Motion made, and Question proposed,
(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation;
(b) for refunding an amount of tax;
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description— [Mr. Gordon Brown.]
Well, the Chancellor has finally given us a tax cut. He normally does that before a general election, but he is in such a deep hole that he has had to do it before the leadership election. In the process, he has blown open the argument that he has been making year after year. He is conceding what we have said all along—that it is possible to increase spending and cut taxes; that yes, it is possible to share the proceeds of growth. But this Chancellor cannot run away from his record. He is the Chancellor who has put the tax burden up. He is the Chancellor who has taken one tax down but put 99 taxes up. The average family is paying £1,300 more because of his Budget decisions. We will check carefully what is happening to the aligning of national insurance, because we think that it might be hitting middle-income families. [Interruption.]
Let me tell you, Mr. Deputy Speaker —[Interruption.]
Order. By sitting down, the right hon. Gentleman did my job for me. It is inevitable that a major statement of this kind produces reaction. It has been relatively mild so far. Let it stay that way.
Thank you, Mr. Deputy Speaker. It is a bit like Stalin: they are cheering him on now—he will wipe them out later.
Let me tell you, Mr. Deputy Speaker, what the Chancellor's real problem is. It is not that he is a Stalinist who holds all his colleagues in contempt, although that probably does not help; it is that he has wasted money on an industrial scale. That is the truth. His great experiment in tax and spending has failed. He is an out-of-date politician wedded to state control, and the question that everybody is asking is: where has the money gone? This is the "Where has the money gone?" Budget. For 10 years, the Chancellor has been telling us that education is his priority—he did it again today—but 40 per cent. of primary school leavers cannot read properly. For 10 years, he has been telling us that he wants a competitive economy, but he has given us the biggest tax burden in our history. For 10 years, he has been talking about child poverty—he did it again today—but the number of people living in severe poverty is up by 400,000. UNICEF says that Britain is the worst place in the developed world to bring up children.
For 10 years, the Chancellor has been telling us about the NHS. Today there was barely a mention. All that he has done is to reannounce this year's money, which we already knew about. He has the figures for the future. Why will he not tell us about them? Does that not tell us everything that we need to know about the crisis in the NHS? The hole in the heart of this Budget is the failure to fix the NHS.
The NHS was not the only thing that the Chancellor hardly mentioned. Let us look at what was in the Budget that did not get a mention in the speech; that is always an important list. Soon, the Chancellor and his allies will be going round the country saying that the spin, distortions and half-truths of the Blair era are coming to an end; some of them have started already—but actually, with the Chancellor spin will get worse.
Let us look at today's Budget. The Chancellor did not point out the savings ratio, which is hidden on page 255 of the Red Book; it has halved since he took office. Business investment as a share of gross domestic product, one of the keys to future growth, is on page 257 of the Red Book; again, it is below 10 per cent. and going backwards. What about page 260 of the Red Book, which says that
"the overall trade deficit is up"?
Again, there was not a mention of that from the Chancellor.
The Chancellor talked about research and development tax credits, but he did not tell us that since they were introduced, R and D has actually fallen. He barely mentioned the Lyons report on local government. He normally trumpets these reports and tells us how proud he is, but today there was not even a mention. Make no mistake—the measures in the Lyons report will hit every family in the country. The Chancellor did not mention retail prices inflation, either, which is now at 4.6 per cent.—almost double what he inherited. All those things are in the Budget; none of them was in the speech. [Interruption.] I know that the Chancellor and the Prime Minister are having their annual conversation, but I do not know why he bothers talking to the Prime Minister; he is not "bovvered" any more.
A fortnight ago, the Prime Minister said that the arts were a "core" part of the script. They were not even in the Chancellor's script. The Chancellor boasted about foreign direct investment, but he did not tell us that the Red Book shows that half of last year's foreign direct investment was accounted for by the restructuring of one company—Shell. That did not get a mention. In spite of all the extra taxes, let us look at the borrowing figures. The Chancellor listed them through gritted teeth. They might have been whitened, straightened and privately polished —[Interruption.] He has spent all that money on his smile, but he will not even give us one. He is not going to win over Kylie like that.
Let me read back the five-year plan—I mean, the Budget. This year, the Chancellor will borrow £35 billion, then £34 billion, then £30 billion, then £28 billion, and then £26 billion. That is a total of £153 billion by 2011, which is £8 billion more than he told us about just three months ago. This is the Chancellor who has built up a pile of debt. Again, where has all the money gone? We have had a bonanza on spending on the NHS, but nurses are being sacked. He brags about people's long-term security, but the pension system is shot to pieces. He boasts about spending on young people, but the number not in education, employment or training is up by a third. So he has not just borrowed billions; he has wasted billions. What a wasted opportunity—billions taxed, billions borrowed, billions wasted. [Interruption.]
The Chancellor has run out of money, so let us look at the big tasks, the big things that he said —[Interruption.]
It is difficult for them, Mr. Deputy Speaker; they are just realising that their next leader has the tendencies of Stalin and the poll ratings of Michael Foot. The Labour Front Benchers are all standing in the deputy leadership contest because they know from history that that is the one way to avoid the gulag.
Let us look at the big tasks that the Chancellor set himself 10 years ago. He said that he would make the economy more productive, make work pay and tackle inequality. He called productivity growth the
"fundamental yardstick of economic performance".
It has almost halved. It is now lower than in France, lower than in the United States and lower than in the G7 as a whole. As the Prime Minister's former economic adviser put it, the Chancellor is "furring up" the arteries of the economy. Apart from that of India, our tax code is now the longest and most complex in the world. The World Economic Forum says that it takes longer to start a business here in Britain than it does in Serbia. All we have had from the Chancellor is a super-sized bureaucracy.
The Chancellor promised to make work pay. Budget after Budget, he has poured money into the tax credit system. It now costs £16 billion and employs more than 8,000 people. Last year, more than £2 billion was overpaid. Half of all the awards were wrong. The former Home Secretary said:
"The tax credit system is a shambles—such a shambles that I've had to help...my constituents financially".
He added that it is
"such a total mess".
The Chancellor did not tell us that those in work face effective marginal tax rates that would not seem out of place in Cuba. There are 160,000 people who keep only 10p out of every extra pound they earn. Last time we had a 90 per cent. marginal tax rate, at least it was the richest who paid. Now it is the poorest. It is not surprising that social mobility has gone backwards.
Having failed on the public services, on inequality and on poverty, the Chancellor is posing as a friend of the environment. Last week he told us that he did not want green taxes. Now he is introducing them by changing vehicle excise duty. But he leaves the Treasury with carbon emissions up and green taxes as a proportion of total taxes down. I am not surprised that the Secretary of State for Environment, Food and Rural Affairs is standing by the door. He is probably off to launch his leadership campaign. If he had any courage, he would go for it.
The Chancellor spoke a lot about education. Let me take his big pledge. He promised that spending per pupil in state schools would be made equal to spending in private schools. That was the big Budget promise last year. First it was a pledge. Then it became an aspiration. Then it became a long-term ambition dependent on growth in the economy. So what have we learned today in the Budget about this policy that is meant to be the centrepiece? He has told us that he might narrow the gap; that is absolutely nothing.
There is no timetable for this pledge about matching state and private education. So what is the Chancellor actually telling us? Can he tell us what private school spending will be in five or 10 years' time? No. Can he tell us what state school spending will be in five or 10 years' time? No. So that is the great message from the Chancellor. It is his aspiration that one day a number that he does not know might be almost as big as another number he does not know, but he cannot tell us when. Labour Members can put that in their election addresses, but it will not save their seats.
Let me tell the Chancellor what we welcome in the Budget. We welcome the capitalisation of the student loan book. We suggested that three years ago. We welcome the cut in corporation tax. We suggested that three days ago. In fact, if one looks at the whole approach of this Budget, one reaches an inescapable conclusion. Spending is going to grow —[ Interruption. ] The monkeys opposite jeer, but they do not know this. Spending is going to grow 2 per cent., then 2 per cent. and then 1.9 per cent. The economy is forecast to grow by 2.5 per cent. or more in each of the next three years. So the Chancellor has just announced a third fiscal rule. He is sharing the proceeds of growth. He has spent all year attacking our policy and making up ludicrous figures for cuts in public spending, but now he is introducing it. This is the "great master of strategy". He has spent months planning this Budget, with thousands of civil servants in a Treasury that costs almost twice as much as when he first walked through its doors. And the best he can do is to introduce a policy that I announced a year and a half ago. What a genius.
When the Chancellor finally gets to No. 10 Downing street, without any sort of mandate from the British people, why not call an immediate election? Then we can introduce all our policies. That is the Chancellor's problem. He cannot be the change that we need. As Mr. Field says:
"With such clear responsibility for what has gone on, how can he offer the country a new start?"
The Chancellor is not the solution. He is the problem. That is the tragedy for the Chancellor. For years he wanted to be the young pretender and he has ended up as the old man in the Kremlin. The target culture is his culture. The failing schools are his failures. The pensions system is broken because he broke it. The Blair-Brown era is coming to an end. The great ship of new Labour is now a listing, leaking, rusting hulk, and it is heading for the rocks. He cannot jump ship because he has been the pilot for the last 10 years. They are going down—and he is going down with them.
Just think what a legacy 10 years as Chancellor could have produced. We could have had a Budget about a better NHS, a competitive economy, protecting the environment or strengthening families. But for a Budget like that, we will have to wait not for a change of Chancellor, but for a change of Government.
Once again, I am struggling to match the intellectual rigour of the previous speech. I am pleased to congratulate the Chancellor as he celebrates his 11th and, as we must assume, last Budget. He is now comfortably the longest serving post-war Chancellor, and that in itself is a remarkable feat. I congratulate him warmly. I also note with some relief his expression of suitable reverence for the record of Mr. Gladstone.
Sadly, this Budget does not quite live up to the auspicious nature of the occasion. We have seen, over the years, the Chancellor's capacity as a conjuror to use sleight of hand to produce proposals that seem attractive on the face of it but which, examined in a little more detail, are discovered to be rather less attractive than they first appeared. We have had seven years of booming, but often wasted, public sector spending. This is the Budget of a Chancellor ready to move on—a wait-and-see Budget from a wait-for-me Prime Minister.
The Budget has not done enough for the hard-working family that is increasingly struggling with the rising cost of living; for the young couple who have finally got on the housing ladder, but are now fearful that the next interest rise may push them off it again; or for the nurse, police officer or firefighter whose reward for service to their communities has been to see their income squeezed by a burden of taxation higher than that imposed on the richest in this country.
The Chancellor had the opportunity today, in this final Budget, to show that he was listening to the people of Britain, but he has delivered a Budget of missed opportunities. He had the chance to build a fairer Britain, but he has ignored it. He had the chance to create a greener Britain, but he shunned it. And he had the chance to shape a prudent Britain by saving billions of pounds on Government waste, but he has avoided it. He has spurned all those opportunities.
The Chancellor has instead concentrated, perhaps not surprisingly, on his own political succession. But I have a warning for him of a vision of the Prime Minister springing up from his political coffin, like Dracula, to confront the Chancellor. A stake through the heart may seem excessive, but he should beware. As the Americans say, "It isn't over till it's over."
