It is his prospective Government who might have to deal with the future, although I hope not for a long time.

We need to bear in mind that, after nine years of this Government, we have 2.4 million more people in work, two thirds of them in the private sector. That is having a huge effect on people's lives. It does not mean that every problem is solved, but it is a major positive for our society that is not oft remarked on by Opposition Members—

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

But perhaps the hon. Gentleman is about to do so.

Photo of John Bercow John Bercow Conservative, Buckingham

I am very worried about the drift of the hon. Gentleman's speech. He said a few moments ago that it was notoriously difficult to measure productivity in the health service. He then agreed that the rate of growth of such productivity was important, although not necessarily the most important factor. If productivity is difficult to measure, it is difficult to see why he would regard it, and particularly its rate of growth, as so important. May I put it to the hon. Gentleman that the advances in medical science are such that there will always be a new queue whenever there is a new cure? That increases, rather than diminishes, the importance of productivity growth, as we must ensure that we get maximum value for money for the finite resources that will be available.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

This will be my last word on this issue and I hope that hon. Members will forgive me if I do not give way further on health service productivity. The hon. Gentleman says that there will always be a queue. With the advent of statins, there is no longer a queue for heart surgery, but there may be a queue down at the pharmacy for a few extremely important pills. Do we therefore say that heart surgeons are less productive because they are carrying out less surgery? That might be so, but I am not going to continue on the NHS.

We need to focus on the 2.4 million people who are employed, two thirds of them in the private sector, and on the quality of their lives in terms of public services and income, because obviously income, the size of the pie and growth in the pie are important. The relative position of the United Kingdom, a statistic mentioned by the Chancellor—which is not often remarked on, and perhaps not at all today—was that this country's gross national income per capita when we came into Government was seventh in the G7 group of advanced industrial countries. We are now second out of seven. That is not to say that everything is rosy, but it looks like a darn good trend to me. As far as I am aware, that change is not just because the income of the other five has suddenly been cut, but because it has not increased as much as ours. That is extremely important and, again, is connected with the labour force participation rate. I will give way on this point, before I move on to more micro-matters.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I thank the hon. Gentleman, who has been most generous in giving way. Earlier, he mentioned points about the Labour Government's record that do not often get the praise that they deserve. Will not he accept that when the Labour Government came to power, the UK economy was the most powerful in Europe, it had changed and had already seen significant improvements in the number of jobs? If he could accept that, we could at least view his arguments in a balanced way. [Interruption.]

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

Order. We must not have shouting from sedentary positions when a Member is making an intervention.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I will go so far as to say that some economic indicators, including falling unemployment, were positive on 1 May 1997. However, the suggestion that at that point the United Kingdom was somehow the economic powerhouse of the European Union—or the most powerful economy—would be questioned by 60 million west Germans, and probably 80 million Germans. I stand to be corrected, but many people would agree, without picking any other examples, that the German economy in May 1997 was stronger than ours. Our economy now is stronger than the German economy—because our economy has come up, not because the German economy has come down.

We have been talking about productivity and I very much welcome the statement on page 15 of the Budget 2006 "Budget Notes", dated 22 March, in relation to amendments to research and development tax relief schemes. It is important to companies in the west midlands and, I hope, to all right hon. and hon. Members, to encourage more research and development and consequently, one hopes, investment in our economy. Paragraph 2 states:

"In line with a key recommendation of the Cox review"—

I do not know who Cox was—

"the Government intends to provide additional support to firms with between 250 and 500 employees through R&D tax credits, subject to the outcome of state aid discussions with the European Commission."

That is extremely helpful. In previous years, the Government have gradually extended the scope and amount of R and D tax credits, which has not yet had as positive an effect as one would hope, but it is having a positive effect. R and D is creeping up, I would like it to increase further and that segment of companies with between 250 and 500 employees could be a real driver of that increase. I hope that that helps manufacturing around the country, especially in the west midlands.

To move on to the green agenda, I declare an interest as a member of Greenpeace since, I think, 1975. I have a feeling that I am also a member of Friends of the Earth. I will declare that because I think I am a member, although I am not sure.

I am pleased that the Government introduced, and are sticking with, the climate change levy. I am saddened that the Conservative Opposition seem still to be wobbling about it. In fact, as far as I can tell—perhaps a Conservative Member will elucidate—they seem still to be against it. Despite difficulties in what might be called the fine print, I think that it has had a positive effect.

Mr. Letwin, the former shadow Chancellor, said in January that the climate change levy had not been a success. That followed his statement in July 2000:

"We regard the climate change levy as an aberration that should never have been brought before Parliament."—[Hansard, 18 July 2000; Vol. 354, c. 322.]

He was very clear about that. I think that he was also very wrong, and I urge the Government to stick with the climate change levy. It is a pity, however, that there has been no change in airport passenger duty. I think that we should continue to push within the European Union for some kind of excise duty and also duty on aviation fuel.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

I thought that I had better intervene before the hon. Gentleman stampeded over his own Government's policies. The Government's energy review is currently under way. I am stunned that they have already concluded that the climate change levy should remain, although the review has not been completed.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The climate change levy is in place and it is accepted by many commentators, although perhaps not by the hon. Gentleman, that it has had a positive effect. There may be individuals, and the hon. Gentleman may be one of them, who think that the positive effect has not been sufficient to outweigh the negatives, but I think that it has had a positive effect and so do my Government. It is possible that the energy review will come up with a better way of achieving the objectives, but for the moment the Government—rightly, in my view—are sticking with the climate change levy, which many of us think has worked.

On green issues, I welcome the creation of the national institute of energy technologies, which will be in partnership with the private sector. According to page 151 of the Red Book, its purpose will be—unfortunately this includes a split infinitive—

"to better leverage the substantial public sector funding of energy research".

I think that that is very good.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Well, we are doing it. I would have liked it to be done earlier. I wish that Governments of all political colours had taken energy issues a little more seriously, particularly the issue of so-called alternative energy sources. However, we are doing it, and that is the mark of a Government who are listening and prepared to act.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

The Government set clear targets. They accepted targets under Kyoto, although it is questionable whether the country will meet those minimal targets. No commentator thinks that there is any chance that the country will meet the target of a 20 per cent. reduction in 1990 levels of carbon dioxide. Does the hon. Gentleman agree that the small—if, in environmental terms, arguably positive—role played by the climate change levy should not be used to excuse the Government's failure to lead a major campaign on energy efficiency, to listen to the various reports of the Environmental Audit Committee and others over the years, and to transform the country's performance? If this is the biggest issue facing the world today, why have the Government failed so completely, and why do Friends of the Earth say that today's Budget statement will do nothing to tackle the challenges that we face?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Every little helps, which is why the Chancellor has announced what I hope is an initial fund of £50 million for microgeneration. That is how it works with energy: every little bit helps, whether people are driving fewer miles and cycling more, whether we have microgeneration, or whether we have a few more windmills. Hon. Members need to grasp that we are talking about a whole mosaic of measures. Any one measure will not sort everything out; we need an array of measures. That is what the Government are providing and what the Budget has provided.

Investment in energy efficiency for buildings, both business buildings and homes, is part of that array of measures. We have buildings—this applies, I have to say, to parts of this building—that are leaking energy all the time. Lights are left on, and there is insufficient insulation. We as a society need to invest in energy efficiency in the public sector, in the private sector and in our own homes. We are starting to do so and yes, I wish that we had done more earlier, but one has to have priorities in government and they were sorting out schools and the NHS, economic growth and so on. We have done pretty well on those and now we are moving on to energy matters.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I will not give way because I must make some progress; I hope that the hon. Gentleman will forgive me.

One area where the Chancellor has made some progress in this Budget, although not nearly enough, is vehicle excise duty. There is a new band for vehicles emitting more than 225 g per kilometre of carbon dioxide, the duty for which will be £210. As I say, that is not nearly enough. In, for example, two to three years time, we should introduce a swingeing regime for such vehicles, although I stress that it ought to apply only to newly purchased ones. At one end of the spectrum is the Toyota Prius, which produces 104 g of CO 2 per kilometre. At the other is the Lamborghini Diablo, which produces 520 g. A Ferrari 575 Superamerica produces 499 g. I am not an expert on cars, but I suspect that the Ferrari carries only two people. A Toyota Prius carries five people and a Toyota Aygo, which produces 109 g of CO 2 per kilometre, carries at least four and may even carry five, although I do not know whether it has five seatbelts. One of the Maseratis produces, I think, 525 g of CO 2 per kilometre. We should have swingeing taxes on such vehicles.

Photo of Richard Younger-Ross Richard Younger-Ross Liberal Democrat, Teignbridge

I hate to disillusion the hon. Gentleman, but someone who can afford a Lamborghini Diablo is unlikely to be put off by the rate of duty, whatever it may be. People in rural areas who use four-wheel drive vehicles will be hit by this new band, particularly struggling farmers. Under the proposal, they will pay more even though many such people are on very low incomes. Does the hon. Gentleman agree that the Chancellor needs to look at providing extra relief, so that those for whom the use of four-wheel drive vehicles is essential—I am not talking about non-essential use—are not penalised?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am not an expert on rural areas—it may not surprise the hon. Gentleman to learn that in my constituency, periodically there are a maximum of 35 sheep on one very small part-time farm—but so far as I am aware, those for whom the use of 4x4s is essential, such as farmers, purchase red diesel, which is written off for tax purposes as a business expense. The Chancellor may be considering such a rural adjustment—I would not rule it out—but it is not a reason to back off from swingeing increases. I think that the hon. Gentleman broadly supports the direction of travel, to use the modern vernacular, of the swingeing increases that I am proposing.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman said that such a rate of duty would not bother the owner of a Lamborghini Diablo, but it depends how swingeing it is. I am not seriously suggesting that it should be, say, £80,000 if the car in question is rated above 500 g. However, a duty of £1,000 to £2,000 would affect the resale value of some of these vehicles—perhaps not very fancy sports cars such as Ferraris—and that might influence people when they consider purchasing them. A Range Rover 4.4 V8—which is made in the west midlands by Ford, of course—produces 389 g of CO 2 per kilometre. That is a ridiculous figure. I suspect that few farmers use a Range Rover 4.4 V8 for anything other than taking their daughter to the gymkhana. Instead of introducing a rate of £210, the Chancellor should have opted for a considerably higher one.

I was going to discuss globalisation, but I shall leave that to others as I have detained the House for long enough.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I welcome the points that my hon. Friend is making about vehicles that are far more efficient in terms of reduced carbon emissions, but does he recognise that Britain also needs to play catch-up with other parts of Europe? France and Italy have already developed prototypes of vehicles that run on compressed air, which are capable of doing more than 100 miles to the tank and more than 100 km per hour. Does he agree that there needs to be a paradigm shift in how we think about low-impact transport? A punitive approach to what happens now is not enough—we need to be proactive in transforming our thinking about making lighter the footprint that our transport needs leave on the planet.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend is absolutely right, but the Chancellor cannot use VED directly to introduce compressed-air cars, or whatever. What he can do is use R and D tax credits to that end, as I have mentioned. The UK is a world leader in automotive design, and although British-owned companies may not be great at building cars, our car industry is very big.

I think that Formula 1 lies at the rather silly end of the spectrum but, although it uses a lot fuel, it also produces a lot of technological development. I hope that some British companies are developing techniques involving stuff like compressed air, hybrid engines and hydrogen. That is going on in other parts of the world and I hope that the R and D tax credits will help.

In conclusion, the Government have been in power for nine years, during which time we have moved to what many people recognise is a more Scandinavian model of society. Britain is now more generous and tolerant than it used to be. True, people pay higher taxes for better public services, but I, for one, believe that that is a jolly good thing. The pot is not limitless and taxes cannot go on rising forever, but the increase in employment means that more people now pay tax—even though, as my right hon. Friend the Chancellor pointed out, tax credits and other provisions mean that some do not pay the full net amount.

Today's announcement of free national off-peak bus travel for pensioners was slipped in near the end of the Budget speech and is a fantastic measure. It will improve the quality of people's lives, which should be one of the purposes of any Budget. A huge amount of new money is to go into education, and I was especially pleased with what my right hon. Friend the Chancellor said about further education, although I wish that we could do more to fund adult courses for those who have gone beyond level 2. I know that my hon. Friend the Economic Secretary takes a special interest in FE, but the Budget will make a difference in all the matters that we talk about—education, skills and giving every child a chance. It is designed for the future and as a way to help the young people who will look after us in our old age.

I salute what the Chancellor has done today, especially in respect of people-centred policies and education and skills.

Photo of Peter Viggers Peter Viggers Conservative, Gosport 3:57 pm, 22nd March 2006

It is a truism in Treasury circles that it is very difficult to work out at first hearing the true shape of a Budget, but this Budget is more difficult than most. With this Chancellor, of course, one has to wade through the glutinous self-congratulation with which he always surrounds himself before one can work out what he has actually done.

One thing is already clear—that the expenditure that he has announced is enormous, and that borrowings will be vast. Over the next few days, the provenance of that borrowing and how the money will be raised will be the subject of much scrutiny. Rob Marris mentioned PFI schemes, and said that any such approach in the hospital and NHS sector would be an investment. I do not agree: the original idea behind PFI was created some years ago by the previous Conservative Government to bring the skills of the private sector into investment. This Government have lost the thread in respect of PFIs, and instead use such schemes purely for the purposes of off-balance sheet accounting.

One of the first things that one learns in the Treasury is that it does not distinguish between capital and income. A lot of work remains to be done before we know exactly where this Budget will lead us. However, I believe that this Chancellor has done three things right—he has not joined the euro, he has created the Monetary Policy Committee to control interest and inflation rates, and for a couple of years he followed the guidelines set out by the former Chancellor, my right hon. and learned Friend Mr. Clarke.

The announcement that the Chancellor made today about giving some measure of independence to the Office for National Statistics may need to be added to the list of the three things that he has done right. In future years, I may well admit that he has done four things right. However, I maintain that he has done everything else wrong. How can that be? He has done it wrong because he is a socialist, his basic philosophy is flawed and he cannot resist social engineering. He does not understand business at all.

Does that matter? I will tell hon. Members a short story. I saw a cartoon once that showed two Egyptians in the desert looking at an architectural drawing of a pyramid. One Egyptian was saying to the other, "I know it may exactly agree with the plans, but I've got a funny feeling that there's something wrong with it somehow." What is wrong is that the pyramid is standing on its apex—it is upside down. We can think of the whole of the top of that upside-down pyramid—that huge structure—as being the non-productive parts of the economy. Those parts may be very valuable, and the people may be nice people doing useful jobs, but they are not productive. I am talking about all pensioners, all children, the armed forces, the civil service, Members of Parliament—all non-productive. At the apex—the tiny triangle at the very bottom of the pyramid—are the people who are actually producing for this country. Those are the areas in the private sector. The private sector should be cherished. It is crucial, unique and essential. The present Chancellor of the Exchequer and the present Government do not understand the need to cherish the private sector.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Will the hon. Gentleman confirm that he just said that the armed forces and the civil service, per se, are not productive? Will he confirm that the business community said for years that the one thing that it wanted more than anything else was a stable environment in which to do business? Is it not true that this Government have created the most stable year-on-year environment almost in the history of our economy?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I will not allow the Minister to put me in the position of criticising the armed forces.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

Absolutely not. I yield to no one in my admiration for the armed forces, in which I have served, unlike most members of the Government. The fact is that the armed forces are not producing an extra benefit—they are not creating wealth for this country. All the people who are serving with great courage in Iraq and elsewhere are not producing wealth for the country. That is the critical point.

Photo of Kevan Jones Kevan Jones Labour, North Durham

I am listening very carefully to the hon. Gentleman. Is he really saying that if a part of the economy is not productive, it does not make any contribution? I have to totally disagree with him in terms of the armed forces. Surely by trying to protect the security situation in different parts of the world, they are helping the economy not just of this country, but of the parts of the world in which they are serving?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

My point—I am sure that the hon. Gentleman will try to drive me away from it, but I will not let that happen—is that it is the private sector that enhances the wealth of this country, which other sectors do not do. One simply cannot say that service sectors, or those working for the Government, are enhancing and increasing public wealth.

Several hon. Members:


Photo of Peter Viggers Peter Viggers Conservative, Gosport

I will not give way again, because the point is quite clear. Some Members may not like it, but the fact is that the private sector enhances the wealth of the nation, which other parts of the economy do not do in the same way. This Government and this Chancellor of the Exchequer have done the opposite of cherishing the private sector. That is not surprising, I suppose: they are an array of barristers, lecturers, social workers, research assistants, charity workers and a Marxist lecturer, who, of course, is at defence. They have all been dependent on the state and the public sector all their lives.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

He just insulted charity workers.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

Dependency is the key to this Government's—[Interruption.]

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

Order. We must not have these comments from a sedentary position, which do not contribute to the debate at all.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

Labour Members may not like the points that I am making, but they are true. The Conservatives recognise the unique significance of the private sector, whereas the Government are united in the belief that socialism and the public sector can solve every problem.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

No, I will not give way.

Under this Government, regulation and controls have increased. The size of the public sector has increased dramatically and many of my constituents point out that the advertisements for public sector jobs are offensive—including obesity advisers and five-a-day co-ordinators. The jobs section of The Guardian paints a very sad picture of the way in which public money is being spent, not all of it wisely.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Will the hon. Gentleman clarify his remarks? Does he value in any way the contribution that public services make to the well-being of our society and the strength of our economy? He attacked a range of people and said that we were a collection of charity workers, as though working for a charity is making a negative contribution to society. Whom does he value in our society?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I understand why the Minister is trying to blow me off the point, but the fact remains that there is a complete difference between those who do not enhance the wealth of the country and those who do. That does not mean that those in the non-wealth producing sector are less valuable as individuals. Of course they are not. To say so would be to talk down ourselves, nurses, doctors, the armed forces and teachers, all of whom are among the most worthy people in our community, but they are not the wealth-creating members of it. The Minister and his colleagues are proving my point and demonstrating that they do not accept that there is a special virtue in the wealth-creating part of the economy. I shall move on.

Under this Government, the tax burden, excluding North sea oil revenues, will be 37.6 per cent. of GDP this year, 37.8 per cent. next year and 38.1 per cent. the following year, which will be the highest rate ever for taxation. Yes, there were 83 per cent. income tax rates under previous Labour Governments, but that does not mean that the rate of taxation overall then was higher than the rate of taxation now. We are being taxed on taxed income. The Cardiff Business School says that as a result a basic rate taxpayer is paying £48.50 per £100 of income in tax and a higher rate taxpayer is paying £57.10 per £100 of income. Each individual receives an income, on which he pays income tax and national insurance. With the net amount of his taxed income, he then pays sales taxes, VAT, fuel duty and excise duties. Out of his taxed income, he also has to pay fixed charges such as the council tax and television licence. Eventually, if he prospers sufficiently, his next of kin will pay inheritance tax of 40 per cent. on his estate. We are taxed on taxed income, and that is why the tax rates are so high.

High tax rates bring their own problems. We have heard reference to the Chancellor's impost on pension funds, and I have declared an interest in relation to pension funds. He taxed pension funds some £5 billion a year—I expect that he would maintain that it is £3 billion net—in his first Budget in 1997, and that has led indirectly, and together with other factors, such as increased longevity and the weakness of the stock exchange, to the closure of final salary schemes and the crisis in the pensions industry. The Chancellor caused—or, at least, contributed to—that problem.

Similarly, the increased taxes of £6 billion on North sea oil will, in due course, lead to higher prices at the petrol pump. During evidence to the Treasury Committee, the Chancellor denied that his duty on North sea oil will have the direct result of higher prices at the petrol pump, but it is true. His taxation of pension funds has affected pensions, and his taxation of North sea oil will affect petrol prices. The Chancellor does not actually believe that his increased taxation will have an impact on petrol prices at the pump or on pensions; he does not realise the implications of his actions.

The Chancellor is guilty not only of high taxation, but also of fiddling—he loves fiddling with people's lives. The tax credit system, which is much vaunted by the Labour Government, has done enormous damage, as well as good. The Government do not realise that although a family in modest circumstances will be grateful for a tax credit of £500 or £1,000, if the Government try to take back that amount it causes a major crisis in the family. The benefit of giving families money is far outweighed by the damage done when the Government try to recover it.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Is my hon. Friend aware that due to the failure to implement the tax credit system, some of my constituents had to rely on handouts of food parcels from citizens advice bureau staff—[Interruption.] Labour Members say that is not true. If the Minister would like to visit my constituency, I will introduce him to the CAB staff who were carrying food parcels in the backs of their cars as a direct result of the Government's failure to implement the system—[Interruption.]

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

Order. We cannot have this. If the Minister wants to intervene, he must stand at the Dispatch Box and intervene in the normal way. We must not have continued comments from a sedentary position.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I am not surprised that the Government do not like what I am saying.

It is quite difficult to obtain statistics about tax credits and of course statistics have a tendency to go both ways. The Treasury Committee has been carrying out an inquiry into tax credits.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

Not at the moment.

At a Sure Start centre in my constituency, I talked to the 20 young mothers who were there. I asked how many of them had had some dealings with the tax credit system and all 20 put up their hand. Then I asked how many of them had had a problem with tax credits and 14 put up their hand. The Minister finds that amusing, but 14 of the 20 said that they had had problems with tax credits. In discussion, it became clear that my suspicion was true: the damage done when money is clawed back from families on modest incomes—

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I shall certainly not give way to the hon. Gentleman, who has only just entered the Chamber.

The damage done by clawing back money is far greater than the benefit that was originally given. The Government simply do not understand the strain and difficulty that that causes.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

No, I want to move on to the Budget judgment—the hand on the tiller. What is the Chancellor's judgment, as seen in the Budget?

The Chancellor should be judged not by his own assessment but by the assessment of others. I have looked at assessments made by the International Monetary Fund, the Organisation for Economic Co-operation and Development and the European Commission of the current state of the UK economy. Paragraph 14 of the European Commission's assessment, on 22 February—before the Budget of course—states that it would be appropriate for United Kingdom to

"ensure that the deficit is brought below 3% of GDP by 2006/07 at the latest in a credible and sustainable manner".

Paragraph 9 warns:

"Given existing policy commitments, reducing the expenditure to GDP ratio implies significantly slower current expenditure growth, probably particularly marked in some areas."

The European Commission is warning that it will be difficult for the UK Government to return within the 3 per cent. limit. The Chancellor has done the opposite in his Budget. He appears to have decided to spend and to borrow—the very opposite of what the European Commission recommended.

To refer again to the European Commission document, paragraph 7 says of the UK economy:

"The primary balance, estimated as a deficit of 1 per cent. of GDP in 2005/06, returns to balance in 2008/09 and reaches a surplus of ½ per cent. of GDP by 2010/11. The improvement in the nominal balance is mainly driven by a pick-up of revenues, partly due to the projected cyclical recovery of the economy".

That refers to an absolutely classical economist's J-turn. The European Commission is saying that the situation in the United Kingdom will get a little worse, but it will get better—a typical J-curve.

The Chancellor, having been warned that he will come very close to the 3 per cent. limit—in fact, he is over it in certain ways—has taken the opposite view and decided to expand expenditure. He recognises that there are problems, but he has decided to trade his way out of them. It is certain that there will be curbs on expenditure, of which we heard nothing in the Budget, and that there will be higher taxation, which is inevitable, and that that will lead to lower productivity.

Under this Government, we have already fallen from fourth to 13th in the authoritative world productivity table produced by the World Economic Forum. We cannot afford to lose out in the productivity table; we need to consider the competition. Let us look just at China. In China, 26 cities are installing underground railways. China wants to build 50,000 miles of three-lane highway in five years—that is the same size as the American highway network, which took 40 years to build—and it is building 30 nuclear power stations. The competition is ferocious; we should be facing up to it—instead, with this Chancellor, we have more tinkering, more micro-management, more promises and more taxation: more of the same, and it will not help.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington 4:17 pm, 22nd March 2006

I clearly welcome much of what the Chancellor has said today about investment in public services and the development of a stable economic growth path. The Chancellor set the scene by referring to the economy's fundamentals and the balance between borrowing and taxation, which has been often mentioned in the debate so far, and competitiveness and elements of equity in the distribution of resources in the economy. I am grateful to him for that, because it was an excellent way to set up the debate for the next few days.

There are important factors to take into account in describing Britain in 2006 and in the economic policies that the Government must address. I want to set the scene somewhat differently by describing other elements in the equation that depict life in Britain today and that need to be addressed. I suggest that the 2006 Budget must place as much priority on addressing those issues as on those identified by the Chancellor in his macro-economic display today.

The Chancellor set his scene by describing Britain as viewed from the Treasury, the Bank of England, the City and, in my opinion, slightly too much as viewed from the CBI conference hall, but I want to describe Britain as we see it on the streets and in our communities—indeed, the Britain that virtually every Member of Parliament witnesses in their weekly advice surgeries and in the daily volume of their correspondence. Those are the institutions and people whom we meet, and those are the issues and the challenges that we face as MPs in our constituencies.

I regret that the Budget did not contain some measures that I would have welcomed today, as they have been debated for a considerable time not only in the Labour party, in particular, but across the country. I should like to outline some of those measures, and perhaps we can enter into a discussion in the coming months about how we can address them. I congratulate the Chancellor on the undoubted progress that has been made in lifting the poorest pensioners out of poverty, but we must bear in mind the fact that, first, pensioner incomes remain relatively low, with annual assaults, particularly from energy and fuel charges, on those limited incomes. The basic state pension stands at only 15.6 per cent. of the average wage at the moment.

Secondly, the Chancellor's strategy has increased the proportion of pensioners on means-tested benefits to just over 50 per cent, but each year £1 billion is unclaimed. I accept what my hon. Friends have said, and I have been working with the Pension Service in my constituency to try to ensure that benefits are claimed. I pay tribute to the Pension Service for its work on the ground. I also pay tribute to the support it has had from the Public and Commercial Services Union. Advice has been given and there has been co-operation with the union, and the service has worked with the union towards flexible working on the ground.

The Budget does not address restoring the link with earnings, which was recommended in the Turner report. Pensioners thus will still fail to share automatically in the growth and wealth of the country and the benefits of the Chancellor's policies on economic stability and growth. My straightforward recommendation is that we raise the basic state pension to the guaranteed credit level and restore the link with earnings. Unlike other hon. Members, I do not have a calculator that runs to trillions, but House of Commons Library figures suggest that my recommendation would cost £7.3 billion, which would be a fairly minimal sum to lift a large number of pensioners out of poverty and enable them to share the future wealth of the country.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Is my hon. Friend aware that, according to the Department for Work and Pensions, pension tax relief has almost no effect on people's savings for pensions because they would save anyway. Almost all the tax relief goes to the wealthiest in our society, and it represents £18 billion a year of forgone tax revenue, which might go some way towards paying the £7.3 billion for his modest proposal.

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

I am dealing with expenditure at the moment, but I will talk about the income needed to resolve these matters in due course. It has become an annual event that we prepare an alternative Budget on behalf of Labour representation in the socialist Campaign group and the left economic advisory panel, which is our shadow form of the Bank of England advisory committee. I want to outline several proposals that the Government might wish to consider in due course. The Government took up a number of the issues that we raised in previous alternative Budgets.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

We have a listening Government.