To be fair, I must add that this Budget is set against the backdrop of a reasonably strong economy. Growth remains stable and unemployment remains low. I acknowledge that Britain has a reasonably strong economy. We have supported investment in public services through an increase in taxation from the 1997 base, and we supported independence for the Bank of England. I hope that the Chancellor in turn will be generous enough to point out that those were Liberal Democrat policies, which he derided in opposition but adopted in government.
I talked about the Chancellor's sleight of hand—and I refer the House to page 13 of the Red Book, and item 15. The Chancellor told us as he sat down, to waves of applause, that he would cut the basic rate of income tax from 22p to 20p. On the face of it, that is a Liberal Democrat proposal and a welcome one. But if one looks carefully, one sees that the revenue to justify that reduction will be obtained from the abolition of the 10p rate. To fund the reduction, income tax will be increased for many taxpayers. One could say that we will be asking the poor to subsidise the rich. That is an example of the sleight of hand that the Chancellor has demonstrated in the past.
The sad fact is that despite a reasonably strong economy, the wealth gap between rich and poor is greater today than it was under Margaret Thatcher. By introducing loopholes in the capital gains tax regime, the Chancellor has allowed the wealthiest individuals to minimise their tax bills.
An example of that is the Chancellor's proposals on inheritance tax. They are obviously welcome, but he did not point out that the number of estates valued at more than £2 million that pay inheritance tax has fallen by nearly 10 per cent. since 2001. That tells us that the rich find ways of avoiding paying inheritance tax, and we are entitled to look for some recognition of that by the Chancellor, and for some willingness on his part to take steps to deal with it.
I am afraid that the Chancellor has proved to be every bit as susceptible as some of his Conservative predecessors to giving tax breaks to our richer citizens at the expense of our poorest. The lowest-earning fifth of UK households still pay a greater proportion of their income in tax than the highest earning fifth. This Budget was an opportunity to rebalance the tax system in favour of the less wealthy, but the Chancellor has refused to take it.
With a proper, full approach to raising green taxes, the Chancellor could have helped to encourage a change in environmental behaviour. Of course his proposals on vehicle excise duty are welcome, but they fall far short of what is required. I listened to his speech with care, but I did not hear him say anything about aviation. Do the Government believe that the right hon. Gentleman's recent imposition on aviation has had a significant—or even a discernible—environmental effect? We also need to know whether the proposals apply only to new motor cars, or are retrospective.
This should have been a tax-cutting Budget. It should have cut the tax burden on the low and middle-income families who need it most. That is what one should do with the proceeds of green taxation. That is the true moral case for tax cuts, and it is a matter of regret that the Chancellor has not chosen to act on it.
Of course, taxes have been raised significantly since 1997. Neither I nor my party is persuaded by the case for raising them further. The Chancellor must resist the temptation to tax and spend. Indeed, he should seek to save in order to spend.
Large sums of public money have been wasted on unnecessary and unpopular measures, but now the Government are planning to waste more. We should recall that the war in Iraq has cost more than £5 billion so far, and that is quite apart from the human cost that is emerging. We know that the President made the decisions on Iraq, while the Prime Minister made the case for the war, the Chancellor signed the cheques, and the Conservatives voted it through.
Secondly, identity cards will cost at least £6 billion, and some estimates put the cost as high as £18 billion. That money should be invested in the police and security services. Thirdly, we are already committed to spending £76 billion on the decommissioning of the existing generation of nuclear power stations. Building a new series of nuclear power stations—something to which the Government appear to be committed—will simply add to that bill. The Government should not be wasting taxpayers' money in that way.
The announcements in the Budget were made against the background of an increasingly unbalanced economy. Britain's accumulated private household debt has now reached a total of £1.2 trillion. Any decline in the housing market would be devastating, for millions of families and for the economy as a whole. Moreover, the burden of servicing that accumulated debt is also rising. The average cost of debt repayment in relation to income is now close to the level experienced during the debt crisis under the previous Conservative Government.
The Chancellor talks about the fiscal rules, but he should take steps to restore their credibility. He should have established an independent fiscal authority, as advocated by the Institute of Fiscal Studies. We should have an independent assessment of the economic cycle on which the Treasury bases its figures. The Chancellor simply should not be allowed to mark his own examination papers.
Some questions arise from the Budget statement that need to be answered. The public are entitled to know the effect of the Budget on their tax bills, and on the overall state of the economy. Will the Chancellor confirm that it raises the tax burden on lower and middle-income earners? Why has he failed to combat rising levels of personal debt, or to set up an independent system of assessment for fiscal policy? And why, in his 11th and final Budget, has he not rebalanced the tax system properly, with proper tax cuts for lower and middle-income earners? Those are questions of crucial importance, and the Chancellor should answer them.
I congratulate the Chancellor on the Budget, which will benefit families, society and business. He has taken 600,000 pensioners out of taxation and increased child benefit, and that is extremely important and welcome. However, he has also given us a Budget for business, with corporation tax being reduced to its lowest level ever, and income tax to its lowest level for 75 years.
I want to congratulate both the Chancellor and the Prime Minister. The Select Committee on the Treasury is undertaking an inquiry into the 10 years of the Monetary Policy Committee. We have had some eminent witnesses, not least the former Governor of the Bank of England, Lord George, who came before us yesterday. Some people are asking whether it is through luck alone that the MPC has managed to keep our economy stable, with low interest rates and inflation. However, almost all the witnesses who have appeared before the Committee have rejected that notion. Instead, they have described the instability in the rest of the world and pointed to global difficulties such as the problem with long-term capital management that arose in 1998, and the Asian crisis of 2000. They attribute the success of our arrangements to the structural architecture that we have set up for both monetary and fiscal policy, and they have noted that the accompanying fiscal rules—the golden rule, or spending to invest, and the sustainable investment rule—are extremely important.
Some of the witnesses have noted, very perceptively, that the Government's arrangements would not have succeeded without the accompanying welfare-to-work programmes, such as the new deal. Unemployment stood at 3 million 20 years ago—Labour has created 2 million extra jobs, and that growth in employment has given the Government an opportunity to achieve economic stability. If the mix that I have described had not been available, the pressures already in the system would have rendered it impossible to ensure the stability that has given us record low levels of inflation and interest rates in the past decade.
This is definitely the Prime Minister's final Budget—at least, that is what I am told. However, both he and the Chancellor deserve congratulations on their commitment to maintaining the stability and confidence in our economy—something to which all the political parties are now signed up. In the early 1990s, the Prime Minister and the Chancellor committed the Labour party to that project, thus inspiring confidence in a system that the City, the business community and society as a whole have all accepted. The International Monetary Fund and the Organisation for Economic Co-operation and Development have analysed the British economy, and they have remarked on its stability. Indeed, the IMF recently said that Britain had the best growth levels in the G7.
Yesterday, Professor Charles Goodheart, an eminent former member of the MPC, told the Treasury Committee that the stability that Britain has achieved is remarkable. However, he warned that people might be taking it for granted, especially the young people who have grown up in the stable environment of the past 10 years. It is therefore important for all of us to work to ensure that confidence in the system and the credibility of the framework are maintained. That will be one of the many objectives of the Treasury Committee as it continues its inquiry into the MPC framework 10 years on.
I want to look at the Budget measures in the context of a number of themes that have emerged from the current and recent work of the Treasury Committee: for example, the prospects for economic growth in the medium term; the role of the fiscal rules, particularly in the next economic cycle; the prospects for public expenditure and the role of the comprehensive spending review; the importance of education expenditure—in particular the delivery of capital expenditure on education, which exercised the Committee at the pre-Budget report stage; the need for transparency in demonstrating the success of the Gershon efficiency programme across Government, about which we have a number of questions; and lastly the importance of environmental considerations and the economics of climate change in Treasury policy, both now and in the future.
The Budget painted an encouraging picture of economic growth and the Committee has noted the signs for business investment—the Chancellor's announcement today that business investment will grow by 7 per cent. is encouraging. The Committee was puzzled about why it had not grown in the past, given the prosperity and stability that have been brought about, so the Chancellor's announcement is welcome.
Unemployment is falling, and the Chancellor mentioned that 220,000 more people were in work this year, which is extremely important. We need to continue the welfare-to-work programmes, not least the initiatives that have been mentioned, so that people aged over 55, in particular, can go back to the work force. One of the trends of the past year or so is that there are more older people returning to work, so we need to encourage them. A while ago, I pointed out that although people aged over 65 who work do not need to pay national insurance contributions, their employers do. Why does not the Treasury give a further boost to encouraging older people to work by ensuring that employers do not need to pay insurance contributions if their employees do not pay them? That would be an encouraging sign.
From the Committee's inquiry into the MPC, it has become clear that for the past decade economic conditions have been exceptionally favourable. Indeed, the Governor of the Bank of England, Mervyn King, has described that decade as the NICE decade—the non-inflationary, consistently expansionary decade. Will those conditions be maintained for the next 10 years? Yesterday, one of the witnesses at the Committee said that we would have to be prepared for the fact that the next 10 years might be less rosy. The Governor has compared the economy to a car on the road; it is not that the wheels will come off the car, but that the car will be travelling over a bumpier road. We all have an interest in ensuring that we are realistic about what will happen in the next 10 years.
The Chancellor's economic stewardship has been exemplary, as was his foresight in establishing the MPC. Global factors have helped, too; for example, the tail wind of globalisation has been beneficial for growth in our economy, as more individuals have entered the country to join the labour force. Will that situation prevail? We need policies to ensure that it remains a success.
During the Committee's deliberations, were Bank of England representatives asked why we in Britain have had to pay much more for our borrowing over the past 10 years than our Japanese, American and euroland competitors? Why have we not reduced our rates to the global average?
Witnesses have pointed out how favourable conditions are in the UK in terms of globalisation. The IMF has said that our growth is the fastest in the G7. In the Budget, the Chancellor showed how low our inflation is compared with America, France, Japan and Germany. We are doing well in that regard, as expert commentary tells us.
There are risks to the international economy. In the US, there are concerns about the sub-prime lending market, but comments I have received from individuals in the City do not lead me to consider that the sub-prime lending market presents the same problems in the UK. However, we have to focus on the social conditions in lending. In the last Parliament, the Committee was firm about looking at responsible lending and borrowing. We must be careful that people do not over-extend, especially if they do not have claimable assets. The sub-prime market is important for financial inclusion, so I am pleased with the Government's response to our reports on that. I look forward to working with the Treasury on the 10-year programme for financial inclusion.
Threats from the rapid unwinding of global imbalances remain, as do risks from increased protectionism if the Doha round cannot be brought to a successful outcome. I attended a conference in Africa last week. Representatives from the developing world asked how fair trade really was when they had no access to the markets of richer countries. They pointed out that development aid was no use in the longer term if they did not have free trade. The Doha round is extremely important and I urge the Government to make more commitment to it.