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

A listening Government, but they are perhaps not as attentive as possible.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I would like to lend the hon. Gentleman my support, as would members of the Braintree pensioners action group. It is important that we re-establish the link between pensions and earnings. What is the hon. Gentleman's view on abolishing means-testing completely, which the Chancellor promised back in 1993?

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

There has been a long debate about means-testing over the past 60 years. Any Government will have to ration resources in some way. The best book to read on the matter was produced by Enoch Powell in the 1960s. It addressed health and welfare benefit reform. The language of Bevan is about socialism and the language of priorities, and Enoch Powell demonstrated in his own terms that there will always be a need for any Government to have some form of means-testing, but our job in a civilised society is to try to minimise it. I am grateful for the hon. Gentleman's support, but given his past calculations I am wary of his mathematical ability on such matters.

Individual Members of Parliament must address elderly care. The main worry for many pensioners, apart from their income, is what will happen to them if they need care. They fear losing their homes to pay for such care, and the problem has been graphically highlighted by recent television programmes. In addition to restoring the link with earnings, the Government should thus consider abolishing all care charges, which, according to House of Commons Library figures, would cost £4 billion. That would give pensioners security in the future, but we should go further and consider again the high prescription charges that are levelled against pensioners and others. Abolishing prescription charges would cost the relatively minimal amount of £0.42 billion.

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

Yes. I did not mean to confuse my hon. Friend, who is attentive on all such matters.

At the other end of the age spectrum, we must also applaud the impact of the Chancellor's policies on reducing child poverty. However, we need to acknowledge that the Government have missed their target of taking a quarter of all children out of child poverty. They have managed to do that for 17 per cent. of children, but we have missed our target on the time scale that we set. That is not to carp. To get this far is a major achievement. However, we have missed our target by 250,000, and those children remain in poverty.

The definition of poverty is extremely limited. Many children living on the margins of what is defined as poverty do not enjoy the lifestyle that we would want for our own children. That is just an aside; I accept that we need commonly agreed mechanisms by which we measure poverty, but we also have to accept that the definition sets a relatively low target.

There is also the problem of non take-up of means-tested tax credits, high marginal tax rates and disincentives to work, which are associated with all means tests. We have debated that. It is why I propose a simple solution to tackle the failure to meet the full 25 per cent. target. A £5 increase a week on child benefit would cost £3.4 billion. According to Treasury figures, it would initially lift 350,000 children out of poverty.

For young people, my continuing concern is that introducing tuition fees and scrapping maintenance grants has depressed a generation with the prospect of starting adult life with high levels of debt. Tuition fees also serve as a disincentive to study, and I worry about the drop-out rates from some of our colleges and universities, which in some instances has reached 25 per cent. For that reason, we need dramatic and radical action to restore confidence among our young people in staying on, especially young people from working-class backgrounds. Hence I propose wiping out all student debt at a cost of £8 billion and scrapping tuition fees at a cost of £2.25 billion, wiping the slate clean of an overhang from past policy mistakes.

Despite all the Government's successes in investing on a large scale in public services, there has been a failure to recognise the significance of the impact of poor housing and lack of housing on the poverty and quality of life of many of our constituents. When I was elected in 1997, 40,000 families were homeless in London. There are now 50,000. A large number of my constituents suffer from terrible overcrowding and insecure accommodation, and they are living in abysmal housing conditions.

Photo of David Taylor David Taylor Labour, North West Leicestershire

It is a real pleasure to hear the second shadow Chancellor outline the Budget that we may hear in years to come.

On housing, does my hon. Friend agree that two things would have been welcomed had they been announced today? The first is the restoration to local authorities of the power to build or acquire affordable housing. The second is to fund properly an option 4, which would allow local authorities that were good landlords to have their tenants stay with them, rather than being coerced away into stock transfers, PFIs and other dubious vehicles.

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

I shall move on to that proposed solution in due course. However, I think that all hon. Members consider housing to be a critical issue that the Government need to address. Poor housing conditions, overcrowding and homelessness impact on all aspects of the lives of our constituents. They impact on their health, the educational abilities of their children and their overall environment.

Recent Government statistics show that more than 100,000 families live in temporary accommodation, and the figure has doubled since 1996; 2.4 million of our homes are below the decent homes standard; 1.5 million people are on council housing lists; and 2 million households containing pensioners, children or someone with a long-term sickness or disability live in fuel poverty. Society overall, not just the Government, should be ashamed of those statistics.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Does the hon. Gentleman think that part of the problem with homelessness, particularly in many of our cities, relates to mental health care and that many homeless people have mental health problems? Surely we should be investing much more in mental health care so that we can treat those who are homeless and have mental health problems.

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

Mental health care issues clearly impact on homelessness. I have some involvement in dealing with those matters in my constituency. I compliment the Government, because for the first time in a long time we have had significant investment in mental health care in my area. Mr. Randall and I have opened new units in our constituencies. However, the key issue is not mental health but housing supply, repair and renovation. Unless we have a significant housing programme, we will not be able to tackle such matters, and they will have an impact—whether on mental health, families in poverty or children trying to get a decent education.

In response to a recent parliamentary question, the Minister for Housing and Planning said that it would cost £7 billion to bring all local authority homes up to the Government's decency standard. That would represent one of the best and wisest investments that the Government could make in tackling the housing nightmare that so many of our constituents daily face.

The Chancellor of the Exchequer today announced a new housing programme, which I welcome, but I have to say that it is not on a scale that will tackle the size of the need or the desperation. I urge hon. Members to examine the Shelter housing programme, which sets out the targets that the Government should be meeting year on year to tackle the plight in which many of our constituents find themselves.

To return to the point made by my hon. Friend David Taylor, success in delivery of housing improvements and building programmes can be achieved only if the Government work in partnership with local authorities, adopt the Labour party conference option 4 policy, end the discrimination against local authorities and invest directly in a large-scale council house building programme. I can find no other vehicle that could undertake the scale of investment and delivery that we need in this housing crisis.

Finally, on the expenditure side of my Budget equation, I suggest that the Government acknowledge the £800 million deficit that the NHS is facing. My primary care trust is facing a deficit of £30 million, which is unmanageable. No matter how good the management, we will not be able to tackle that in the next 12 months. It is clear from my experience that that has arisen from the rigidity and dominance of the national target setting approach to service improvement, which has undermined local management and local decision making. Therefore, central Government need to review not only local management but the central Government role. In addition, we need to recognise that the £800 million gap is not bridgeable in one year. My proposal would be to write it off and to allow the PCTs to start again in partnership with central Government.

The sum total of those Budget proposals is about £35.37 billion, give or take the odd £100 million. I mention that because my hon. Friend Rob Marris intervened on me last year to see whether the addition was correct—I hope it was.

Turning briefly to how we should raise the revenue to fund this programme, I welcome today's statements by the Chancellor of the Exchequer that we will start looking at tax avoidance. I regret that in the merger of the Inland Revenue and Customs we lost 3,000 staff, but I compliment the new department's work on corporate tax avoidance. Let us consider the proposal made by the Tax Justice Network. Corporate tax avoidance on a scale of £9.2 billion could be tackled, and could reap an income to be invested in the future of public services and in reducing poverty.

I am delighted that a number of years ago the Chancellor introduced windfall taxes to tackle obscene profits in certain sectors of the economy. I urge him to revisit that policy and look at two particular proposals. First, a windfall tax could be imposed on the bonuses given before Christmas to many people who work in the City. We have heard that the stock market is having a difficult year, but national account data show that output in the financial sector has recently increased by 5 per cent. year on year. It is just shy of the 5.3 per cent. that is the highest recorded increase since the 1990 boom under the Lamont chancellorship. The bonus pool for investment bankers is estimated to be £7.5 billion, and some of those profits were distributed before Christmas on a scale not previously seen. Indeed, it is believed that 3,000 mangers could receive a £1 million handout. A windfall tax on 50 per cent. of a City bonus is therefore justified, and would bring in £3.75 billion.

Secondly, we must look at banks and oil, and we could impose a windfall tax on the incredible profits that energy companies have reaped recently. BP, for instance, had a profit of £11 billion or 25 per cent; Shell, 30 per cent.; and Centrica, 11 per cent. Of the banks, Barclays had a profit of £5.28 billion or 15 per cent.; Lloyds TSB, 10 per cent.; and the Royal Bank of Scotland, 21 per cent. The Chancellor has introduced windfall taxes before, and he should do so again on the same scale. The level of profits that triggered the previous windfall tax has been exceeded by those companies, and a new windfall tax could bring in £6.10 billion.

Photo of David Taylor David Taylor Labour, North West Leicestershire

In his list of areas of the economy where unjustified profits have been made, will my hon. Friend consider including companies such as Laing, which is the midwife to many private finance initiative projects? Ten days or so ago, it announced that its so-called PFI investment quintupled in a relatively short period and that its profits had increased by 43 per cent. The income stream that it received from those projects was twice the base rate, so it is no wonder that 60 acute NHS trusts, to which he has referred, have commitments to PFI payments that exceed 10 per cent. of their revenue. Does he not agree that that is only going to get worse?

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

I regret that the Chancellor appears to have launched a new PFI initiative.

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

That is a significant roll-out of PFI. In the past, PFI schemes have wasted resources, and companies have been guilty of exploitation. In many cases, they did not deliver the goods or provide the public services required. We all have experience of such projects in our constituencies. In my own constituency, a new PFI school was imposed on us. Every year, the school has a deficit that it must make up. Jarvis was the PFI contractor, so when it was threatened with bankruptcy we had to set up a telephone tree in case we had to occupy the school to prevent the company from removing goods. In addition, kids in the local community cannot afford most of the sports facilities provided at the school via Jarvis, so the facilities stand idle.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

Does my hon. Friend accept that his constituency was not alone in being saddled with problems after projects were administered by Jarvis? Will he confirm that in the year when the company's share price has collapsed it paid its executives a bonus of £807,000, which appears to be a reward for failure?

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

There are numerous examples. I refer hon. Members to the work of Alison Pollock and to the publications by Unison in recent months, which contain example after example in the public services, health and education where PFI has been used to exploit the public purse, has failed to deliver and has delivered large bonuses and profits to individual company directors. That is why I regret that the Chancellor is going along that line. I would welcome a Government inquiry into PFI, which would probably echo the work done by the Public Accounts Committee on individual PFI schemes, which has demonstrated their lack of deliverability and cost effectiveness.

To balance our books, I refer to what was Labour party policy—that we should reduce our defence expenditure to European Union average levels. That would bring in £6.3 billion. In line with my views, which are shared by a large number of colleagues, withdrawal from Afghanistan and Iraq would produce £1.3 billion.

On income tax, we must consider the restoration of higher income tax levels for those earning more than £60,000, graded up to £100,000 and above. Figures produced by the House of Commons and recommendations from the left economic advisory panel suggest that we could have an income tax take of an additional £11.2 billion.

Overall, that would provide us with an expenditure of £35.37 billion and an income of £37.85 billion. Some of that expenditure would be one-off. The gap between one-off expenditure and ongoing income is about £9 billion. I refer to the proposals made by others to build on the Chancellor's message today that we need a huge investment in an environmental programme to ensure sustainability and tackle climate change.

I regret that today we have not made progress on aviation tax. I accept that there are constraints arising from international agreements, but, as we have demonstrated in previous debates in the House, that does not prevent us from moving on with regard to UK fuel duty and it does not prevent us from increasing passenger duty. I know that my hon. Friend Alan Simpson has ingenious ideas for controlling emissions through levies on emissions at particular airports. That is one way in which we can increase duties overall, which will enable us to launch a comprehensive programme to investigate wind power, solar power, marine power, renewables, biofuels and waste minimisation. It will also provide a significant injection of cash for investment in our public transport system.

The Chancellor of the Exchequer referred today to the need to control public sector pay. I wish as much attention was paid to the private sector, especially the City. If attention is to be paid to public sector pay, let us consider some of the levels of pay that public servants receive, which raise the issue of poverty pay. Let me give some examples. For an administrative assistant in the Department for Work and Pensions, the starting salary, which many people are on because there is high turnover, is £11,750. In the Department for International Development, it is £10,947. When we increased the minimum wage last time, we discovered that some of our own staff were on the minimum wage. In the Ministry of Defence the starting salary for an administrative assistant is £11,220.

Many of those jobs are based in London. I do not know how people survive on such salaries in city areas. If we are to look into public sector pay, it should not just be in terms of restraint. We need to develop Government policies for coherence in national negotiations and tackle low pay. We must recognise that many of those people are dedicated public servants, without whom we would not be able to deliver our policies or the Budget.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee 4:44 pm, 22nd March 2006

I remind the House of the business interests that I have declared in the register.

I hope that John McDonnell will forgive me if I do not respond in detail to the alternative Budget that he has presented. He was honest enough to attach prices to some of his programmes, although I am afraid that my calculator overheated, so I shall leave it to the Economic Secretary to respond in detail. However, I shall make one point: he has said that he is against privatisation, but if he looks at table C4 in the Red Book, he will see that the spending programme that the Chancellor is currently planning depends on some £35 billion of privatisation—£7 billion a year over the next five years.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

The hon. Gentleman calls them asset sales, but taxes are called "charges" for the same reason. The programme involves privatisation, and Qinetiq was the first of it. I wonder whether the hon. Member for Hayes and Harlington will troop through the Lobby in due course in favour of it.

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

There are a series of proposals in today's Budget that are asset sales, and I expect the Chancellor of the Exchequer to introduce individual pieces of legislation on them. If the hon. Gentleman checks the record on issues such as the sale of air traffic control, he will find that I have opposed each privatisation.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

I do not doubt that, and I was half implying that I expect to see the hon. Gentleman rebel again. I do not know what he would call the proposed sale of Scottish Water—is it an asset sale or is it a privatisation? If it looks like a privatisation and it sounds like a privatisation, it almost certainly will be a privatisation.