The two fiscal rules—the golden rule and the sustainable investment rule—have played an important part in strengthening confidence in fiscal policy, and will also have a role in the next economic cycle. The Chancellor is to be congratulated on establishing the rules and the monetary policy framework. However, there have been comments that the fiscal policy framework is not as firm and transparent as the monetary policy framework. Changes to the dating of the economic cycle, even if justified by economic data, have not assisted with the understanding and interpretation of fiscal rules.
The right hon. Gentleman rightly raises issues about the golden rules. An additional point that our Committee has considered is whether the last year of one economic cycle should be treated as part of the first year of the next economic cycle. Today, we are not clearer about the Chancellor's policy on that point, but does the right hon. Gentleman agree that it would be right to apply the test consistently, and just as in the past we have treated the last year of one cycle as the first year of the next, so we should in future?
The hon. Gentleman is a good, hard-working member of the Committee and I value his presence. In our last report, we argued that the end of an economic cycle provides the ideal opportunity to review and clarify the operation of the rules. No doubt, when the Chancellor appears before the Committee a week on Thursday I shall be alert to the hon. Gentleman's desire to ask a question at the appropriate time.
In the case of the golden rule, the Treasury Committee has questioned whether it could be more forward-looking, to reflect tensions between fiscal planning, which looks forward, and the dating of the economic cycle, which looks backward. The evidence we have received, not least from the Governor of the Bank of England, suggests that we should be more forward-looking.
The Committee has sought clarification from the Treasury of how it proposes to interpret the sustainable investment rule in the next economic cycle. Clarity on the issue will enhance credibility and strengthen the framework, and will help one and all in ensuring confidence in the whole system.
On the prospects for public expenditure and the role of the comprehensive spending review, my right hon. Friend the Chancellor announced a tight envelope for the CSR in his Budget. However, he can expect much attention from the Treasury Committee in the months leading up to the announcement of the comprehensive spending review, especially in regard to allocations to Departments, and understandably so.
It is important not to lose sight of the framework of public sector agreements and delivery agreements that are intended to underpin the spending settlements. Public service agreements have sought to link increased expenditure with programmes for reform and targets for improvement. Frameworks for reform and continuous improvement are all the more important in the context of a period when public spending is expected to fall as a proportion of gross national product.
When the Chief Secretary to the Treasury appeared before the Treasury Committee, he informed us of plans for fewer but better PSA targets. That is encouraging, but Parliament, and Select Committees in particular, should be involved in the formulation of those targets to see that they are clear, measurable and linked to the resources available. I ask the Government to work more closely with all Select Committees to ensure that that is the case, because insufficient work has been done in that area.
Along with the Chairman of the Public Accounts Committee, I am looking at the issue of financial reporting by the Treasury to Parliament. Financial reporting is complex; indeed, some would say that it is gobbledegook in many cases. If we cannot trace the money and we do not have that parliamentary accountability, confidence is reduced. The Treasury can expect further contact from me and the Liaison Committee on this issue in order to simplify the financial reporting to Parliament so that we can inform the House of where the money is and where it is going.
There is also the issue of the importance of education expenditure, and the delivery of capital expenditure in education in particular. The Chancellor made that very much the centrepiece of his Budget. The themes that I have just referred to demonstrate the challenges in education spending. The Chancellor is right to stress the centrality of education expenditure. An educated and skilled work force is important if we are going to respond to the global competitiveness agenda in front of us. But I suggest that extra resources are not enough. It is the responsibility of the whole Government, including the Treasury, to ensure that the money made available is spent to deliver the objectives.
At the last pre-Budget report hearing, the Chancellor appeared before the Treasury Committee. Members of the Committee, not least my hon. Friend Mr. Mudie, questioned Treasury officials and Ministers thoroughly on what they do to ensure that the money allocated is spent. The answers received, particularly in the context of the 'building schools for the future' programme, were not always convincing.
I warn the Chancellor that when he comes before the Committee, that theme, in terms of education and new schools, will be raised. What about the money that is being allocated to those schools? When are they being built? When will they be completed? Those are simple questions and we wish to have the answers to them, particularly when the Chancellor comes before the Committee next week. More money for education is welcome, but attention needs to be paid to the capacity of schools, local authorities and Departments to deliver allocated spending, particularly in the context of capital programmes.
Mention has been made about money going to front-line services by means of efficiency savings in the Chancellor's Budget statement. There is a need for transparency in demonstrating the success of the efficiency programme across Government. The Gershon efficiency programme is the most ambitious programme of its kind under any Government. The Chancellor today announced new figures on the progress being made, which is encouraging. However, the Treasury Committee has found it hard to match up the assertions of massive efficiency savings, achieved without reductions in service to the public, with the experience on the ground in areas such as Jobcentre Plus. Many of us in the Chamber have had representations from our constituents who work in the Jobcentre Plus area.
It is also hard to correlate reported efficiency savings in Departments such as the Home Office with other evidence on effectiveness and financial management. In the last pre-Budget report, it was mentioned that the Home Office has achieved 95 per cent. of its targets on efficiency savings. That was at the same time as the Home Secretary called it a Department that was not fit for purpose. That just does not add up and therefore there is more need for transparency and clarity. Challenging targets for efficiency savings in the years up to 2011 have already been set, but the Government need to attach priority not only to managing the new efficiency programme within government, but to ensuring that it is reported in ways that ensure parliamentary and public confidence in its delivery.
I come to the importance of environmental considerations and the economics of climate change in Treasury policy, now and in the future. The Chancellor is right to put environmental considerations at the forefront of the Budget. He is also right to stress the role of incentives, as well as taxation, in changing behaviour. The carrot-and-stick approach works more than anything. Taxation can be a blunt instrument in an environmental context. That is clearly true for aviation, where both current and proposed taxation instruments have been criticised. When representatives of the aviation industry appeared before the Committee during our inquiry into environmental taxation, they were not very clear or persuasive about what they were doing in this area. It is time for the industry to raise its game and to participate fully and constructively in the public debate, rather than heckling from the sidelines. After all, the industry is not in the emissions trading scheme in the European Union until 2011. It does not pay taxation on its fuel, unlike the ordinary motorist or businesses in the country. It has a window of opportunity between now and 2011, when it will go into the emissions trading scheme, to show its metal and to show what it is going to do in terms of the environment. I make a plea to the Government to ensure that there is a fair price for carbon in the emissions trading scheme. There will be a lot of lobbying going on in the next few years, but if we do not ensure a fair price for carbon in the emissions trading scheme, the merits of that scheme will be lost.
The right hon. Gentleman is making a good case about a responsible attitude to climate change and global warming, but does he share my deep concern about the dramatic loss of jobs in manufacturing, which can be impacted upon by taxes that are brought in, perhaps for a good reason, in respect of climate change? I refer, in particular, to the aggregate levy that the Chancellor is increasing. That will affect construction, and construction is part of manufacturing. The climate change levy also impacts on the costs of manufacturing, making us less competitive. Is not the right hon. Gentleman, who chairs the Treasury Committee with great distinction, concerned to ensure that we have a proper balance?
I am concerned about the position of manufacturing. I would be concerned if there were adverse consequences in that respect, but the challenge for us there is to ensure greater efficiency. It is important to have that efficiency drive, added to the technological expertise in this country. The hon. Gentleman could make me wax on about manufacturing, but I do not want to detain the House. Spending a lot of time, as I do, speaking to people in the City and seeing some of the bonuses and wages that they get, and then going into the manufacturing sector and seeing small businesses that have two or three people who are struggling, but have dynamic, innovative technological programmes, I think that there needs to be a little rebalancing. However, I will not be tempted by his question. I will leave it at that. He raises an important and profound issue, and we should debate it. We cannot allow the manufacturing agenda to be lost. Although 70 per cent. of our GDP comes from the services area, there is an important role for manufacturing. I hope that he is satisfied with that answer for the moment, but I will ensure that I report back to him at some other time.
I referred to the aviation industry and climate change. I also mentioned earlier that I was at a conference in Cape Town last week with representatives from European and African nations, and one of the big issues was climate change. We cannot look at development policies without considering climate change and therefore I make a plea for the Department for International Development, the Treasury and others to ensure that climate change comes further up our agenda. In that respect, I welcome the £50 million that the Chancellor announced for the programme for 10 countries in central Africa to prevent the destruction of the largest rain forest in the world.
At Cape Town university last week, an expert on climate change told us that anything that we do to address climate change can influence the changes coming in the next 40 or 50 years. We must consider communications. The scientist graphically described being on the end of his mobile and warning people in Mozambique about tornados that were coming to their area. It will be extremely important for us to be prepared for the shocks and changes that climate change presents. We must step up our thinking about that aspect of climate change, and the Treasury Committee will take that forward when we report on the Stern review and the Treasury's role in environmental policy.
The right hon. Gentleman mentioned Africa. He will know that there will be discussions at the G8 meeting in June about the commitment that the Government have already made to Africa in the form of £1.5 billion to help to fight HIV/AIDS. Will he join me in asking the Government to ensure that we stick to that commitment and try to persuade as many Governments as possible throughout the developed world to help fight the scourge of HIV/AIDS in Africa, which is clearly one of the problems that is holding back Africa's development?
I agree entirely with the hon. Gentleman from both a humanitarian and an economic point of view. When we visit Africa, we see that the people dying of HIV/AIDS are those who are the most economically active. The long-term future of the continent is thus being threatened, so I am 100 per cent. behind the hon. Gentleman on the need to ensure that we keep that issue on the agenda.
The Treasury Committee has announced that it will conduct a couple of further inquiries. We will hold one on the transparency of financial markets and another on dormant accounts and an unclaimed assets scheme. The themes of the inquiry on the transparency of financial markets will be the private equity business, hedge funds and insider trading. The recent activity regarding the takeover of Boots and Sainsbury has generated public debate about the private equity industry. My office has been contacted by many people involved in that industry and others. It is important to put down the marker that the private equity industry does a good job in ensuring efficiency in business. However, the Committee will be examining the effectiveness of such takeover activity, especially for the companies that are taken over. We will consider whether those companies get positive returns.
The Chairman of the Treasury Committee is talking about a hugely important issue. While there might seem to be some advantage in UK companies being taken over, is the distinguished right hon. Gentleman aware of the amount of profit that is made by overseas companies that take over UK companies and that is then remitted overseas, rather than remaining in this country for the benefit of our United Kingdom economy? This is a critical issue; we are, indeed, selling our family silver.
This can be a very emotive issue. I remind the hon. Gentleman that we must take our place in the globalised world in which we are living. We get remittances back from outside—
As my hon. Friend points out, we get more than the amount that goes out. Sir Nicholas Winterton alludes to an important matter, however. The Committee will also consider whether there is too much takeover activity and the benefits of such activity in the long term. Our inquiries will focus on the long-term interests of the country regarding economic performance.
If companies are taken over, what will be the arrangements for monitoring them? What is the incentive to monitor a company if the bulk of its ownership is made up of small shareholders? Private equity seems to be in the middle of publicly quoted companies and private companies. Many private companies in this country do not need to report on a quarterly basis and are doing a fantastic job. An example is JCB diggers. I hear that it does not receive advice from City accountants and investment managers about things that it should do be doing, but focuses on the quality of the product that it is selling. I would like to see more of that in our country—I am sure that the hon. Gentleman agrees.