Before turning to the Budget judgment itself, it is worth reminding hon. Members about parts of the fiscal process since last year's Budget that the Chancellor did not mention today. In the middle of the existing financial year, the Chancellor rushed to the Treasury Committee to change the economic cycle's starting date. He then fiddled the end date of the cycle, and he also started to correct some of his mistakes in the pre-Budget report.

The Committee had already warned the Chancellor that because of earlier misjudgments, he was likely to have to put up taxes, increase borrowing or reduce spending. As hon. Members know, he did all three of those things in December: he put up taxes quite significantly, especially on North sea oil; he increased his borrowing forecast; and he cut spending by reducing the original envelope that he had sketched out for the comprehensive spending review 2007.

Today's Budget was largely set by the pre-Budget report. Those who follow our proceedings may be puzzled by how the pre-Budget report has evolved into the Budget itself—today seems to be a tidying-up exercise with an awful lot of flannel in between. Today's course had already been set, which is a shame, because the Chancellor could have done very much more.

As other Conservative Members have said, the taxation system is far too complex, too burdensome and increasingly unfair. The Chancellor could have taken the opportunity today to introduce serious proposals on simplification, to make cuts rather than increasing taxes and to introduce measures to make taxation fairer. There is much more to be done on simplification than the minuscule target of reducing the administrative burden imposed by Revenue and Customs by 10 per cent. over five years. For example, although I admit that the figures show that the administrative cost of processing taxes is higher in Holland than it is here, the Dutch are cutting that burden by 20 per cent. over four years.

Much could be done on matters such as simplifying statutory sick pay for companies and company car schemes, and there is a range of such measures that are simply an unnecessary burden on our businesses. Instead, the Chancellor has continued to make life more complicated for business and to increase the burden, although I was hoping that he would decrease it.

I have heard nothing today about the plight of council tax payers, who are shouldering an increasing share of the cost of local services. When the Government entered office, council tax payers had to shoulder some 25 per cent. of the cost of local services, but the figure is now well over 35 per cent. Year after year, council tax payers must bail out the inefficiencies of central Government.

On income tax, the effect of fiscal drag means that people of quite moderate means, many of whom are inside the public services that the Economic Secretary has defended so eloquently, have been dragged into the higher rate of tax. Some of those people are in the front line of public service, such as senior police inspectors and senior hospital nurses, who would never have dreamed of being described as "the rich". They have been dragged into the higher rate of tax by the Chancellor's failure to index allowances. It is perfectly possible for a Chancellor to choose not to index allowances to suit any one year's particular fiscal judgment. However, the cumulative effect of refusing to do so is that more than 1 million people, many of whom are on relatively low incomes, are being dragged into the higher tax bracket.

Business is paying more tax. Although, as the Chancellor reminded us, there have been welcome reductions in corporation tax, business is paying an increasing burden elsewhere. The key point about business taxes is that they are not stealth taxes—they are highly visible to business, and business is extremely mobile. I fear that white-collar jobs will follow blue-collar jobs out of this country overseas. The level and complexity of business taxation needs constant vigilance. We cannot stand still as other countries improve their competitiveness and the attractiveness of their tax regimes. I hope that the Chancellor will use his new all-star global advisory board to set himself a target of improving our competitive tax position. I have no magic bullet to offer him.

It is a mistake for people to think that the 15—not 10—years of economic growth that we have enjoyed were triggered by any single reform. They are not underpinned by any single employment Act, change in industrial tribunals, or change in tax rates, but by a raft of economic liberalisation and supply-side reforms that took place much earlier, in the mid-'80s. Because our competitive disadvantage is now slipping away, the Chancellor and the Government urgently need to look again at the supply side to ensure that our climate for business is as competitive as it should be. Instead, the Chancellor merely said that he would continue discussions on the rate of business tax and continue to review the level of national insurance against the level of taxation, and we are to have yet another report on business regulation. After nine years of the effects of this Government, the time for discussions, reviews and reports is surely over. It is time to do something serious about the situation.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

Does my hon. Friend find it intensely depressing that the mood among Labour Members is not to take account of his remarks but instead to call for a windfall tax on some of our most successful businesses, and that profits are cited but the tax that those companies pay to the Exchequer is not? Does he agree that a windfall tax at this stage would drive many of our most successful companies overseas?

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

As my hon. Friend probably knows, I am easily depressed when listening to speeches by Labour Members, but even more so today by those who do not understand that the companies whose profits they want to windfall tax—our major banks and oil companies—are world-class British companies bringing home to this country very substantial amounts of revenue as well as providing an important part of our financial and scientific base.

I turn to borrowing. Only this Chancellor could consider £35 billion of borrowing to be a small amount. Only this Chancellor could consider missing his revenue targets five years in a row as somehow irrelevant. That is serious, because the trend is now clear. As my right hon. Friend the Leader of the Opposition so swiftly totted up this afternoon, the total amount of borrowing in prospect is some £175 billion. That is additional debt that must not only be repaid in due course but serviced by this generation.

The Chancellor has again been over-optimistic in his Budget judgment in regard to the amount of revenue that he is likely to get in, and he will end up depending—as many Chancellors have done—on indeterminates such as an attack on excise duty fraud or the latest initiative on tax avoidance. Those measures are all very worth while, and exactly the sort of thing that the Treasury should be doing, but their yield is always unproven and uncertain. I wish I were as sanguine as the Chancellor about the growth rate for the economy as a whole. To me, the high street still looks a pretty miserable place.

In urging the Chancellor to improve his forecasting record, I would like him to admit of a little humility, and perhaps allow a little more transparency in order to allow others—academics and external experts—more access to the Treasury forecasting model. I understand the difficulties involving confidentiality regarding individual and corporate taxpayers' details, but as the Chancellor and the Treasury have got their revenue forecasts so badly wrong year after year, I believe that we need an external eye to look at the matter. These processes need more external validation. I live in hope. I was roundly abused by the Chancellor in the Treasury Committee for daring to question the integrity and independence of the Office for National Statistics. Six months later, he announced that he was taking urgent measures to enhance the integrity and independence of the ONS. There is no reason why the Treasury's revenue forecasting model should not be opened up to a little more external scrutiny in the same way.

Finally, I turn to spending. The Chancellor has postponed the spending review by a year, in order to turn it into a fully comprehensive spending review in which every stone is turned and every detail examined. So I was quite struck by the way in which he pre-empted it today. He identified a whole series of Departments that will have no increase at all, then announced that the Department for Education and Skills would receive the lion's share of the increase. We welcome those additional resources, but, as several of my hon. Friends have pointed out, it has been this Chancellor's biggest single failure that he has not secured the reform that needs to accompany them.

Anyone who questions that judgment needs to come down to my constituency of Sevenoaks, where another 20 beds have been taken out of commission at Sevenoaks hospital because the primary care trust has run into deficit. They should come and talk to Kent police, whose so far successful investigation into the Tonbridge robbery has been distracted by the Government's ill-thought-out proposal to merge them with the Surrey and Sussex forces, which was finally postponed only yesterday. They should also come and meet the district and county councillors who want to deliver public services but who are now at loggerheads, wondering what the future bureaucratic structure to be inflicted on them will bring.

None of this bureaucratic tinkering with NHS trusts, ambulance trusts, strategic health authorities, police authorities and district councils will directly benefit patients, victims of crime or council tax payers. On the contrary, all that we can be sure of is that this top-down, bureaucratic, Whitehall-driven reform will impose extra cost and distract those local services from doing the job of servicing their local community.

Photo of Ed Miliband Ed Miliband Labour, Doncaster North

I know what a well-informed expert on these economic matters the hon. Gentleman is, sitting as he has done on the Treasury Committee for a number of years. On the subject of depressing speeches, however, I am surprised at some of the things that he has said. Will he not concede that the extra investment that the Government have put in—such as the increase in investment in schools that the Chancellor mentioned today—has made a difference in his own constituency?

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

Yes, I certainly concede that, and I welcome the extra spending on education—as a former Education Minister, I could do no less.

As I was saying, I get depressed listening to some Labour Members' speeches, and to quite a lot of the Chancellor's speech. Of course we welcome elements of public spending, and I particularly welcome the reform to channel more and more education spending outside local councils direct to schools. As someone who initiated local management of schools for all primary schools in this country, I welcome the increase in the direct grant to the head teachers concerned. The overall judgment needs to be questioned, however, and that it the Opposition's job.

Before I gave way, I was discussing the failure to secure real reform to match some of the welcome increases in public expenditure. We heard no more today about the necessary reform to public sector pensions. We hear that discussions continue behind the scenes with the different trade unions, driven through different Departments of State. But we heard no announcement today about how the balance will be redressed between current and future members of public sector pension schemes, and between those who benefit from public sector pension schemes, as we do in the House, and those who have to rely on private provision.

We heard little from the Chancellor about the general drive for efficiency savings. There was the odd mention of Gershon, but no substantiation of the savings that we can now expect, and no justification of some of the original targets. The Treasury Committee will look for much harder evidence that those efficiency savings can be captured, quantified and delivered in the shape of more efficient public services. We heard little today about more local empowerment. We did not hear about reforming working practices, more local pay, really sorting out the delivery of those services at the sharp end or helping to enfranchise police area commanders, hospital managers and head teachers.

This is the Chancellor's 10th Budget. My real regret is that he appears to have learned nothing from the failures of the previous nine Budgets. Whether or not this Budget will help propel him further into Downing street, I do not know. I do know, however, that the country will continue to be the worse off for the mistakes that he has made and the arrogance with which he refuses to recognise them.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South 5:02 pm, 22nd March 2006

Budget debates are often conducted within a strange sense of time. The short term is about whether the Budget will survive the press headlines and analysis tomorrow. The medium term is defined as how the Budget will look in a month or a year's time. The long term is the end of this Parliament. Anything beyond that is infinity. The difficulty for our constituents is that they have a different sense of time, of the critical issues that face them today, and of issues that Government and Parliament must address in the years ahead, in their working lives and the lives of their children. Against some of those measures, I want to reflect on some of the matters that were not dealt with in today's Budget.

Sadly, the shortest of short-term considerations—fending off the press and seeing off the Opposition—has almost been dealt with by the Leader of the Opposition. I was astonished by his speech, which was lamentable. It was almost as though he had set out to send himself off. It was an apology for his existence rather than a bid for the intellectual leadership of the nation. In that sense, the challenge to the Chancellor's Budget from the Opposition petered out before it began.

Other challenges are waiting, however, beyond the Opposition Benches and tomorrow's press headlines. Those challenges are what Parliament must do to build a society and economy that will survive sustainably in the decades ahead and that will meet the current challenges and crises facing society. I make no apologies for saying that that is the entire focus of what I hope will be my Budget contribution.

The Tories made some interesting comments. They spoke of a Labour Budget disregarding wealth creation and being indifferent to productivity, and said that those were the cutting edges of the economy that they defended and we ignored. I refer Members to a book that will come out within the next week called "Rich Britain", by Stewart Lansley. It is an analysis of the current state of wealth distribution in the United Kingdom. Among its key observations is that 25 years ago Britain was one of the most equal societies in the developed world, but now we are one of the most unequal. In the years since 1990, the number of people sitting on assets of more than £100 million has increased fivefold. Twenty years ago, the income gap between the chief executive of one of our FTSE 100 companies and the average worker in that company was a factor of 25. Today, the earnings gap has risen to 120. That is the wealth divide that has opened up in our society.

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells

The Prime Minister famously said that he had no interest in the earnings of David Beckham. Does the hon. Gentleman share the Prime Minister's view?

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

No, I do not, and I think that it is a mistake to presume that earnings in the richest part of society are not a zero sum game. That is one of the great myths that is debunked in the book that I mentioned. It has always been argued that if the superrich are allowed to be superrich, they will somehow engender a dynamic in the economy that will drag everyone else's earnings along with theirs.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

Yes, it is the trickle-down approach to economics, but the figures do not justify the claim.

Two studies paint a picture of the actual state of affairs. The Institute for Fiscal Studies recently produced a report showing that Britain has one of the lowest rates of innovation compared with our main competitors in the industrial world. We also rank 15th among the 30 richest countries in terms of productivity growth. There is little evidence to suggest that the freeing up of wealth acquisition among the wealthiest is delivering the productivity gains that Members would like to see, or to claim.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Does the hon. Gentleman accept that the countries that are being innovative and have the most dynamic economies have not adopted the Soviet-type policy that almost underlies his comments, but apply lower taxes? Ireland, for instance, wants to reduce corporation tax. Companies setting up there are now contributing in a major way to Irish tax coffers, and hence to schools and hospitals.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

Other Members would say that what underpins the dynamism of the southern Ireland economy is the number of subsidies that it has received from the European Union. That is what allows such investment and relocation to take place. In many ways, those subsidies are merely relocation bribes—they are not necessarily about productivity gains. The notion that if taxes on the rich are reduced wealth will flow to society as a whole is pure mythology.

The other study that I wanted to mention was conducted by Manchester university and relates to our thinking about economics and productivity in this country. It reveals that the top company heads in the United Kingdom have enjoyed pay increases that bear no relation to any benchmark or cross-section of productivity measures against which they could be justified. The study refers to a culture of "value skimming" among senior management in UK industries. It says that

"top managers in giant firms appear to be an averagely ineffectual officer class who do, however, know how to look after themselves".

They do not create wealth; they simply become incredibly skilful at pocketing it.