I endorse the right hon. Gentleman's robust support for the private equity and venture capital industry. Does he agree that one of the main concerns arises from the sheer level of debt involved and the complex debt instruments that could create the possibility of a collapse? Obviously, we hope that that will not happen. In many ways, those complex instruments—many people, even in the City, do not fully understand their implications—are at the heart of a possible longer-term problem.
The hon. Gentleman makes a relevant point. Although, we have a benign economic environment and low interest rates at the moment, the Committee will examine what could happen in the future. The debt and leverage that the hon. Gentleman mentions could have implications in an environment that was less benign.
I said that we would be examining hedge funds. The main issue is whether a systemic risk is involved, given that it is difficult to determine where the risk is. The Amaranth hedge fund went down and lost £6 billion, but that did not create a systemic shock in the financial environment, so perhaps the situation is robust and there is a spread of risk. However, I know that quite a number of people are worried about that spread of risk.
The Committee will also consider insider trading. When the Financial Services Authority examined the matter, it painted a fairly bleak picture. The FSA has not made great progress—it is difficult to do so—but we should consider it when we examine transparency.
My right hon. Friend might be aware that I have attempted to find out how many prosecutions have been brought. The FSA estimates that between 20 and 25 per cent. of takeovers and deals might be tainted by insider trading, yet there have been fewer than two dozen prosecutions. Does my right hon. Friend find that extraordinary, as I do?
Exactly. My hon. Friend outlines the situation cogently and cites a reason why we will examine the issue. A lot of concern about insider trading has been expressed to me from the City.
I noted reports on the front page of today's Financial Times about the Barclays-ABN Amro amalgamation, which throws up quite a bit of interest, especially from the point of view of the FSA. Barclays says that it will have its headquarters in Amsterdam and that it will have a Dutch person as its chief executive. Such a big merger across European frontiers will mean that negotiations about supervision will need to take place in both countries, although there will be supervision in each jurisdiction. Given the pivotal role that Barclays plays here and that it will play in Holland, there is a need for the Committee to discuss the matter with the FSA because such a path has not been travelled down too much previously.
The Financial Secretary has produced a consultation paper on unclaimed assets. The Treasury Committee went on an enjoyable but hard-working visit to Dublin—I think that Mr. Gauke would agree—on which we worked from early morning until late at night and just fed ourselves in between. The Irish Government have passed legislation on dormant accounts, so the information that we discovered on our visit will help the legislative process as such a measure goes through here. There are two issues involved in dormant accounts, the first of which is reconciling individual savers with their accounts. The Irish Government put a 15-year limit on that, so if anyone comes back within 15 years, they can get their money straight away. Indeed, even if they come back after 15 years and have the relevant proof, they can get their money. Any measure will need to build people's confidence that we are aiming to reconcile savers with their accounts.
The second issue is that if the accounts are not reconciled, they are given to an independent body that distributes the money for the sake of the community. I suggest to the Government that the Irish Government have undertaken that task very well, and there are many lessons to be learned there. I can also tell the Government that the amount that has resulted from that scheme is eight to 10 times the original estimate of the financial institutions in the Republic of Ireland. That is a lively issue, and the scheme could benefit communities in our country, as well as individuals. If the Government go about their business in that sensitive way, they will certainly have the support of the Treasury Committee. I can tell the Paymaster General that the Committee will ensure that it raises some very good issues for her to consider. I am sure that she, if not others, looks forward to coming back before our Committee, as she always does.
I thank you, Mr. Deputy Speaker, for the opportunity to comment on the Budget, which will be welcome to families, young people, and business. Businesses told me that they needed a simpler system, but more than anything they need a commitment to the long term. With the corporation tax reduction announced today and the reduction in personal income tax, business has that commitment. We have a long way to go on that particular agenda, but we have heard encouraging statements from the Chancellor today, and I end by congratulating him and the Prime Minister on the past 10 years of financial and economic stability.
I have said in the Register of Members' Interests that I hold non-executive directorships, and I draw that to the attention of the House, but of course I am not speaking on behalf of those companies today. It is with pleasure that I welcome a measure that the Chancellor is taking: it is excellent that he is to increase asset sales and privatisations in forthcoming years. When I was able to persuade a previous Conservative Government that that was what we needed to do, it never occurred to me that, some years later, I would stand up in the House to welcome a Labour Chancellor's acceptance of the wisdom of privatisation. It is often better to return assets, sometimes to the families from whom they originally came, because those families can look after them and the state can have the proceeds, which relieves some of the burden on the taxpayer. I give one cheer for that part of the Budget.
I had hoped, when I listened to the bravura performance at the end of the Chancellor's Budget, that I could also welcome him to the ranks of the tax-cutters. As many hon. Members will know, I have often had a sneaking inkling that tax-cutting is a good idea, and have had a certain preference for it. However, it is not a cut in income tax that the Chancellor is offering today, but a con. It is a small tax rise on income. If Members look at page 208 of the Red Book, they will see that what the Chancellor gives by cutting the standard rate from 22p to 20p—naturally, I welcome that—he more than takes back by seizing the 10p band and removing it, and by raising the thresholds for national insurance. Commentators outside the House who are studying the detail will have to say that most people will be worse off, once they combine the changes to income tax and national insurance.
Obviously, there will be some complicated calculations, because the Chancellor is trying to prevent some of the poorest people from being worse off by tipping some money back in through the tax credit system. However, that will mean that every family will have to spend a lot of time poring over the figures—those who are rich enough will do so with their financial advisers—to see how great a reduction in available income they will have to absorb, and to find out whether there are offsets that might make them slightly better off.
My right hon. Friend is a good-natured man, as we well know. I entirely agree that many of the changes are regressive, notwithstanding the tax credit situation, but will he at least give some, if only very little, credit to the Chancellor for simplifying the tax system in a small way, after 10 years of ever more complication?
I am all heart, but I am not sure that I can go quite that far on this occasion, because although there may be simplification as a result of removing the 10p band, there is probably additional complication in the way in which the benefit system is trying partially to compensate those on lower incomes. What worries me most of all is the situation of those people who are doing well and are making a big contribution, such as senior teachers or junior head teachers, who are near or about to go above the threshold for 40 per cent. tax. Looking at the figures, I suspect that they could be particularly badly off. I think that it could be another Budget that taxes those who work hard and do not make claims on benefits, and those whose income is a bit above the level at which they get reasonable support from the complicated tax credit system.
The right hon. Gentleman kindly referred the House to table A1 on page 208 of the Red Book. My reading of those figures is that the Government give up slightly more revenue by moving from 22p to 20p than they gain by abolishing the 10 per cent. starting rate, and that is contrary to what I understood the right hon. Gentleman to say. Secondly, he has not referred to the gains, set out on page 208, for those at the lower end of the scale. For example, there are increases in age allowances and child tax credit, and the threshold of the working tax credit is to be raised. [Interruption.] No, he had not referred to those gains in terms of the overall gain at the end of the scale.
I mentioned all three things, because I am being scrupulously fair in representing what the Chancellor has put before the House in written form; he failed to present any of that in oral form, when the cameras were here and the spotlight was on. It is a disgrace that the Chancellor announces an income tax cut when it is a con trick, and when most people will be worse off in terms of income. I said that people on lower incomes would get some benefit from the changes in the benefit system. We cannot be sure from the general figures in the Red Book who will win and who will lose, but clearly some people will lose. Rob Marris is mischievous, because he has left out the very big increase in tax that will result from raising the threshold on national insurance. If he adds the increase in the threshold to the loss of the 10p band, he will see that that raises an extra £8.4 billion, but only £8 billion of that is given back by cutting the rate from 22p to 20p.
I will deal with the previous point first, and then I will be happy to hear the hon. Lady's point.
On tax, if we consider the combination of national insurance and income tax, on average people will clearly be worse off.
Does the right hon. Gentleman accept that because of the big increase in pensioners' personal tax allowances, pensioners, particularly those who pay tax, will be better off, and will be taken out of tax altogether? Forget about the 10p rate—they will not pay any tax at all.
It is quite possible that some pensioners will be better off, but as the hon. Lady indicates, they will not all be better off. It is a complicated Budget. The Chancellor would clearly love to give some money back, because he knows that he is rightly being criticised for over-taxing everybody, but he does not have any money to give back, as he is spending so much in his other public budgets, and he is reluctant to bring those budgets under proper control.
I would like to put this Budget in the context of the past 10 years, because there is a "farewell" feeling to the Chancellor's performance today; at least, it is farewell to one job. We were reassured to learn from him that he is not planning to combine being Prime Minister and Chancellor of the Exchequer—in name, at least. We will wait and see how it works out in practice. Pity the poor right hon. Lady or Gentleman who is Chancellor when he is Prime Minister. However, that is a story for another day.
If we look at the 10 years during which he has been Chancellor, we can see that he, like Gaul, has been divided into three parts. In the first part, from 1997 to about 2000, he was happily married to Prudence. I was upset to see him make such a big increase in tax on pension funds in that period; he began the damage that has characterised his 10 years. We now have much more enfeebled final salary pension schemes, and many people no longer have access to them. However, in fairness I confess that the rest of the Chancellor's work from 1997 to 2000, while he was married to Prudence, was not too bad. He started to bring down deficits and he kept public expenditure under reasonable control. He did not increase the relatively attractive tax rates that he inherited from the outgoing Conservative Government, and the economy performed reasonably well during that period.
In the Chancellor's second phase from 2000 to about the middle of 2006, we saw the tax-and-waste Chancellor, who tried to reassure all his Labour colleagues that he believed in tax and spend. He took a phenomenal personal interest in all the details of public spending in many of his colleagues' Departments, which they did not always welcome, because he wished to associate himself with the Treasury's largesse to different departmental budgets. So big was the tax and waste under the Chancellor that he did quite a lot of damage to what had been a fundamentally strong economic position. In those six years, Britain started to fall further and further behind our international competitors, whom we outshone in the last decade of the previous century. He introduced a large number of stealth taxes—those are the 99 tax increases to which my right hon. Friend the Leader of the Opposition sensibly referred. Britain fell down the competitiveness league tables, losing about 11 places. In particular, we fell down the tax competitiveness league table, because the Chancellor needed to keep tax rates up and find back-door ways of increasing the tax take from companies and individuals as he went about his task of tax and spend.
I am deeply concerned about fiscal drag and the indexation of tax allowances. Will my right hon. Friend indicate in his splendid speech just how much additional taxation the Chancellor has raised by failing to increase tax allowances in line with inflation, and tell us what the Chancellor has done this year, as it appears to be nothing?
My hon. Friend makes an extremely good point, which I endorse. Off the top of my head, I do not have the numbers about how much fiscal drag amounted to, but the overall totals were colossal, and we know that the average family pays £1,300 a year more in tax than they did when the process began. Quite a bit of that is the result of fiscal drag, but some is the result of policy decisions made by the Chancellor.