Nowhere is such a culture more apparent than in the management of the water industry, a critical issue to which I now turn. Today is world water day, which is an interesting benchmark for the House. No mention was made of it in the Budget. It comes at a time when 12 million households in the UK, mainly in southern England, have been told that they are likely to face hosepipe bans and water restrictions during the summer, and when the UK water industries—the companies responsible for water management—are haemorrhaging 4.7 billion litres into the drains through unrepaired leaks every single day of the year. That is enough water to meet the needs of 14.5 million households. The scale of inefficiency in the management of the water supply is breathtaking and it will certainly be neither welcomed nor understood by any of those who face hosepipe bans and water restrictions.

Despite that crisis, the rate of leakage reduction has fallen in the past five years. However, the rate of self-reward, profits and distributed dividends has risen. Dividend rates in the UK water industry are now four times higher than those of our European counterparts. Last year, executive pay in the water industry increased by 31 per cent.—at a time when leakages were becoming colossal. Now, the industry is asking the country as a whole for some form of restraint in order to manage its way out of the crisis, but such restraint has nothing to do with the rewards that those in the industry pay themselves. We have created a water service delivery culture in which companies are pouring water down the drain, and in which that rate of loss is matched only by the rate at which they pour money into their own pockets.

Photo of Richard Younger-Ross Richard Younger-Ross Liberal Democrat, Teignbridge

I have a great deal of sympathy with the point that the hon. Gentleman is making. Does he accept that there is an inequality in this regard? In some areas, the price paid by people for so-called improvements to the water supply—improvements that they are not seeing—has risen exponentially. In areas such as the south-west, the water rates and the council tax combined account for more than 25 per cent. of some pensioners' income. That is unsustainable for the poorest in our society—those on fixed incomes and pensions—particularly given that, as the hon. Gentleman says, there are those who are making large profits out of the water industry.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

The hon. Gentleman makes an important point, and Members in all parts of the House who have long campaigned for recognition of the concept of fuel poverty are beginning to understand that water poverty could be no less a threat to the poorest and most vulnerable in our society.

It is obscene to have such a crisis of affordability and access at a time when the levels of self-reward in these privatised industries have gone through the roof. This is indeed almost a national obscenity, so it is indefensible for us, as a Government, not to intervene. We should say, for instance, that water companies can pay no bonuses until they have met the European average for water losses, which is 5 per cent. At present, we are losing almost 25 per cent. of our water supply. Why should we create a market that allows executives to reward themselves, but which cannot deliver a consistent water supply to the public?

Photo of David Taylor David Taylor Labour, North West Leicestershire

My hon. Friend and regional near neighbour paints an accurate picture of water companies' incompetence in tackling water leaks, and of their directors' greed in filling their pockets. Does he agree that such behaviour sometimes tips over into the fraud and dishonesty exhibited by Severn Trent plc, the privatised utility that serves both of our constituencies, which provided fraudulent figures to justify very significant increases in water supply charges? Is not that an appalling thing to do to people in poorer circumstances?

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I think that it is. As an observation, I want to say that the impetus to attempt to cheat the public and the regulator by providing false information is a direct consequence of the fact that responsibility for ensuring that services are of high quality and that accounting is honest has been pushed away from Government. We now express surprise that pushing that responsibility away to arm's length should have engendered a culture of cheating and dishonesty, but we are reaping the harvest of the mistaken belief that throwing assets out to the private sector would lead to that sector delivering social gain. What has happened, in fact, is that it has delivered social greed.

At the same time, hon. Members are lobbied, in the House and in our constituencies, by people who have been punished not for pursuing policies of greed, but for acting in a responsible manner. I am referring to the 85,000 people who have had their pensions stolen. I spoke earlier about the lack of wisdom of using pensions savings for speculative purposes, but the people who have suffered are the ones who did as successive Governments, of all parties, asked them to do. They put money into pension schemes so that their retirement years would be properly provided for, and we have a moral duty to ensure that that money is paid back. We need people to believe in saving for their pensions, but that has to be underpinned by a cast-iron guarantee that those savings cannot be stolen.

If people choose to cash in their pension savings and subsequently squander the money on speculation, that is their tough luck. However, I believe that it is a criminal offence to cause people to lose out after a lifetime of regular saving into a pension scheme. An offence like that must be redressed in full. How such redress is achieved is, in part, a responsibility for the Chancellor and the Government.

The cost of full repayment is put at £15 billion over 60 years, but the House will soon be asked to make a decision about renewing the Trident nuclear weapons system at a similar cost. I would much prefer the money to be used to redress the difficulties faced by people whose pensions have been nuked rather than to pay for a weapons system that is likely to be used to nuke the lives and prospects of other people.

That choice is the language of priorities. Aneurin Bevan always said that being in government required us to make key decisions of that sort. Restoring the stolen pensions is part of creating the platform of credibility on which we will restore people's belief in the sanctity and security of pensions and pension contributions.

My hon. Friend John McDonnell spoke about the need to restore the value of the state pension and its link with earnings. That is another aspect of the matter, and would cost about £7.3 billion. On the figures that I mentioned in relation to the gap in terms of self-rewards among the corporate rich, if we were to have a windfall tax on executive bonuses and profits, that would bring in £3.75 billion a year. If we were to impose a similar tax on executive share options, that would cover the rest of the gap in relation to what is required to restore pensions and their link with earnings.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

In a globalised world, which the hon. Gentleman may regret, the high earning individuals to whom he refers will simply go to another financial centre and set up in another country and none of the money will go into our coffers. Surely even he can see that that might be counter-productive.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

No, I do not think that that is so at all. Let us consider what this country produces. I go back to a point made from the Conservative Benches. If we want to begin with the question of the creation of wealth, it is fair to say that there are a few dynamic entrepreneurs in the UK who have not only invented things to make, but have gone on to produce them. We ought to consider how to reconnect with support for domestic manufacturing. Many of the countries that are far more successful than we are at that are in that position because they have much more interventionist policies in their markets. There is a presumption that it is not enough to talk about inventions if one does not create the domestic circumstances in which those inventions have markets.

That is the point that I want to come to on the climate change challenge. One of the big criticisms that we hear from the parts of the manufacturing industry in the UK that are involved in the development of new technologies and sustainable energy systems is that we should look at what is happening in other parts of Europe. The Governments of those countries have created a market in sustainable energy systems and renewable technologies because they have changed the rules and financial subsidies in relation to those markets. Germany is streets ahead of the UK in doing that. It has captured 15 per cent. of the world market in renewable technologies because its firms have a domestic market in which to sell. In Berlin, 80 per cent. of all new buildings that are going up are generating their own energy. Is that just a foible of Berliners? The answer is no. The market rules about buy-back pricing of electricity were changed so that people get back four times the price for energy they generate in relation to the cost of energy that they take from the system. Of course, that transforms the way in which energy suppliers begin to look at the energy market.

I just happen to have completed my own eco-house, which will generate more energy than it consumes and which puts the surplus back into the national grid, but it is a crap deal. For every £1 of energy that I put into the system, it will cost me £7 to get it back. That is the nature of a rigged market. We can change the nature of that market so that there is less sense of theft and a dash for cash in the present and so that we have a market that genuinely invests to deliver in a sustainable way for the future. The rules are not God-given; they are Government-created. One can create competitive markets, but on a different presumption.

In that sense, when we talk about the need for liberalised markets, I would just point out that, in the UK, in a liberalised market mentality, we are currently paying more for our energy supplies than our European competitors. The best point of comparison is Denmark. In 1970, after the last oil crisis, it looked at the short-term pressures, realised that it needed to come up with long-term solutions and began to invest systematically in decentralised energy systems. It did so knowing what most people in today's UK energy sector know: we have a monumentally inefficient national grid energy supply system. Some 70 per cent. of the energy input is lost in energy production or transmission. In Denmark and the Netherlands, decentralised energy systems, using co-generation techniques of combined heat and power, are 90 to 95 per cent. efficient. Those countries recognised that they could meet their energy needs, and their energy security needs, through decentralised energy systems using the energy that we throw away.

Why do we not take the opportunity to change the fiscal rules relating to energy markets to allow a paradigm shift, not into the absurdity of a new generation of nuclear power stations or the presumption that we are under some obligation to prop up a grossly inefficient national grid, but in the way we think about energy generation and supply? The Dutch are building roads that incorporate solar power generation so that the energy needs of 400 houses can be met by every new kilometre of motorway. Why are they doing it, but we are not? It is because their Government intervene to structure the market towards renewables rather than short-term consumption or profit generation.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

I have listened to the hon. Gentleman's speech with intense interest and, if I had the opportunity, I would reply to it in detail, not least because Thames Water is planning to build a reservoir in my constituency and because I have had the Thames Valley energy centre round to my home to reduce my emissions. I hope that the hon. Gentleman will put on his website the details of how he created an eco-home. I completely agree with him about fiscal rules. Will he congratulate Braintree council, a Conservative council that has reduced council tax for energy-efficient homes? Does he also agree that the Government could ensure that all new homes meet the highest environmental standards possible? It is in their hands to do that today.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

The Government could do that and I would encourage them to do so. They could require new homes to meet not only the decent homes standards, but the standards that are being set for other parts of Europe, which are considerably higher than the decent homes standards. Those new standards make our requirements seem like the last generation.

The reality in the UK is that 80 per cent. of the population is likely to live their lives in 80 per cent. of the existing stock. The question is what we do about those who are living in existing housing stock. That position is profoundly affected by other changes. Since 2003, gas prices under British Gas have risen by 80 per cent., and its electricity prices have risen by 38 per cent. The incomes of the fuel poor have risen by nothing like that amount. I am proud of the fact that my Labour Government made the first legally binding undertaking to eradicate fuel poverty in this country. I am proud of the initiatives that have been adopted under the warm homes programme, but the recent burgeoning of oil and gas prices is taking people back into fuel poverty far faster than the programme is lifting them out of it.

By 2003, we had reduced the numbers of households in extreme fuel poverty to some 1 million. We were on track to eliminate fuel poverty in the most vulnerable households by 2010. As matters stand, the figure has risen to 2.7 million and is projected to exceed 3 million by the end of the year. The only way to reverse that is through a step change in intervention in the market, both to reward those who are able to adopt energy conservation measures in their own homes and to require standards to be met by those who wish to lease out properties and those who are building properties that are energy guzzlers, rather than energy generators.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

Does the hon. Gentleman accept that the Government could have effected energy efficiency in existing houses at the 80 per cent. to which he referred if they had decided to apply the new part L of the building regulations to house extensions? However, the Red Book confirms that they are not prepared to do that.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

That is certainly one measure that could have been used, but not the only one. As has been suggested, we could tie such a provision to exemptions or reductions in council tax, to stamp duty or to licensing for rented houses of multiple occupancy, all of which could be conditional on energy efficiency. However, there is a cost involved. We need to be honest about that and take the cost on the chin now, because the cost of not using energy efficiently will be paid in people's lives. That is the real challenge against which this Budget and future Budgets will increasingly be judged. To what extent will we offer more than lip service to making profound, demanding, changes in energy costs or climate change that affect people's lives or their ability to stay alive? All future Budgets will have to be judged against those criteria.

I have a final observation about the experience of building my house. It feels morally uplifting to have done that—

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

Put it on your website.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

The architect and I will have lots of fun doing just that.

One of the things that experience taught me is that there are no individual solutions. My contribution to energy generation would be infinitely more efficient if it could be fed into a decentralised energy system for Nottingham, in which co-generation—the interaction between the energy needs and energy generation of houses, shops and businesses—was part of an integrated whole. We shall achieve that only when fiscal measures make such a shift possible. That is an admission of the limits of the contribution I can claim in lightening the ecological footprint of my existence on the planet. My contribution would be much more significant if my footprint was lightened alongside others and in conjunction with them.

In budgetary terms, we need to look at the management of markets and the management and deployment of fiscal incentives on energy. Recently, we handed out a public, taxpayer subsidy to clear up the £85 billion waste management costs of the last generation of nuclear power stations. Soon, we shall be asked to believe that there will be no similar costs in future for a subsequent generation. I have to say to the Chancellor, his colleagues and colleagues on both sides of the House that the public, taxpayer subsidy for that next round of follies would run off with the budget for all the other interventions that would bring about fundamental change towards a sustainable energy system for the UK in the 21st century.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

The use of that figure in relation to nuclear new-build is extremely disingenuous. That was a historic cost; there is no doubt that the generation and disposal of waste was shockingly bad 30 or 40 years ago, but that would not be the case now. Those who oppose nuclear new-build tend to compare what we could build now with what we built in the past, but in fact that would be the equivalent of buying a 1970s Ford Cortina, whereas nuclear new-build now is the equivalent of buying a Toyota Prius. Does the hon. Gentleman agree?

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

No, I do not agree; nor does the Sustainable Development Commission or Greenpeace. Those who consider the issue say that, as soon as we start to scrutinise the cost element of what the nuclear industry wants, we are back into the same old game. I remind the House that, when we were there first time, the House and the public were promised atoms for free. We have been paying for that deception ever since, and we would do so again. My caution is that, if we go down that path, all the money that the Chancellor would have to play with for a shift towards renewables and decentralised energy would be hijacked and put into the pockets of the nuclear industry once again. That will not meet our energy security or supply needs.

My final point on energy and the carbon consequences of how we run the economy is to echo the sense of sadness that aviation duties were not mentioned in the Budget. Some colleagues say that those duties are covered by international agreements and that we are pushing forward with the plans for emissions trading, but I would add a word of caution. We need to look carefully at what emissions trading is about. With all other aspects of pollution trading, the real danger is that a market in non-goods is created. Some of the greatest enthusiasts for emissions trading schemes are in the City of London, and they see themselves as making large fortunes out of their brokerage roles in the trade in non-goods.