That period also illustrate that all clouds can have silver linings, because over the Conservative years, we had been driven deaf by Labour spokesmen and Labour Back Benchers telling us that there was very little wrong with Britain that a big increase in public spending would not put right. We also were led to believe that there was somehow something in us that made it impossible for us to shower enough money on public services, and if only Labour could take over from us, it would shower enough money on public services and all our problems would miraculously vanish. The Chancellor has conducted a bold and historic experiment—unfortunately, at the British taxpayer's expense—but over the six years, he has proved conclusively that it was not Conservative parsimony that got in the way of really good public services. No one can now deny that huge sums of money have been tipped into health and education, and several other services, but nor can any fair-minded person deny that there are still real problems with those services, many of them reminiscent of the problems for which Labour used to criticise the outgoing Conservative Government in the 1990s. I hope that it is common ground across the House, at least between the Front-Bench teams, that tipping lots of extra money into those services without reform or change, and without asking for something for that money, is not the right way forward. We need to find preferably a consensus way of improving public services that absorbs less cash and delivers more for the money.
We now come to the third and probably final phase of his Chancellor's tenure. There again he is trying to prove an extremely important Conservative adage for us, and I admire him for doing so. He now is trying to prove that there is indeed waste in the public accounts, and that it is possible for a Government to tease out that waste and redeploy the money more sensibly and profitably in the public services. He has not quite got to the point yet where he would like to share that with the taxpayer, but he has certainly got to the point where he would like to give the taxpayer better value for money. The Budget is built on the proposition that £26 billion a year by 2010—that money is currently spent wastefully and unnecessarily—can be spent more productively and sensibly by strengthening front-line services, primarily in health and education. I should be delighted if the Chancellor succeeded in doing that. I think that it is quite a modest ambition, given the scale of waste in the public sector, but I suspect that he will find it difficult to do so.
I felt that the Chancellor learned an important lesson when, in a previous Parliament, Conservatives were making the argument that we would run things better and take waste out of the public accounts. The Chancellor suddenly shifted from saying that that was impossible—that had always been his response in previous years—to saying that, yes, it was a very good idea and of course, he had thought of it first. He set up the Gershon review, which identified £22 billion a year of wasteful and unnecessary expenditure in the public accounts that the Government intended to tease out and redeploy. We now learn that Gershon underestimated a bit, and the Chancellor thinks that the sum could be at least £26 billion. We also know from the very good work of the Treasury Committee and others that the Chancellor is finding it difficult to secure all the £22 billion of the Gershon changes, but there is a simple way for him to do so, as he could strengthen his control over the public sector pay roll.
I was pleased that in the last quarter of 2006, the numbers on the public sector pay roll in aggregate fell by 22,000. That was the first time that we have seen a move in that direction after a big explosion of posts. Before Labour Members make their usual silly points, I think that we need all the nurses, doctors, teachers and police officers that we currently have, and we need to recruit more in the years ahead. The good news is that they are a tiny fraction of the huge public sector pay roll, and with efficiency and natural wastage—not by being nasty or sacking people—we could make big changes to the numbers that we need to employ across the public sector.
I am interested in what the right hon. Gentleman is saying. When he was in government, he could not untie that particular knot, in the sense that there are 80,000 more nurses and 20,000 more doctors than there were then. Does he agree with the public spending that brought about the advance in those numbers, or does he think that there should be cuts, which would damage that complement? Those increases did not take place under his Government, but they are in evidence now. How does he unscramble that?
I wish that the hon. Gentleman would try to listen to what I am saying. Of course, I welcome the extra teachers, nurses and doctors who have been hired on the Government's watch. It is not the first time that that has happened. A lot of extra teachers, nurses and doctors were hired on the Conservative watch, too. It is called growth, getting richer and living in a more civilised country. I hope that Governments of all persuasions will carry on doing that, just as the Conservatives did, although Labour has always denied it, and just as Labour is doing, and we always welcome it.
The hon. Lady is being absurd. Of course, we have always welcomed the extra teachers, nurses and doctors, but we have not always approved of all the extra money, because a small fraction of that has been spent on those people, and a huge amount has gone on incredibly wasteful and unnecessary spending, such as the huge, badly handled NHS computer scheme, which is absorbing much more money than the extra nurses are absorbing, the identity cards scheme and all the other things that we would strip out and cancel when we come to office. We want to concentrate expenditure on the good things in the public services in which we believe.
We applaud the work that nurses do, but does my right hon. Friend agree that they have been met with a gross insult from the Government with the staggered pay increase that they have been given this year? When those increases are grouped together, they total 1.9 per cent. When inflation is running just below 5 per cent. that means that nurses will take a pay cut of more than £500 in any given year.
Nurses will certainly not be amused by the Budget, because they will not receive the tax cut that they might have heard about on the headlines when the Chancellor first read out that piece at the end of his speech.
We have a Chancellor who, in his early phase, taught us rightly that it is best to be married to prudence, as the economy does rather better. He has now demonstrated that just tipping lots of money into public services without targeting it on the things and people who matter is not a good idea, and he wisely says that there is a huge amount of waste on his watch that must be squeezed out. If he and his immediate successor cannot do so, it is a task that we will welcome because it will make our job so much easier because we will inherit all that waste on which we need not carry on spending.
I am grateful to the right hon. Gentleman for his generosity. He is making an interesting speech, but my experience of being in business, and of observing it, is different from his. If a business expands, the initial step is often to hire more labour. As the expansion beds in and stabilises, there is a substitution of capital for labour, because new work organisations are developed because there is increased output—a Henry Ford motor car assembly line is a classic example—which is part of the cycle through which the Chancellor and the Government have gone. We have had the expansion, we have fuelled part of it by investment in buildings and hardware, and part of it by investment in people, and we are now moving to the next phase, where we will substitute some capital for labour for a more efficient operation. There is no contradiction in that.
The business would not have survived if it had been run in the way that the Chancellor has run some of the public departments in this country. There is no way that modern businesses can go out and recruit people whom they do not need for the main function. When they are blessed with a rising work load, they recruit fewer people than proportionate to the increase in work load because they have to increase their productivity every year. A manufacturing company usually has to take price cuts because it is in an extremely competitive market, with India and China doing phenomenally well.
We have a public service which, until a few months ago, believed that any amount of money could be cascaded in and that it could hire anybody it liked. Often the people hired were management consultants, PR consultants, middle managers, administrators, form fillers—people who were needed to deal with the huge panoply of controls, requests for figures and interventions that come from the very overcentralised Treasury. I will not repeat the words of Lord Turnbull, as I am sure the Chancellor would be hurt if I did, but there is clearly a lot of centralisation in the Treasury and one can see why some people get the impression that they do about the style of management. It is that which has wasted so much of the money and got in the way of the professionals in the health service and the education service doing their job more successfully, and it has got in the way of the money getting to the places that it needs to reach.
I hope that in the next phase of the Chancellor's odyssey he will also learn, as my right hon. Friend the Leader of the Opposition so sensibly outlined, that the Conservative policy of sharing the proceeds of growth is the right policy. When the Chancellor realises that his con trick on income tax is not quite what people wanted—they want a real tax cut, not just a cosmetic tax cut—he will see that he and his successor must reduce the tax burden on hard-working families and on businesses. He will see that the only possible course of action is sharing the proceeds of growth.
We want to share the proceeds of growth because, yes, we will need some extra money for more nurses, doctors, teachers and police people as the economy grows. As we get richer, so we need to meet the sensible demand for public service. But yes, we need to squeeze out the inefficiencies, and we need to leave some money over as the economy grows so that we can cut tax rates. Indeed, one of the advantages of cutting tax rates to a more competitive level internationally is that then the whole cake will probably grow rather more quickly.
One of the big failures on the Chancellor's watch is that our business tax rates have become so much less competitive than they were when he started, and we are paying a high price for that. Over the period of the Chancellor's stewardship of our economic affairs, the Republic of Ireland has grown by a stunning 76 per cent., whereas the United Kingdom has grown by 27 per cent.
The right hon. Gentleman mentions Ireland. Does he not think that part of the astounding growth is due to its membership of the euro?
No, of course not. If the hon. Lady studies the facts, she will see that Ireland was growing very strongly before it entered the euro. Nor was it huge quantities of European cash, which is the other bogus explanation that people sometimes come up with. Ireland was a bigger beneficiary in its years of slower growth, and most of that money went into the agricultural sector, which has not led the Irish economic recovery. The Irish economy has been buoyed up by the great success of very low corporation tax rate, so large numbers of businesses have gone there and set up there, clustered around the larger companies. That shows that lower tax rates work and generate a much bigger cake. Ireland is not skimping her public services. She can afford to have a lower percentage of total incomes taken in tax because she is now richer. People are better off in Ireland, on average.
One of the advantages of the Select Committee's excellent trip to Ireland was that we looked at some of the economic facts, which are not as the right hon. Gentleman says. Ireland started off as a basket-case and has improved from a low base. Its level of indirect taxes has increased, which this country would not stand. Ireland considers that its spending on the health service is in crisis and that it needs to be transformed. The right hon. Gentleman's facts are not accurate.
The crisis in the health service in this country is every bit as big as the one to which the hon. Lady refers, or probably bigger. She is rather unpleasant about the Republic of Ireland, saying it was a basket-case. My remarks pointed out that it had grown strongly for a long time, so by definition it started from a lower level of output and average incomes than we enjoyed, and it has overtaken us. It has overtaken us consistently, year in, year out, for 10 years, on the Chancellor's watch. The hon. Ladies have not come up with any reason why that should be, because the true reason is that Ireland and its Finance Minister got it right and made the environment attractive to business, and the Chancellor got it wrong and did not make it attractive enough to business.
As another member of the Treasury Committee who was on the trip to Dublin, I can tell my right hon. Friend that we were informed about how growth was very high in the early 1990s, long before Ireland joined the euro, and that public expenditure as a proportion of GDP has been substantially lower in Ireland than in the UK.
I am grateful to my hon. Friend. To some extent I feel that I am the father of that great expedition to Ireland, because it was my questions in the House about why Ireland had grown so much faster that triggered much of the interest, and the enthusiasm of the Scottish nationalists for the subject.
All hon. Members need to remember that the backdrop to the change in economic performance in the Republic of Ireland is the very strong model of social partnership, whereby multi-annual programmes are agreed between Government, business and unions. I know that some hon. Members would not be comfortable with that model, but it has provided the spine of economic growth, development and discipline in the Irish Republic. Also, it needs to be remembered that in this period of remarkable growth, the public sector in the Republic of Ireland grew by a third, so the growth was achieved not by attacking the public sector, but by properly investing in the public sector and delivering effectively alongside a growing private sector.
How many times do I have to explain? I and my colleagues would like our public sector to have more money and more people of the right sort to provide a better service. We are arguing about the speed at which that can be achieved and how it can be best achieved. It is best achieved if the private sector is growing more rapidly than it is growing in Britain under the present Chancellor of the Exchequer.
As to the hon. Gentleman's account of why businesses have gone to Ireland, I have spoken to a number of businesses over the years, as I do in my job as an MP and with my interest in economic competitiveness, and I must say to him that no business man who has been thinking of going to Ireland or who has gone to Ireland has ever said to me, "I must go there because of their social partnership model."