In aviation, it is far simpler to consider non-tradable duties. It would be very simple to calculate the current carbon miles impact of flights from all UK airports in the past year. We could set that as a quota for them, and we could say that the UK regime will be to reduce every airport's quota by 5 per cent. a year. Airports could specify that priority will be given to higher efficiency aircraft or shorter flights, with higher passenger usage or shorter cargo trips, all of which reduce the carbon content of passenger miles and food miles. We must engage in that scale of shift in the next 10 years if we are remotely likely to manage our way through the climate change that will happen. We can do that if we intervene to set those climate change duties in fiscal terms that define a different shape of aviation market.

All Budgets are really expressions of solidarity, to a greater or lesser extent. They are transfers in society. They represent the extent to which a society will take elements of the wealth generated today by those in work and redistribute it to those out of work. They are transfers from one generation to another in determining how people in work today meet the pension needs of those who are retired and the needs of our children in the future. They are transfers from one region to another and from one section of society to another.

It would be possible for the House, in solidarity, to have a Budget that wrote off the NHS deficit and scrapped prescription charges, which would cost us £1.2 billion. We could do that if, for instance, we transferred the costs of our current military occupation of Iraq and Afghanistan, which currently comes to £1.3 billion a year. It would be possible for us to have a Budget that guaranteed that we delivered the decent homes standard, with a bill of £7 billion, by setting defence spending to the European average. We could change the fiscal rules of the energy markets to create sustainable markets and decentralised energy networks in the way that I have described. We could restore faith in pensions and pension saving by restoring the state pension and repaying stolen pensions with a tax on dividends and executive pay for gross inefficiencies in delivery.

All that would be drawing back the nation's wealth, not from those who have created it, but from those who have been involved in a process of wealth annexation. That, for me, is what Governments of whatever hue will be asked to do if we are to meet the needs of social cohesion and environmental stability in this country in the years and decades ahead. I hope that we have a Labour Chancellor who will not lack the courage to face up to that challenge and deliver those answers, if not in this Budget, in the Budgets ahead, regardless of whether he does so as the Chancellor or whether he aspires to do so as leader of the parliamentary Labour party.


Keep it up Alan. In fact, if you want to send a message about how important this is, defect to the LibDems, who have been against the war, and for action on Climate Change for many years! :O)

Submitted by Neale Upstone

Several hon. Members:


Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. We now have little more than an hour for the debate. Hon. Members have patiently waited to deliver their speeches, so I hope that the remaining speeches will be brief so that they can all contribute to the debate.

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells 5:40 pm, 22nd March 2006

It is a privilege to follow the thoughtful speech made by Alan Simpson. Perhaps I should pay tribute to the Chancellor for his 10th Budget statement because delivering 10 Budgets in a row is not to be sneezed at. His statement seemed very familiar in some ways. Perhaps it is like an ageing rock star taking his greatest hits on tour year after year, albeit with a slightly dwindling audience, at least on the Labour Benches. I pay tribute to the Chancellor for his achievement.

When I started my career in business, I worked for the Boston Consulting Group. A few days after joining the company I was sent to south America to investigate the market for breathing apparatus among fire brigades in the Argentinean pampas—it was a fairly exotic mission. Owing to long flights and delays, I had little time after getting back before I was required to present my report to our client. Just before we were about to do that, the senior partner called me into his office and looked at my report. He jabbed an accusing finger at a number in the document that he chose at random and said, "Greg, how did you come by that figure?" I was required to explain how I derived the calculation and, fortunately, I passed the test because I was able to explain exactly where it had come from. The senior partner was making an important point because if I had not been able to give an explanation, no other figure in my report would have been of any worth whatsoever. If I could not explain every figure, there was no point presenting the report to the client at all.

When I came to the House, I assumed that there was a similar process when the Chancellor of the Exchequer presented figures in his annual Budget to Parliament. I assumed that there was an equivalent of the senior partner who went through the Budget figures. It might have been that the Chancellor himself asked his officials who are in the Box today how the figures were derived. If not, perhaps the Prime Minister had the papers laid out on the Cabinet table and, pointing to a figure, said, "Gordon, how did you get to that number?" Whatever the process, I assumed that if a report on breathing apparatus in Argentina could merit such scrutiny, anything presented to the House by the Chancellor of the Exchequer in the annual Budget should merit exactly the same treatment.

I was thus interested when the Chancellor said earlier this afternoon that savings of £6 billion had been secured from the Gershon efficiency review. That is extremely important because any Government have two duties: first, to advance new policies that will reform and change the country in which we live; and, secondly, to manage effectively the public services and administrative activities that are in the remit of the Government. Both duties are equally important, and the Gershon review goes to the heart of the second one. It is absolutely crucial that public services are run effectively and efficiently at the minimum cost to the public, not least because any savings that are made can be reinvested in services, can promote the greater quality of those services, or can be returned to the public through tax cuts. It is thus important that the numbers are right, and the work of the Public Accounts Committee, on which I serve, is very much geared to that end.

However, when the Chancellor announced his £6 billion figure, it called to mind an earlier claim that he had made about Gershon savings. The Committee examined that. The right hon. Gentleman made the same claim in his Budget speech last year when he said:

"I can report—ahead of target—the first £2 billion value-for-money Gershon savings".—[Hansard, 16 March 2005; Vol. 432, c. 260.]

The trouble is that having looked into the basis of those savings, the National Audit Office found that they collapsed under scrutiny. The report published in February of this year said:

"we conclude that most of the efficiency" savings

"announced in March 2005"— in other words, by the Chancellor in the Budget—

"were not based on clear audit trails and, from our understanding of the process through which the gains were collated, were not subject to adequate challenge by the Office of Government Commerce."

That concerned me, and I was interested to find out what the exact process was that resulted in the savings.

The inquiries that I made shocked me. So disbelieving was I that they could be true that when the Public Accounts Committee examined the Office of Government Commerce and the NAO on its report, I put to John Oughton, who heads the OGC, what I understood the process to be.I said at the Committee's hearing:

"As I understand it, the process of collating this information involved the Treasury ringing round departments asking what savings they could offer up in time to be mentioned in the Budget with no checks at all."

John Oughton said:

"That is an accurate statement of the gains as they were reported in the spring of 2005."

I may have been naive in my illusions about the process, and perhaps I expected the equivalent of my senior partner to be there, jabbing his accusing finger at the numbers, but for the NAO to discover that only half the savings stood up to scrutiny, and for the head of the Office of Government Commerce to be forced to admit that, is shocking.

That is not the only basis for concern about the numbers presented in the Chancellor's speech. Just as my presentation on breathing apparatus in the Argentinean pampas collapsed if one figure was found to be wrong, how can we have confidence in any of the many figures that he presented if the history of their scrutiny shows that they fall away beneath our gaze?

The hearing also raised worrying questions about the substance of the Gershon review. I do not want to make political points about the review as an appropriate subject on which the Government should take a view. I genuinely think that it is extremely important, but the NAO advised us that commercial organisations might expect in an efficiency drive to identify about 10 per cent. of the relevant administrative costs as savings. The Gershon review proposed savings of only 2.5 per cent. I do not quibble with that; I merely compare it with practice in commercial organisations. However, it is important to achieve even that modest level.

Again, when the NAO looked closely at the Gershon review, it discovered that most of the savings accounted for in the £21.5 billion ultimate total from Gershon came from projects that had started before the review was conceived. It is stretching credulity to regard them as being Gershon savings; that is what the NAO found. When I questioned the Comptroller and Auditor General in the PAC on his assessment of the quantity of new money—the real savings that were being made under Gershon—I discovered something even more shocking.

The NAO established a sum of 20 projects under the Gershon review that it looked at in detail. That sample was designed—I asked Sir John Bourn about it directly—to be representative of the whole, as is any sample. Any auditor would choose a sample on that basis, and Sir John confirmed that. Of that sample, the NAO was able to say that, of the ongoing efficiency savings, only between one and three were in any sense new and engaged in subsequent to the commissioning of the Gershon review. On the basis of that sample, 85 per cent. of the funding improvements that the Chancellor presented last year and, indeed, this year as possible do not merit the flourish that he gave them. They were the normal, embedded efficiency savings that Departments were already engaging in. That again gave me great cause for concern.

The final point that I wanted to raise in this Budget debate, since the Chancellor chose to talk about having achieved £6 billion-worth of Gershon efficiency savings, is their reliability and robustness. The Office of Government Commerce helpfully makes an assessment of the deliverability of each of the savings by Department, and ranks them in four categories. Red means that there are grave concerns about deliverability, and green that there are good prospects that the savings will be delivered.

The NAO had access to that information and helpfully reproduced in a series of pie charts in its report how many projects fell into each of the four categories of deliverability. It was drawn to my attention that there seemed to be a misprint in the charts, because there were only three segments to the pie. It was only on looking at the small print to the key to the table that it became apparent that that was so because, as at December 2005, there were no projects in any Department that were rated green as having good prospects of being delivered. Therefore, far from the Chancellor's being able to bank on, boast about and flourish the £21.5 billion-worth of savings in his Budget statements, the truth is that there is extreme risk that they will be delivered. The evidence for that is reported by the Office of Government Commerce itself.

In reviewing the question, the NAO said:

"We have significant concerns over whether the adopted measurement methodologies can be relied upon to substantiate efficiency gains effectively . . . Only a few departments recognise the potential risks from double-counting, cost-shifting and additional operational costs."

Far from being numbers that can be relied on, that are cast iron and that have the imprimatur of the Chancellor, as I assumed if reported in a Budget, they are deeply suspect and so should be treated with the greatest of suspicion.

What is to be done about this? I would have hoped that the Chancellor might exercise the senior partner role and interrogate the figures. He could have taken them to the Prime Minister, who could have asked some searching questions—although the Chancellor might have asked some searching questions of the Prime Minister, so perhaps that conversation was not going to happen. In the presence of such difficulties, who better to certify that the numbers are above board and accurate than the Comptroller and Auditor General—the head of the National Audit Office, Sir John Bourn?

All Members would recognise that Sir John is an unimpeachable figure of great expertise and familiarity with Government figures. Indeed, he has published today an audit of assumptions on the forecasts in the Budget. The Red Book lists at great length the assurances that he has been able to give on factors such as the dating of the cycle, privatisation proceeds, the trend rate of GDP growth, UK claimant unemployment, interest rates, equity prices, VAT receipts and so on. Sir John Bourn rightly signed off those variables as above board and put them into the public domain. What more reasonable request could there be than to ask that he look at and validate Gershon efficiency savings before they are deployed by the Chancellor? I urged the Chancellor to do so at the last Treasury questions, suggesting that there was plenty of time before the Budget to ask Sir John to look at the savings. I raised the matter at a hearing of the Public Accounts Committee, and Sir John told me that he was ready, willing and able to conduct such an audit before the Budget. He said, too, that it would be a good idea to provide that assurance to the House.

The Chancellor cited £6 billion of Gershon savings today. I rang Sir John Bourn this morning to see whether the Chancellor had availed himself of his kind offer. I am afraid that Sir John is probably still waiting by the phone, as his invitation has not been taken up. Once again, the numbers that the Chancellor presented as definitive Gershon savings have not been signed off by the National Audit Office. On previous form, the House must regard them as provisional and treat them with grave suspicion.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree 5:56 pm, 22nd March 2006

Listening to the Chancellor's Budget one would think that he was living in a parallel universe, not the real world. I became an MP last May, and the House will not be surprised that, as a business man turned politician, I will look at the Budget from the perspective of a business man. I draw Members' attention to my list of interests in the Register of Members' Interests.

While it is tempting to undertake a SWOT analysis of the Budget, I would prefer to look at it in a different context. How well prepared is Britain or UK plc to meet the competitive challenges posed by fast-developing countries such as India and China—an issue acknowledged by the Chancellor? Turning first to the economy, I assume that the Chancellor's heading for the 2006 Budget—"A strong and strengthening economy"—is ironic, because the evidence indicates otherwise. After he downgraded his growth forecast twice last year, UK growth was finally estimated to be 1.8 per cent., which is significantly below the growth rates of China, India and the United States. Moreover, we came a poor 19th among 25 EU member states.

In the World Economic Forum league of competitiveness, we dropped from fourth to 13th. Not surprisingly, we face a record trade deficit of £47 million. Businesses are voting with their feet, as they face increasingly inflexible markets, greater regulation and higher taxes. Google and Apple—the businesses of the future—have both chosen to set up their operations in Ireland rather than the UK. Productivity growth is now only 0.4 per cent.—the lowest in more than 15 years. Worse still, public productivity, as we have heard, is falling. Business investment, which fell to 9.1 per cent. of GDP in the last quarter of 2005, is now the lowest since 1965. Overall, the Chancellor is failing on all the long-term drivers of prosperity.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am listening with interest to the hon. Gentleman. Of course not all the economic indicators are as positive as we would wish, but I point out to him, first, that as I said in my speech, in gross national income per capita we have gone from seventh out of seven in the G7 to second out of seven. Secondly, on investment in Ireland and so on, I point out to the hon. Gentleman that last year the UK was the top in the world for foreign direct investment. That is encouraging as a reflection of foreigners' views about the UK as a place to do business, where, like the hon. Gentleman, I did business as a business person before I was elected.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I appreciate the hon. Gentleman's comments, but the indications are that businesses are voting with their feet. When they have a choice, they are not choosing to come to the United Kingdom. They are choosing to go to Ireland, and we can learn the lessons from Ireland. Because it is now a low tax economy and has a flexible labour market, it is attracting the new businesses. We should take that in hand.

If we are to prepare ourselves to face the competition posed by the Chinas and Indias of the world, we must, as everyone agrees, have a well educated work force able to meet the challenges of the 21st century. I congratulate the Chancellor on dealing with this aspect. The extra 1 per cent. that he has added to the education budget—I believe it is £440 million—is welcomed by the Opposition as well.

Photo of Kevan Jones Kevan Jones Labour, North Durham

I am listening carefully to the hon. Gentleman's remarks about education and the importance that he attaches to it. I know that he is new to the House, but can he tell me why, on every occasion that the Government have voted extra investment for education, his party has opposed it?

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I will answer that briefly. It is because of the use of the word "investment". Our complaint is directed largely at the expenditure on the bureaucracy that lies behind education, not at the infrastructure. The infrastructure is important, and I acknowledge that.

Perhaps the biggest indictment of all is that the number of adults without basic literacy and numeracy is not shrinking, as the Government would have us believe, but is growing by more than 100,000 a year, with almost a third of 16-year-olds still leaving school without achieving 5 A to C passes. We should be supporting our centres of excellence, such as the chemistry department at Sussex university, not abandoning them. We should be encouraging our children to learn languages such as Chinese, for that is where our future lies.

On savings and pensions, as far back as 1995 the Chancellor stated:

"We will never raise the levels of investment in our economy if we do not encourage savings", yet our savings culture has been eroded dramatically since Labour came to power. The savings ratio has almost halved since 1997. Worse still, the Chancellor has continued to undermine our pension system. As my right hon. Friend Mr. Cameron mentioned, Mr. Field was kind enough to remind us that

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

Why is that? Because the Chancellor has insisted on taxing pension funds to the tune of £5 billion each and every year. That is almost £50 billion since Labour came to power.

Back in 1993 the Chancellor said:

"I want the . . . end of the means test for our elderly people", yet nearly half of all pensioners are subject to means-testing.

In any assessment of our relative economic strength we should look at the state of our public finances. The Chancellor continually spends more than planned, with the result that he has had to fiddle his own fiscal rules not once, but twice since the last Budget just to avoid breaking his own golden rule. Despite moving the goalposts twice, the Chancellor still went into deficit in the fourth quarter of 2005.

Part of the problem lies in the Chancellor's inability simply to budget, which means controlling expenditure, and accurately to predict money coming in and money going out. As Mr. Micawber said:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

An example of that shortcoming is the Chancellor's varying predictions of the public sector net borrowing requirement. In 2001, he predicted the need to borrow £12 billion in the fiscal year 2005. In 2002, the figure was revised upwards to £19 billion. In 2003, it was revised upwards to £30 billion. In 2004, it was revised upwards to £33 billion. Finally, in 2005, it was revised upwards to £35 billion. Frankly, Mystic Meg would do a better job of forecasting than the Chancellor.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

The hon. Gentleman has not been in this House as long as me and therefore did not sit through the first Parliament of this Labour Government, in which the Chancellor consistently underestimated the state of the public finances. [Interruption.] That was another fault, but perhaps he would commend it. I ask him to reflect on public debt as a percentage of GDP, because I should have thought that he would commend the Government's record as being competitive compared with that of most other major nations.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I congratulate the hon. Gentleman on his foresight, because I am about to address that topic. Perhaps most pernicious of all is the state of Government debt. The Chancellor has continued to hide extra Government debt off balance sheet in order to avoid breaking his own sustainable investment rule. The headline figure used for public sector net debt is £436 billion, which is 35 per cent. of GDP. That headline figure is attractive, but the reality is that each and every year the Chancellor is hiding more and more debt off balance sheet—up to £850 billion at the last count. The real public sector net debt figure could be as high as £1.3 trillion, of which roughly £450 billion is on balance sheet and £850 billion is off balance sheet. That is a staggering 105 per cent. of GDP. For every £1 that the Chancellor is willing to show on balance sheet, he is now hiding £2 off balance sheet.

Back in 1998, the Chancellor promised that he would

"enhance economic stability by ensuring that fiscal and debt management policy operate in accordance with the principles of transparency, stability, responsibility, efficiency and fairness."

Although I would not go as far as to call the Chancellor's off-balance-sheet manoeuvrings Enron-style accounting, because they are technically legitimate, that form of accounting is patently not transparent, carries many risks and falls short of the standards required in the private sector. Only four weeks ago, London and Continental Railway's debt of £5 billion had to be reclassified as on balance sheet. Is this just the tip of the iceberg? I suggest that the Chancellor should heed the words of Dr. Johnson:

"whatever you have, spend less."

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I thank the hon. Gentleman for his usual generosity in giving way. He has discussed being in business, and I have discussed being in business: if my business were to sign a 21-year lease at £20,000 a year, we would not show it in our accounts as a contingent liability of £420,000, but that is what he is doing when he adds up all the liabilities that fall due over a long period of time—in particular, pensions—and produces a present-day figure of £1.3 trillion, which is not how it would be done in business. I agree with him about transparency, but I suggest that he is over-egging his case by putting 50 years of liability into one year, which is not helpful.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I beg to differ from the hon. Gentleman, because the calculation depends on the rate used to discount public sector liabilities, particularly pensions. If one uses the long gilt rate—it does not matter whether one uses 1.2 or 1.8 per cent.—one ends up with a very big figure. I have used a discount rate to produce a credible figure, which is not cumulative.

In the 2006 Budget, the Chancellor has once again demonstrated that his forecasts cannot be trusted, his taxes are neither fair nor clear, his regulations are stifling business, his means-testing is placing a greater burden on the neediest in our society, his raid on pensions has undermined a savings and pensions culture that was the envy of Europe, and his accounting methods are disingenuous and opaque at best. This Budget bears all the hallmarks of new Labour. It lacks transparency, does not address the challenges that we face in the 21st century, and does not prepare Britain for the future.

Photo of Mark Todd Mark Todd Labour, South Derbyshire 6:10 pm, 22nd March 2006

At some points in the debate I thought that the Tardis was about to land in the Chamber, given so many reflections on economic policies that I last heard expressed 15 or 20 years ago. One or two Conservative Members evoked fond memories of the Thatcher years, which I do not remember so enthusiastically. Greg Clark even referred to the disciplines of management consultancy. As a business consumer of management consultancy, I did not find his remarks particularly relevant. Indeed, having consumed offerings from the Boston Consulting Group, I wish that they had passed through the stern audit that he mentioned. Never mind—he has given me an opportunity to reflect on my past.

I look at this Budget primarily from the point of view of my own constituency, which has a much higher than average manufacturing base focused on companies such as Toyota and Rolls-Royce. One of my main concerns is therefore what this Budget does to help businesses of that kind. I welcome the inclusion of Sir John Rose in the Chancellor's taskforce to advise him on the future needs of business, which gives an input into his thinking from the most senior level at Rolls-Royce. I know that he has regular contact with that company in any case, and that he has been associated with the valuable initiatives in promoting enterprise in schools, including in my constituency, to which he referred in his speech. That is an extremely valuable contact.

One of the concerns that manufacturing companies raise with me is the state of the energy marketplace and the implications of higher energy costs, particularly for heavy energy users. I noted what the Chancellor said about action at EU level. I welcome that, but I have to say that we require urgent steps towards free markets. I listened with great enthusiasm to what my hon. Friend Alan Simpson said about the micro level of the energy sector. It is vital that major businesses in constituencies such as mine can purchase energy at the most competitive rate. The long-term failure to invest in storage infrastructure in this country, together with anti-competitive practices elsewhere in Europe, has not assisted companies in doing that. I look forward to the Chancellor's achievements through his initiatives.

I welcome the examination of the fiscal and regulatory regime that businesses face. That has to be an ongoing process. I have noted the exchanges over the Legislative and Regulatory Reform Bill. I have a personal view, as a former business man. I welcome a process whereby needless regulations or regulations that are clearly time-limited can be changed rapidly to fit the requirements of the business community, but I also accept that there may be threats to the sovereignty of this place in allowing that to happen in an entirely unregulated way. I would wish the former argument to have the balance in any outcome that we produce through the two Houses in considering the Bill.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

Would the hon. Gentleman care to reflect on the fact that, according to Government figures, the number of people employed in manufacturing increased by 200,000 during the last four years of the previous Conservative Government, whereas 1 million manufacturing jobs have been lost since 1997? Will the hon. Gentleman reflect on how that came about?

Photo of Mark Todd Mark Todd Labour, South Derbyshire

I could indeed do that, although that situation is not reflected in my own constituency's experience. Manufacturing employment has continued to rise in South Derbyshire throughout the period of this Labour Government, which I very much welcome. I tend to dwell more on the strengths that have caused that to happen, which relate partly to inward investment and partly to a focus on investment in high added value manufacturing rather than in manufacturing at the lower end of the value chain. Our experience is that, when we do things extremely well and add a great deal of value to our skills, we tend to succeed, even in manufacturing. However, when we do neither of those things, we tend to struggle. The support for research and development is a key subject for some of the businesses in my area, and I welcome the broadening of the scheme that the Chancellor had already put in place to support R and D.

I naturally welcome—as I would imagine every MP does—the support for schools. My constituency has benefited hugely from capital investment. Opposition Members constantly say, "Of course we welcome certain things." The response that I consistently make is, "Yes, but not at the time they were done." I well remember the debates in 1997 on the windfall tax, the proceeds of which led to the massive investment that has taken place in our school infrastructure over the past nine years. Virtually every school in my area has received substantial capital investment. I particularly welcome the additional sum of money that the Chancellor has correctly made available to heads and governors, so that they can decide on its use. That will increase the flexibility of local schools to respond to their individual circumstances.

Photo of Stewart Jackson Stewart Jackson Conservative, Peterborough

I am interested to hear the hon. Gentleman's observations on education in South Derbyshire. Does he see a link between the record expenditure on education and the fact that between a quarter and a third of children leave primary school at 11 functionally illiterate?

Photo of Mark Todd Mark Todd Labour, South Derbyshire

The first point to make is that that figure, though regrettable, is a great deal smaller than it was in 1997. Secondly, only by consistently continuing to invest in education will we make that figure as small as possible. We are all realists, and we know that there will always be a proportion of young people who will not be able to achieve the qualifications that we would like them to. The figure to which the hon. Gentleman refers is still too high, but it is about half the size that it was when this Government came to power.

I also welcome the additional support for the further education sector, which I do not think has been mentioned yet—

Photo of Mark Todd Mark Todd Labour, South Derbyshire

I must have missed that. I was watching the clock during my hon. Friend's lengthy contribution, but I missed that particular element of his speech. Support for the FE sector, which is often relevant to the development of business skills, is particularly important in an area such as mine.

I want to conclude by briefly reflecting on an issue that is relevant to the speech made by Mr. Newmark, namely the position of the UK economy in the world economy. We have no grounds for being complacent—I do not think that the Chancellor was, and I am certainly not—but we are now better placed than most other western European countries in that regard. That is partly for reasons of history, which I shall touch on briefly, and partly because of what the Government have achieved over the past nine years. The Opposition have naturally drawn out the fact that we have started to see a blip in productivity performance during the past 12 to 18 months, but, before that, an established performance of productivity improvement allowed us to move up the league table, certainly in western Europe, and to keep pace with the USA. I listened with interest to the speech of my hon. Friend the Member for Nottingham, South, who remarked on productivity performance. The best-performing country in productivity terms is the USA. I am not sure that he was necessarily commending that model to us, but I did not want to intervene on him to ask him to clarify that.

Secondly, we have had the longest period of consistent growth in my lifetime—I do not know about the time of Vansittart and the Napoleonic wars—and, I would imagine, in the lifetime of most other people in this country. Again, that has placed us in a much stronger position in relation to other economies than, say, France, as a comparator.

Photo of Stewart Jackson Stewart Jackson Conservative, Peterborough

Does the hon. Gentleman agree that the major engine of economic growth was the decision in 1992 to leave the exchange rate mechanism, a scheme supported by the great and the good, including the Labour party and the present Chancellor of the Exchequer? Does he agree that that is why the economy has grown over the past nine years?

Photo of Mark Todd Mark Todd Labour, South Derbyshire

It is certainly entertaining to have 1992 raised when the current Leader of the Opposition was the ghostly figure behind Norman Lamont at that fateful time. I would not have thought that that topic would benefit from further exploration, so I will not venture into it. I will, however, make a European point towards the end of my remarks.

Our level of debt is low by international standards. I take the points about off-balance-sheet figures, which, to be honest, could apply to any nation in the world. If we attempt to use internationally based comparisons, our position is good. Few would dispute that.We have some other advantages, however, to which we need to play firmly over the next few years.

First, we have a reputation of being a liberal country with liberal markets and an emphasis on freedom of movement, freedom of expression and freedom of ability to establish businesses and prosper. My concern is that that is in a world in which protectionism is once again starting to rear its head. I have always been hostile to protectionism, whether in the European Union context—as there are concerning signs of the EU considering and being more sympathetic to protectionist measures than it should—or in the major threats in the World Trade Organisation process of countries stepping back towards protectionism all around the world. We should play to that fundamental advantage with all our strength, as it builds the skills and flexibility on which, as a relatively small nation, we can play well.

Secondly, the English language is a huge unsaid advantage in the global economy. I earned my living in the media industry, in which we play way above our strength as a result of that advantage. We have another considerable strength in the diaspora of our former empire, and many people trade freely with us partly because of the number of those on our shores who come from where they live. We have a large, prosperous and entrepreneurial Indian community. We have a Chinese community, which, again, has strong links.

If we can play to those strengths over the next few years, I think that we will compete more effectively than any other nation in western Europe, and I am sure that we can do so.

Photo of Andrew Selous Andrew Selous Opposition Whip (Commons) 6:24 pm, 22nd March 2006

It is important to consider Britain's relative economic position, in terms of competitiveness, vis-à-vis the major countries with which we do business. Under this Government, according to the World Economic Forum, we have fallen from 4th to 13th in terms of competitiveness. Productivity in the private, wealth-producing sector of the economy, running at 2.6 per cent. under the last Conservative Government between 1992 and 1997, decreased under the first term of a Labour Government to 2.1 per cent., and today is only at 0.4 per cent.