It is the social partnership model that has underpinned economic policy, creating consistent and stable economic policy for a decade and a half. Without the social partnership model, the Irish Republic would not have achieved or sustained its growth record.
I do not think the hon. Gentleman was any better the second time. Perhaps it was the sample that I happened to meet, but the business men all said to me that the attraction of Ireland was the lower tax rate. I do not know whether the hon. Gentleman knows how business people make their forecasts and make their decisions about where to invest. They usually work out what they think will be the revenue line, then put in what they think will be the cost line, and strike something called a profit. They then look at how much the Government will take of the profit and what remains at the end. If more remains at the end in one country rather than another, they are tempted to come to that country. That has worked well for Ireland.
The right hon. Gentleman should realise that the social partnership framework agreements set discipline in tax rates, agreed the tax framework, and provided for wage restraint, so Government were able to negotiate that with business, trade unions and other social interests on a multi-annual basis. That provided the environment that has attracted businesses into Ireland.
The policy came from thinkers around the world who pointed out to Governments that that always works. The Irish Government had the common sense to do it, but the British Government have not yet had the common sense to implement it properly.
That brings me to the corporation tax rate in the United Kingdom. I am pleased that the Chancellor understands that there is a problem out there. Britain was one of the lowest tax countries in 1997. The Chancellor would say that he has already brought the headline rate of corporation tax down on his watch. That is true, but he must realise that it is a very fast moving and competitive world out there. While he has been bringing it down a little, many of our great competitors and friendly nations in the world beyond us have cut their rates much more quickly, so we have gone from being relatively good value to being relatively expensive.
In the global supermarket for the location of business and investment that we now live in, that means that Britain is losing out. Investments no longer come to Britain because the tax regime is not attractive. A lot of manufacturing is exiting Britain and a lot of new manufacturing investment is going elsewhere. We find a country such as the Netherlands, with quite high costs in other ways and the same EU regulations, winning rather well against us because it has a much more competitive tax regime. Shell has decided to amalgamate its headquarters in the Netherlands to save on taxes, which will be a tax loss to the Treasury. We see discussion in the press about Barclays possibly moving its head office overseas after its merger. Of course, its domestic operations will still be taxed in Britain, but that will be another tax loss.
At some point the Treasury has to take this more seriously than the Chancellor has done so far. If he wishes to preserve the tax takes that he has, he needs a competitive tax rate. There is no choice. It is absurd that so many Members have this wooden approach that says: "If we cut the tax rate, we will lose this much revenue, we cannot afford to lose that revenue, so we will keep the tax rate up." The truth is that if our tax rates are kept at a fixed level and the rest of the world cuts, we will lose revenue because we are not responding. The other wonderful truth is that if we are bold enough to cut tax rates so that they are sufficiently competitive, we may shortly experience a big increase in revenue because we benefit and the less competitive tax jurisdictions do not.
The Chancellor told us that he is cutting the corporation tax headline rate from 30p to 28p in the pound. One cheer for that—it is very good news, because the headline rate is what people look at. The not so good news on the same page of the Red Book is that that is more than paid for by the money that he is clawing back by cancelling some of the credits and offsets allowed against the 30 per cent. rate. That will make Britain a bit more attractive for certain kinds of companies that do not benefit from the reliefs that he is removing or reducing, but other companies will be worse off, so it exacerbates rather than eases the problem. One cheer for the lower rate and one cheer for the companies that will benefit, but the Treasury should understand that it has not solved its problem, because many companies will still be worse off. The overall result is to take a little bit more from the companies sector, and a lot more in the case of some areas and some companies.
The Chancellor's record is often defended around one central proposition. We are told that his act of genius was to make the Bank of England independent when he came into office 10 years ago and that everything else has flowed from that excellent decision. My colleagues and I are very happy to have an independent Bank of England, but we do not believe that it has been as independent as the Chancellor has advertised. Nobody can get away from the fact that at a crucial time just before the last election the Chancellor wrote a very important letter to the Monetary Policy Committee of the Bank of England saying that he wished to change the basis on which its targets and instructions rested, and he shifted it from the retail prices index to the consumer prices index. He well knew at the time that the CPI was going up much more slowly than the RPI, so he must have done that knowing that it would keep interest rates lower than would otherwise have been the case. That was very convenient ahead of a general election. Unfortunately, there has been a price for that, because after the general election, with interest rates kept down, we discovered that inflationary pressures had built up. Because of its new CPI target, the Bank of England's committee has probably had to raise rates by more than would have been the case without the political intervention.
We can see the cost of those interventions—I am sure that there have been more than one—in that over the 10 years of an independent central bank people in Britain have had to pay more to borrow money, on average, than people in the United States of America, which has grown more quickly, in Japan, which in the early part of the period grew hardly at all but has now been growing quite respectably, or in euroland, where performances have been very patchy but where, on average, growth has been slower than in the United Kingdom. It is worrying that we have had to pay a premium over American rates when America has performed so much better. That should tell us not necessarily that an independent central bank is wrong but that our bank was perhaps not independent enough. It suggests that, because the Chancellor's fiscal policy was pulling in the opposite direction to the direction in which monetary policy had to go, the MPC had to put up interest rates more than it would have done. Because the Chancellor was not following prudence between 2000 and 2006, there was a price for all of us in higher borrowing costs—not only in mortgages for those trying to buy a house in very expensive Britain, but for those borrowing money to run successful businesses.
Over the past 10 years we have seen a big let-down on productivity. When the Chancellor came into office, he told us more or less to judge him by productivity and said that he could take a number of measures that would boost productivity. The irony is that in the area where he had most control—the public sector, where he had riches beyond most people's dreams that he could have used to buy improvements in productivity—there has been a collapse in productivity. So bad is the position that the Government have asked for changes in the figures and have withheld a proper series of figures from us. There appears to have been no productivity growth in the public sector at all. It beggars belief that someone can perform that badly when they had so much money to spend on new technology, new people and new skills, which should have enabled things to be done in a much better way.
Is my right hon. Friend aware that if the productivity growth under the last Conservative Government in the 1990s had been continued in the NHS through the term of this Government we would today have no waiting lists for any operations at all? [ Laughter.]
My hon. Friend makes an extremely powerful point. Labour Members laugh, but this is their watch and it is their job to explain to the public how it is that productivity has bombed so badly when so much money and time has been spent on trying to get things right. It does not augur well.
Does the right hon. Gentleman accept that it is easy to show high productivity growth when there is the collapse in wages that happened in the public sector, particularly in relation to the compulsory competitive tendering regime, during the last stages of the Conservative Government? Of course there was higher productivity because pay rates were decimated.
The level of productivity has nothing to do with pay rates. I am interested in output in relation to the number of people employed. If the hon. Lady wishes to have wage-related productivity, I deny her premise. There was no collapse in wage rates in the public services in the later years of the Conservative Government.
I have allowed the hon. Lady to intervene many times and she is trying my patience. She has made several foolish points, and I do not think that the House wants to hear another one.
The Chancellor has fallen behind very badly on productivity. His micromanagement from the centre has not helped British companies to become more productive and it has got in the way of the public sector.
When the Chancellor was in opposition, he used to think that a good night out was spending time poring over the balance of payments figures. He would come rushing into the House the next day if he found some bad balance of payments figures, put them to Ministers, and personally blame them for the imbalance between exports and imports. Since he took over as Chancellor, we have had enormous balance of payments deficits—I think that he has set new records—and we are not told anything about them at all. Again, they did not get a mention today; all the figures that he chose to highlight were ones that he thought were favourable. The House should remember that there is quite a price to pay for the de-industrialisation of Britain that has continued under this Government, with 1 million manufacturing jobs lost on their watch. The price is there in the visible trade balance, where there is an awful lot of red ink. We import a great deal of the products that we need from elsewhere in the world because we are not making them in Britain. Meanwhile, 5.3 million people of working age sit on benefits. I know that the Chancellor wants to do something about that, but it is getting a bit late—when is he going to do it? He should be much angrier about those 5.3 million people and find some way of getting them back into legitimate employment so that we can start to fill in some of the holes in the balance of payments.
My conclusion on the Chancellor's 10 years is this: there has been no major disaster, and for that we are very grateful. The inheritance was strong and good. For the first three years he did not do too much damage to it apart from the huge mistake over pension funds. For the next five years, he proved beyond doubt that just spending huge sums of money does not sort out the public services sufficiently. At the same time, it damages Britain's ability to compete, in turn damaging our ability to employ those 5.3 million people who do not have jobs and our ability to raise our living standards as quickly as America, Ireland or the other success stories around the world.
This Chancellor has put Britain at the bottom of the pack of English-speaking countries—the pack to which the Chancellor never refers—though from time to time he has put us at the top of the European pack. That has not been very difficult, as Europe has gone through a dreadful time with the wrong model, showing once again that the high-tax, high-waste, high-spend approach does not produce a happy country or even good public services.
This Budget is based on a central con on the income tax proposition. Most people will feel very let down when they read their newspapers tomorrow and see that they are not better off in the way that the Chancellor was perhaps trying to hint with his famous announcement at the end of his speech.
When it comes to the corporate sector, the Government should not run away with the idea that they have done enough. They have acknowledged the problem and will have helped some companies a little, but we need a considerably better tax package if we are to stop more Shells and Barclays either going abroad or thinking of going abroad, or if we are to bring more large companies into Britain, saying, as they do with respect to Ireland, that this is the place where they wish to come.
If Labour Members believe that we also need a social compact in order to attract them, I look forward to their setting out the details so that we can debate them. I think that most of them already know in their hearts that what will bring the punters in from around the world and from the global marketplace is a much more competitive tax system. Unfortunately, this Budget does not deliver it.
It is normal on these occasions for me to follow the Chancellor's Budget statement and fill in the conventional gaps that I feel he has overlooked. I pay tribute to the Chancellor's specific section on the environment and green taxation and to the efforts of the Conservative party and its leader in moving the issue up the political agenda. I should like to take this opportunity to present the green Budget that I think Parliament should have been offered.
Before I do so, however, I would like to preface my speech with a couple of fairly conventional remarks. The House should put on hold the points that Mr. Redwood made in his speech and use as a point of reference the IMF report that is due to come out this week, which I understand will say that the UK is the fastest and strongest growing economy within the G7. In the context of that strength we should have the courage to make much more profound changes in the nature and shape of our economy. We should not pretend that we would be asked to make those changes—I will take the House through them later—from a position of weakness.
The hon. Gentleman makes an entirely fair point, but does he not recognise that many Conservative Members feel that comparisons only with G7 countries show a great paucity of aspiration? Such comparisons also fail to recognise what is going on in the global economy, with two economic superpowers such as India and China rapidly emerging. That should be the comparator for the future, rather than just looking at six other nations, many of which—particularly in the European area—have performed extremely badly over the past decade or so.
I accept that, and I shall make most of my remarks in the context of what is happening in the wider global economy. It might not surprise the hon. Gentleman to know that I take a quite different view of the fragility of the global economy. When hon. Members say that we have to strip this country bare to try to compete with China and India, I ask them to begin from a different audit position.
If we look at those two countries and the dilemmas that they are currently grappling with, we see that they begin with quite different questions. They are already asking themselves where on earth they will find the water resources to sustain their current levels of production or the domestic requirements of their citizens. They are asking where they can find the energy resources needed to continue to underpin those levels of production. All the major growth areas in the developing world are already in deep environmental crisis in respect of access to those sustainable resources. In the coming decade we shall have to take a quite different view of what holds the global economy together, and the way in which we approach global ecology will determine that.
The one more conventional point that I must make before I launch into the specifics of my green Budget is to recognise today's lobby of Parliament by some extremely cold pensioners who were stripped of their pensions—125,000 of them—and who continue to make the point that a massive injustice has been inflicted on them by denying their rights to full restoration of their stolen pensions. Although I was grateful for the Chancellor's reference to the strengthening of the financial assistance scheme, the reality is that when it comes down to the core figures of what it would take for this House, this Government, this Parliament to restore those pensions in full, we are not talking about £15 billion, which was the figure originally quoted. We are talking about a current sum of only £45 million a year between now and 2011. Between 2011 and 2020, the worst-case scenario is that that would rise to £100 million a year.
To put that in the context of the existing Department for Work and Pensions budget, just the error factor in last year's administration of pension credit came to £120 million a year. I do not believe that we should wait for a further court judgment in favour of the pensioners and against the Government's claim that it is not their fault and they are not in a position to do anything about it. The honest, decent and principled legal duty is to restore those pensions in full—and it would be bought for a sliver of the costs from the Exchequer cake that the Chancellor took us through today.
I would like to associate myself personally with everything that the hon. Gentleman has said in this regard. I suspect that he speaks for many hon. Members on both sides of the House. It has been an appalling injustice and the ombudsman's inquiry and the court cases were pretty straightforward. As the hon. Gentleman rightly says, a number of very cold, aged pensioners cannot go back to work to earn more money, so we need to ensure that they are properly looked after during what is likely to be the relatively few years before they pass away.
I hope to take the opportunity to address those concerns by amending the Pensions Bill. I hope that we succeed in doing so.
Let me focus, as promised, on the shape of what I believe would be a genuinely green Budget. The Chancellor went through a number of points about the success of different measures in the Government's programme for achieving carbon savings, but the core national picture, however, is far less rosy and comfortable than any of us have a right to claim.
The 1980 assessment of UK carbon emissions was 161.5 megatonnes. By 2005, the figure had gone down to 151.5 megatonnes—a 6.4 per cent. reduction on the 1990 figure and well below the 20 per cent. domestic targets for carbon reduction that we set for ourselves by 2010. In fact, for the last three years, the level of carbon emissions has been relatively static across the UK. The progress made on carbon reductions in the early 1990s was an accidental result of a disengagement with manufacturing and the dash for gas. We see now that there were carbon gains from that, but it would be quite wrong to try to rewrite history as though that were the intention.
I would respond to that by referring to something that my dad said, which was that any idiot can run down an industry by selling off its assets. That makes a profit in the short term, but we are left with nothing in the long term. That is the approach to privatisation that the Conservatives drove through this country, leaving us with a wretched legacy of destruction and abandonment. Simply shifting the responsibility for contamination offshore does not add anything to the UK's contribution to tackling nationally what is a global problem.
If we are to take seriously the invitation that scientists are pressing us to address—we have identified the need for a 60 per cent. reduction target in carbon emissions by 2050; scientists have identified the need for an 80 per cent. reduction—the scale of what we do within the shape of the UK economy has to be transformed. It will mean reducing our carbon emissions to 32 million tonnes by 2060. That would require a national carbon savings programme delivering savings of about 3 million tonnes a year, every year between now and 2050. Given that our record over the past 15 years has been to save less than 0.6 million tonnes of carbon a year, achieving that target would require a transformation.
I suggest to the House and to the Government that we need to establish a new set of golden rules and a new set of specific policy initiatives. The golden rules should begin with one that recognises what the Stern report said—that the Government should henceforth seek to ensure that the UK economy as a whole commits a minimum of 1 per cent. of UK gross domestic product to the climate change mitigation programmes. That should happen not just across government but across every sector of the economy.
As a long-term commitment, all parts of the UK economy would then be required to make annual carbon reductions consistent with the 80 per cent. carbon reduction target, based on 1990 emissions levels. In the short term, however, it would require existing UK target commitments to climate change and fuel poverty to have a rolling programme of a 5 per cent. reduction each year. Again, that should apply to all sectors of the UK economy.
For the Chancellor's second new golden rule, I would suggest that borrowing within the economic cycle should be reinterpreted as borrowing that should be prioritised to restore the ecological capital of the country, specifically in respect of renewable energy generation and water recycling.
To deliver all that, we need specific policies, which I would address in three areas: energy, the built environment and transport. The Government must begin by transforming energy market rules. The Chancellor made a welcome commitment today, saying that income received by customers who install energy generating systems in their homes should be tax free. Although that is welcome, it does not address the fact that most of the companies that buy back energy in that way pay a pittance for it.
In that regard, by far the most successful intervention approach is the one already in use in Germany, which introduced a renewable energy sources Act in 2000. It requires the energy industry to pay customers four times the current market rate for the renewable energy that they put back into the system. The effect has been transformational. The measures resulted in a cavalry charge of German citizens seeking to become part of the renewable energy generating process, and produced a renewables industry that, last year alone, delivered 214,000 new jobs into the German economy, and 24,000 in the last year alone. In that last year, 90 million tonnes of carbon savings were delivered—a huge quantum increase on the combined levels of carbon savings of all the UK schemes.
The German system has been successful because it was citizen-driven. It recognised that the role of the Government was not to abolish markets but to change the rules so as to create markets that are ethically competitive and ethically sustainable. The cost to German energy customers has amounted to €1.40 a month on the average energy bill.
The impact of the German scheme has been profound, and our Government ought to establish a similar scheme here in the UK. We should require industry to set out the terms of the preferential buy-back arrangements. We should also designate the period—perhaps 15 or 20 years—within which the preferential pay-back tariffs will remain in existence. We should also define which tariffs should apply to the specific technologies that are available in the marketplace at any given time.
The next important job for the Chancellor would be to address how we deliver all those measures. If we look across the landscape of Europe, we see that local authorities are by far the most efficient vehicles for delivering sustainability agendas. They are given specific powers and duties to co-ordinate and drive the sustainability agenda that is defined by their central Governments. We need to make exactly the same provisions in this country, and at the same time remove many of the obstructions that stand in the way of developing decentralised local energy networks. That has already been done on a wide scale across Europe; only the UK's own intransigence stands in the way of a much more coherent approach to energy investment and sustainability.
On the back of a serious commitment to the promotion of energy services companies, the Chancellor should change Ofgem's terms of reference. At the moment, the UK is locked into an impossible position, in which all the major energy companies talk about their desire to get into sustainability programmes but say that achieving that is hopeless. They say that they are required to compete with one another on short-term lowest-price terms. Nothing allows them to break out of the 28-day contract rule in order to get into the long-term energy services contracts that those same companies have in other parts of Europe. It is the obstacles of our own rules base that are getting in the way of the transformation that we need.
I entirely agree with the hon. Gentleman. Does he acknowledge that the 28-day rule works strongly against the sensible installation of smart meters?
I do, but I also have strong views on smart metering. The energy sector is desperately keen to get smart metering entitlements, simply to allow it to bill us more effectively. The really smart meters on which we ought to be insisting are the kind that would empower the Royle family. I am not talking about the royal family down the road, but the Jim Royle family, in which people barely get out of their armchairs except to get a cup of tea. Such people would look at the meter clicking away on the wall and shout to the rest of the family, "What are you doing? Have you left the doors open again? Are you drying your tights with the hairdryer? Am I made of money? Switch that thing off!" In a sense, the meters must inform and empower the public rather than just empower the energy companies to bill us more effectively. I agree with the imperative, but the House needs to make an important decision about the function of those meters and about whom they make smart.
That takes me on to the built environment. I welcome the commitments on building zero-carbon homes by 2016. At best, however, that might involve 200,000 houses a year, which prompts the question of what we will do with the 25 million homes that we have already. Unless the same standards and requirements are applied to the upgrading of existing stock, a new build programme will not address the fact that 25 per cent. of carbon emissions come from existing homes. To do that, we need to enhance some of the measures already in place and introduce new ones.
As part of our legislative commitment to eradicate fuel poverty by 2016, the Government introduced the Warm Front initiative along with the energy industry's complementary energy efficiency commitment. The difficulty with the funding of those two programmes is that, according to current assessments, in 2016—by which time fuel poverty should have been completely eradicated from UK housing—there will still be 2 million fuel-poor households. The only way to address that is to bring Warm Front and the energy efficiency commitment and its increments into a single coherent programme, delivered through, or under the auspices of, local authorities. Such a concerted and co-ordinated programme would upgrade all our housing stock to a standard assessment procedure rating of 65—the threshold set for modern, well-insulated housing—and dramatically reduce carbon emissions.
It is not enough, however, to give local authorities additional money to deliver the programme; we must give them additional powers. We cannot just set higher standards in building regulations for the materials used. There must be a conceptual shift in our thinking about the built environment. We must move to the notion of our houses being not just consumers but generators of energy, as has happened dramatically in Germany. To do that, we need to give local authorities unrestricted powers to set sustainability standards for every part of the built environment, including planning and building regulation requirements to incorporate energy generation in every upgrading of a property and in every development of new properties. That must apply to the domestic, commercial and industrial sector.
We should learn from other parts of Europe and consider the recycling of water—which will also be a part of the climate change crisis that will affect our lands, irrespective of how desperately it affects those in other lands—as well as energy. Those issues ought to be part of the regulatory framework in which we plan for a more sustainable environment for the 21st century.
What can the Chancellor do to enhance that? First, people who have properties with a minimum SAP rating of 65 should be exempt from 50 per cent. of the stamp duty that they would normally pay on property transfers. Secondly, properties that have incorporated energy regeneration and water recycling as well as the SAP rating of 65 could be offered 100 per cent. exemption from stamp duty. That would transform the way in which people thought about the nature of their property transfers.
To cover the most vulnerable sector of our housing environment, we must also address what would happen to properties that are currently let with the poorest of insulation. We must give local authorities the power to set precisely the same standards and requirements as a condition of the right to let. If we do not set those standards, we will retreat into an era of Rachmanism. That is not to oppose people's right to acquire properties to let, but to say that in a civilised society people should not have a right to let properties that are in a state of squalor to those who are too poor to exercise any other housing choices. We must set standards of sustainability in the built environment that will make homes fit for people to live in today, and fit for our children to occupy and acquire tomorrow.