Savings have also decreased rapidly. Between 1992 and 1997 the savings ratio was 9.7 per cent.; today it stands at just over half that—5.5 per cent. The World Economic Forum rates the United Kingdom 98th out of 117 countries, and says that our low savings ratio puts Britain at a "significant competitive disadvantage". That is obvious: it is the savings of the nation that go towards providing a decent savings system for our pensions and the business investment that we need to create wealth for the future. Business investment is also at an all-time low. At 9.7 per cent., it is at its lowest level since records began in 1965.

Last year British growth was below the G7 average, below the OECD average and, indeed, below the global average. This year, it is actually below trend growth. Then there is taxation, which is important when businesses decide where to locate in the world. As we have heard from Members today, many businesses do have a choice. When the Government came to power, this country had the 10th lowest business taxes in the developed world; we now have the 10th highest. A few days ago, the ITEM Club and the accountants Ernst and Young concluded that, excluding North sea oil revenues, the UK tax burden was higher than it had ever been. I understand that, on the basis of the figures produced by the Chancellor today, by 2010–11 it will be touching some 41 per cent. of gross domestic product.

Why is that important? There is evidence that other countries around the world that have taken a different tack in regard to tax rates have experienced significantly higher levels of economic growth. In Australia, John Howard's Government came into power in 1996, just a year before our present Administration. They promptly set about cutting taxes, and as a result the Australian economy has expanded by a third so far, compared with a quarter in the United Kingdom.

What the Government often miss is the fact that a cut in tax rates will lead to an increase in the total tax take as business activity increases and companies from around the world decide to locate here. Ireland has done the same: it cut taxes on business and now has a higher income per head than the United Kingdom. At the other end of the spectrum, Sweden—which has the highest taxes in Europe and possibly in the world—now has a pre-tax income that would make it the fifth poorest state in the United States, just behind Alabama.

There are important lessons to be learned from our relative global competitive position. If we want a thriving economy, we must secure a decent tax take with which to fund the public services that we all want.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

Perhaps the hon. Gentleman will tell us whether the figures that he is using have been adjusted for purchasing power parity.

Photo of Andrew Selous Andrew Selous Opposition Whip (Commons)

In terms of pre-tax incomes, as far as I am aware the Swedish example has been adjusted. I think that there is a significant lesson for us to learn, whether we look at Australia, at Ireland or at Sweden. Overall, the evidence on relative economic advantage is pretty conclusive.

Photo of Andrew Selous Andrew Selous Opposition Whip (Commons)

I will after I have made a little more progress. One or two other Members want to speak.

The borrowing that the Chancellor announced today has been described, quite properly, as deferred taxation. That is exactly what it is, because our constituents will have to pay it back in the years to come. The figures are £37 billion for this year and £175 billion over the next six years. Those are very large sums, equating to £7,000 for every family in the country—a figure that people can relate to slightly more easily. In addition, of course, there is the off-balance-sheet debt, be it from unfunded public sector pensions liabilities, Network Rail or, indeed, private finance initiative and public-private partnership schemes, all of which will bear very heavily on the public purse. I am not arguing that we should not, therefore, have gone ahead with certain PFI and PPP schemes, but we need to be honest and to take into account the impact of the payback costs on the public finances going forward.

This month, the CBI has estimated that the cost of UK regulation on business under this Government is approaching £50 billion. My hon. Friend Mr. Newmark told us that Google and Amazon have recently decided to locate in Ireland, rather than the UK; so has Oracle. At £47 billion, our trade deficit is the largest it has ever been. Our trade deficit with China increased by 20 per cent. during this year alone. I find it completely ridiculous, moreover, that Belgium is exporting more to India than we are, bearing in mind our historical and cultural links with that great country.

The Chancellor talked a lot today about education and he was absolutely right to do so. Business people tell us that one of the issues that they are most concerned about when deciding whether to locate here or elsewhere is this country's skills levels. As far as I am aware, Amazon decided to locate in Ireland in part because its work force has greater language skills than does the UK's. That should be a significant lesson to us. We need to increase language ability in our schools, because we do not do nearly well enough in that regard.

The Opposition welcome the money for our schools announced in today's Budget, but here I return to the issue of literacy and numeracy, which is tremendously important. According to the CBI, employers believe that one in seven adults in the UK is functionally illiterate. As my hon. Friend the Member for Braintree pointed out, according to the National Audit Office the total number of adults in that category is increasing by 100,000 per year. The Department for Education and Skills told us in January that one in three 16-year-old school leavers do not even have five A to C GCSE passes. As a result of all that, we are ranked 33rd in the world in terms of the quality of our state education system. That simply is not good enough for the fifth strongest economy in the world.

What can we do about that? I am delighted that the Government have at long last agreed that synthetic phonics should be the basis for teaching children to read in our schools. Those of us who are familiar with the work of Melanie Phillips know that she argued for synthetic phonics many years ago in her book "All Must Have Prizes". I regret that this issue became a matter for party political debate. I salute the efforts of my own party, particularly my hon. Friend Mr. Gibb, who has campaigned tirelessly on this issue. I hope that Members in all parts of the House are pleased that we have eventually adopted a position that should lead to an improvement in our children's reading ability.

On maths teaching and numeracy, I hope that the Government will take note of the many children throughout the country participating in the Kumon maths scheme, in which, I should point out, I have no financial interest whatsoever. There is a Kumon centre in Dunstable, in my constituency, to which many children from both independent and state schools go. A DFES study on this scheme would be useful. However, it is what goes on in schools that is crucial. The money is welcome, but it is hard for children to get the education that they will need in a competitive world when discipline and control are absent.

A lady in my constituency has been a teacher for more than a quarter of a century and she told me about an incident that happened in one of my upper schools only a couple of weeks ago. One class was being disrupted by a pupil and the teacher concerned was unable to handle it. He appealed for help from other staff, but nothing happened for half an hour. That was because the spare member of staff allocated to help in such situations was dealing with an incident in another classroom, where a different child was disrupting a lesson. As a result, the children in the first class to which I referred learned nothing for half an hour. Discipline is fundamental to education. The Government have launched a review into the matter, but some of our schools face very serious difficulties that we need to address.

More funding was announced today for further education, and I welcome that. Further education gives people the second chance that they desperately need and which they did not get at school, but the Government have adopted a very stop-go approach. Dunstable college in my area lost 25 jobs and almost 1,000 student places last year because of a budget cut. Why cannot we have a smooth progression? What is the point of cutting funding one year and increasing it the next? That approach has a very serious impact on the morale of both staff and students.

The Chancellor said that a link would be established between British students and American business schools. I am all for such schools, but why should taxpayers' money be used? The excellent Cranfield business school is near my constituency, and Luton university has very good business courses. I am sure that both institutions would welcome some of that money. No doubt American business schools turn out some excellent graduates, but I question whether taxpayers' money should be used for that purpose.

The same stop-go approach is evident in respect of science. We all know that the science base is essential for this country's future, but science departments up and down the country are being closed because they are so expensive. A couple of weeks ago, I had the privilege of welcoming one of my constituents to the Terrace of the House, where an exhibition of her work was being held. She came to my constituency from Exeter, where the university's chemistry department had been closed because it was so expensive, and she now teaches at the Open university. The same thing is happening all over the country. Why cannot we have a consistent approach? I welcome the money that the Chancellor is giving to science, but science departments around the country should not be closing.

Very little mention of health was made in the Budget speech. That was surprising, as all hon. Members know from their post bags that health is a very serious issue. My PCT is the Bedfordshire Heartlands, which has a deficit of £20 million. The Luton and Dunstable hospital has had to close an elderly care ward, and there is almost no prospect that Leighton Buzzard, the largest town in my constituency, will get any sort of community health facility.

Matters are likely to get worse next year. The managers at my PCT are very good, but they have to operate under such severe constraints, in the form of directives and targets set by the centre, that it is very difficult for them to exercise good financial stewardship.

Photo of Jeremy Hunt Jeremy Hunt Shadow Minister (Work and Pensions)

Does my hon. Friend think that there is a contradiction between the Chancellor's emphasis on stability and prudence and the way in which money was showered on the NHS a few years ago? That money was taken out of the service as quickly as it went in, with the result that many hospitals have had to close.

Photo of Andrew Selous Andrew Selous Opposition Whip (Commons)

My hon. Friend is correct—there is no point in making money available and then taking it back. A smooth transition is the only fair way to treat people working in the NHS.

I come now to pensioners. I agree with the comments made earlier that it is scandalous that the ombudsman's report into the 85,000 people whose pension schemes have collapsed has not been honoured. Some of my constituents worked for Dexion in Hemel Hempstead and so fall into that category. The Chancellor was happy to talk about the unclaimed assets going into youth services. We all support those services, but the 85,000 people who were forced to save for pensions as a condition of employment, and who now find that the money has gone, should have first claim on those funds. It is reprehensible that they do not and I hope that the Paymaster General, who is sitting on the Front Bench listening to the debate, will urge the Chancellor to reconsider the use of those unclaimed assets. As I said, the 85,000 people who have lost their pensions should have first call on them.

What of the £200 payment for pensioners to help with their council tax? We had it last year, but not this year. We will all have constituents who are counting down the number of years that they can stay in their own homes. They run down their savings every year just to pay their council tax. That is simply not acceptable. Had we had a Conservative Government there would have been a halving of the rate of council tax for people over 65, up to a maximum of £500. It is deeply regrettable that the Chancellor has not given that £200 rebate this year and that we have not had a proper reform of council tax, which is long overdue.

I welcome the emphasis on shared ownership in housing. Like synthetic phonics, that is another Conservative idea that the Chancellor is bringing in. In 1995, only 10 per cent. of young people buying their first home needed help from their parents—now 46 per cent. of them do, if they are lucky enough to have parents who are able to help them financially in the first place. Looking at my constituency, we need the right homes in the right places. The Government's approach to the housing needs of London and the south-east is to ram all the housing into five areas around London. Housing should be spread across London and the greater south-east, and across the country as a whole. Two days ago, the Financial Times contained damning evidence about the fact that regional disparities in the UK have got worse. If that situation was slightly better, it would relieve the housing pressures on London and the south-east. The infrastructure for that housing is not there either, which leads to great worries.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs 6:41 pm, 22nd March 2006

I may forgo a lifetime's obsession with macro-economics and look at some of the micro-economic aspects of the Budget, focusing on the environmental impact. I welcome the fact that the Chancellor has announced that he will index fuel duty in September and that he is indexing the climate change levy, but we have to put that in the context that was admirably spelled out in the Environmental Audit Committee report, "Pre-Budget 2005: Tax, economic analysis, and climate change", which came out yesterday. If we update for today's announcement, figure 6 in that report makes it clear that, on fuel duty, there has been a revalorisation in only two and a half of the past seven years—if we count the current period as a half year. On vehicle excise duty, we are looking at one increase in revenue over the past seven years. On the climate change levy, we are looking at one year out of the past seven years. On air passenger duty, we have had a freeze over all the seven years, with a steady decline in yields.

If we look at the detail of what the Chancellor announced today, we can see, for example, that it is extremely unlikely that we are even going to see an increase in yields from the green taxes overall, given that he admitted that vehicle excise duty, although restructured, would raise less. The restructuring is actually extremely mild. On the increase for those at the top end, in terms of emissions, we are looking at a cost that will be less than the cost of filling a full tank of the average 4x4 gas-guzzler that he says that he is aiming at. The Energy Saving Trust recently came up with research that suggested that, if there is to be a genuine shift in the pattern of car-buying behaviour, there could be a need for a tax at the top end of more like £2,000 a year than £200.

Lest there be any doubt among Treasury Ministers—as there seems to be among Department for Environment, Food and Rural Affairs Ministers—that taxation through the price mechanism has an effect on behaviour, it is worth pointing out an extremely useful article in the latest Fiscal Studies from the Institute for Fiscal Studies, which cites a number of academic research studies, from Finland, Denmark, Sweden, Austria and Belgium, all of which clearly suggest that increased taxes and prices have positive impacts on behaviour when it comes to dealing with climate change. However, the Chancellor's record since 1997 shows a peak in green taxes of 3.6 per cent. of GDP in 1999, but that has fallen steadily so that the latest figure is only 3 per cent. of GDP, or a lower share than in the last year of the Conservative Government. Given the policy announcements today, there is no prospect of a rise either.

The result is clear. The Government constantly remind us that they are set to meet our Kyoto target, but that is an exceptionally complacent spin on the reality, which is that the only reason we are meeting our Kyoto obligations is the felicitous shift from coal-generated electricity to gas-generated electricity, which had a sharp impact on the reduction of greenhouse gas emissions. The Chancellor has included a chart in the Red Book, chart 7.1, which usefully shows that carbon dioxide emissions have risen by 2.9 per cent. since 1997. The Government cannot be confident that they will continue to meet our Kyoto obligations or their target for carbon dioxide emissions unless they take a much more radical view of the need to change behaviour.

The issue is a test of seriousness for the Government and for the Opposition, who are strangely silent whenever anybody mentions the possibility of using the price mechanism or taxation to direct behaviour towards a more sustainable pattern for the future of the planet, our children and our grandchildren. It is a basic economic point that such a change does not necessarily involve any overall increase in taxation. If £10 more is taken in green taxes, it can be handed back to the same people through a reduction in taxes elsewhere, thus leaving incomes unchanged but ensuring that the price incentive bears down on people's behaviour.

I hope that Ministers will consider the policies that they have announced in the context of the longer run since 1997 and see how weak a reed the Chancellor has produced in this Budget. I hope that that spurs them to greater radicalism in dealing with what is, after all, the pre-eminent policy challenge of our time.

Debate adjourned.—[Tony Cunningham.]

Debate to be resumed tomorrow.