Those are the ways in which we can transform one part of the built environment; but even in the commercial and industrial sectors, each business occupies its own part of that environment. One of the conditions that should attach to access to the array of tax incentives and allowances that the Chancellor has made available today and in previous years is acceptance by businesses, whatever their nature or size, of the duty to play their part in meeting the Stern report's requirement of a 1 per cent. contribution of turnover to climate change mitigation measures. They too must adhere to the Government's national target of a 5 per cent. reduction in carbon emissions year on year between now and 2020. They do not have to do that, but they should not expect to receive any tax subsidy or allowance if they choose not to, because if they choose not to, someone else will have to step in to clear up the mess that they have created.
Allowances must be made conditional on a different ethical contract between business and society, between commerce and society, and between domestic development and society: commitment to an agenda that will enable our children to survive, rather than be left scrambling in the wake of climate chaos.
As for transport, there are a number of things that the Government can and should now do, in every Budget. The basic starting point is to set a self-denying ordinance: the amount of capital invested in private transport infrastructure should never be greater than the amount invested in public transport infrastructure. The starting point should be parity. In the context of motoring, however, there is a compelling case for learning one of the lessons from the Conservative Governments that we succeeded. I refer to the introduction of the fuel price escalator.
We will not make major differences by changing the rates of road tax on different types of vehicle. What we must do, as motorists, is accept that we will have to pay a price premium for the carbon that our vehicles emit. It is not good enough to drive twice the mileage and produce a net addition to carbon emissions in a vehicle that, although more efficient in theory, ends up doing more damage in practice.
That is almost like asking what is the length of a piece of string. I do not know the answer. What I will say is that we need to learn some of the lessons that were not addressed in the first round of the fuel price escalator. At that time it was seen simply as a way of raising revenue for the Exchequer. My argument is that the whole nature of green taxation should be set in a completely different context. There is no case for its being a revenue-raiser for central Government; that defeats the purpose. Allowing people to pay more in order to go on behaving badly will do nothing to change the nature of an unsustainable economy. What is needed is behaviour change rather than revenue gain for the Exchequer.
There are also advantages in the use of green taxation as self-taxation and self-reward. If the fuel price escalator is reintroduced, we should say to the industry "Keep 50 per cent. of the revenue specifically for use in subsidising sustainable and alternative fuel systems." That would induce the industry, and invite the motorist, to make more sustainable and ethical choices, because the industry itself would be paying; those who pollute would be paying a premium in order to support those who do not pollute. That is the way to engineer behaviour change.
The same principle applies to aviation, even though the idea of Mr. Cameron about imposing a tax on individual passengers on flights was barking mad. We must do something about aviation's contribution to climate change damage. The more I think about it, the more I am convinced that the only way to achieve that is to set carbon mileage allowances for every airport in the UK based on last year's passenger miles multiplied by a factor that applies to the energy efficiency of the aircrafts that land. In doing that, we would be saying to each of the airports, "Your targets for reducing your own carbon emissions will be precisely the same as the targets set for the economy as a whole. How you do that—by the introduction of more efficient planes, for instance, or by changing the make-up of the flights you offer—is down to you, but we cannot pretend that the rest of the economy will be on a course that requires carbon emissions to be built in year on year but that somehow the aviation industry exists on a different planet."
It has been said that the Chancellor is Stalinist, but I think that he has strong competition in that regard from the hon. Gentleman after he introduced that barking mad idea. In trying to reduce carbon emissions from aviation, we should look at what happens at Schiphol; two planes land almost side by side at the same airport. In our country, we have planes circling airports when they should be landing; they cannot do so because of congestion. We could save millions of tonnes of carbon emissions just by ensuring that we have capacity in all our airports.
The problem will not be the number of planes circling airports. We should take a look at the Government White Paper on the future of the aviation industry. It is projected that by 2030 the number of UK passenger flights will have increased from 230 million a year to 460 million a year. Not all of those planes will be circling our airports; they will be in transit around the planet. The volume of carbon emissions associated with that will dwarf the emissions of almost all other sectors of the economy. That is why I say that we will have to set carbon miles thresholds for every airport and let the aviation industry and the airports drive their own agenda in respect of having increased fuel efficiency, different fuel systems and the other transformations that have yet to take place in the industry. Those transformations are precisely the same as those that applied to the car industry, and which it said were impossible to introduce. Unless we set those targets and make the industry the driver of its own change, the aviation sector will continue to want an opt-out on the huge slice of the carbon damage contributions that they make in our economy.
I caution my hon. Friend, who I always thought was on the left of the Labour party, that he seems to be falling into the same trap as Mr. Cameron—albeit coming from a different direction—of advocating the use of a kind of price mechanism that is likely to lead simply to the poor being priced out of flying. I would not have thought that my hon. Friend approved of that.
No, I am not talking about using a price mechanism. I am talking about using a system that constrains the volume of movements and requires the industry to take responsibility for its own carbon reductions. The alternative is to hold to the idea that aviation will somehow be transformed by being included in the emissions trading system. I invite Members to look at the last page of the aviation White Paper. Its authors give an estimate of the impact that carbon pricing will have on their flight projections. For reference, today's carbon price is €1.6 per tonne. In the aviation White Paper, the industry asks itself what the effect will be on flight projections if the price rises from 70p to £140 per tonne by 2030. Its own estimate is that that will reduce total passenger flights from 455 million to 445 million—a reduction of 10 million, which is next to nothing. That is why I urge the Government to look at a carbon miles quota system, rather than a carbon trading system. We should be brave enough to take steps that radically engage with the world in which our children are going to be asked to live. That means having the humility to address some of the things that we have tried to do that simply did not work, and to accept that it was worth trying to do them, even though they did not work.
I turn to my last bit of advice to the Government. There are two ideas that have been somewhat popular with the Government in the past couple of years, and we need to address them in considering what we will decide not to continue with. First, we need to say that there is no place for carbon offsetting in an agenda that seeks to deliver our own carbon reductions. Anyone who reads in order to understand this issue should not go into the detail of carbon offsetting schemes; instead, they should consult a website called cheatneutral.com, which invites people to offset their infidelity.
I have seen the website. [Interruption.] No, it does not work at all, but it is a wonderful spoof. A lad called Alex can be sponsored for 50p a week, and he will remain celibate so that the sponsor can carry on doing whatever they like. However, they can do it with a clear conscience only by sponsoring him for 50p. In other words, such people can offset their infidelity. Does it reduce the sum total of infidelity in society? No, not a jot, but it makes such people feel better. It has the ring of high moral tone that is so attractive at the moment, to judge by some of our policy making, but it is a scam. We should not seek to offset against future generations and to undertake speculative projects that do not deliver a ha'p'orth of serious change in terms of carbon reduction. I should point out that the website is not serious—its intention is to ridicule an approach that deserves to be ridiculed.
If we stand back from the technicalities of such schemes and proposals, we see that the reality is that they do not deliver anything like the scale of change that we need today. Sadly, the same applies to emissions trading. It is a barking mad idea to seek to tackle the climate change challenge by inventing a mythical good called the carbon credit, and to invite the speculative trading of that credit on world markets against second-guesses of what the price of carbon might be in 10 or 15 years time. On asking anyone in the industrial sector about how they make their investment decisions, they will say that it is a question of assessing how those investments will play in real markets. It is hard enough for them to make even those assessments, but asking them also to gamble on assumptions about the cost of carbon in 10 years' time makes the process a nightmare.
The emissions trading scheme has a number of intellectual and practical flaws from which it will never recover. The grandfathering rights that give credits to those who pollute, but not to those who do not, impose a monstrous burden. The scheme applies to the polluting half of the economy but not to the more virtuous half, which is a nonsense. Countries set their own loose limits—many give themselves more in credits in a given year than the amount of pollution that they emitted—so the situation is irretrievable. The scheme is an invitation to cheat, and the only people who make money out of it are the banks and the specialist niche market traders, who charge between 8 per cent. and 30 per cent. to handle the transactions. It is a great market for those who are in the land of wild-eyed speculators. But that is not the economy or the ecology in which we must play a profound part as the agents of change. The mechanisms that have really delivered in the short term are carbon tariff systems, not carbon credit trading systems. If we have the sense to adopt the former, our grandchildren will have much to thank us for.
I congratulate Alan Simpson on his speech. He certainly made a contribution to the serious debate on reducing the amount of carbon that we produce. His comments on carbon offsetting will be welcomed by many, including one of my brothers-in-law, Robert Whitfield, who has been one of the key people trying to look seriously at what is going on, as opposed to some of the easy, glib ways out—for example, me saying that I will allow some of my trees to go on growing, and that will allow me to fly to China to see how its economic growth is coming along. If we ever get to the stage when the hon. Gentleman is not able to offer advice to his colleagues on the Front Bench, we will miss him.
I welcome the presence of the Economic Secretary. He has spoken in the House a lot in the past week, and this debate gives him the chance to listen to some good ideas. I can say with confidence to my colleagues and to the Liberal Democrats that the Government will always take a good idea. We look forward to taking ideas from other parties as well, when we are in government.
The Chancellor certainly showed today that he has listened to several things that the Conservatives have said, even as he said that our proposals were a bad idea. I hope that those people who told the leader of my party that sharing the fruits of economic growth was an impossible idea will say the same thing to the Chancellor or his Treasury colleagues when interviewing them.
I look forward to a time when the next Labour Chancellor, if there are more Labour Budgets before the change of Government at the next election, will put all the news into the Budget statement, rather than leaving it in the press notices, or even out of the press notices and on page 278 of the Red Book.
Will the Economic Secretary try to ensure that the next Minister to speak from the Dispatch Box confirms that the tax reduction, which was cheered so loudly by Labour Back Benchers, will be more than outweighed by national insurance contribution increases? I am not sure that the people who were cheering the Chancellor at the end of his speech actually understood the impact of the abolition of the 10p in the pound tax rate. Some of those who will cheer almost any signal—any claptrap, in fact—from the Chancellor should try to listen to what he has said beforehand, and work out how he is managing to achieve the result that he has announced.
The hon. Gentleman has talked about certain proposals put forward by the Conservatives and by the Liberal Democrats. Will he also give the Chancellor credit where it is due? In the past few years the Opposition have rubbished his forecasts and talked about a black hole, but that has all proved to be unfounded. Will the hon. Gentleman give the Chancellor credit where credit is due?
Now let us look at taxes on business. The Chancellor has adopted the Conservative idea of reducing corporation tax, but I did not hear him say in his statement that taxes on businesses will rise by £1 billion next year and £1.8 billion the year after. If those figures are wrong, perhaps we could be told.
Borrowing will increase in the next five years. It has been suggested that the Chancellor will borrow more than twice what he will spend on law and order. The two figures cannot necessarily be compared, because the borrowing may be for investment, and spending on law and order may come out of current taxation, but it is a useful way of looking at the situation.
The Prime Minister says that what matters most is education, but education spending growth is set to fall to 2.5 per cent. a year—lower than the rate of growth of the economy. There may be reasons for that, and I wish to put on record the fact that I welcome the increases in spending on the military, and I am glad that spending on security and intelligence will be increased. Clearly, Governments have to make decisions about how the cake is divided up, but if it is true that education spending will rise at a lower rate than the rate at which economy grows, I would expect the Chancellor to say that. If he is willing to defend it, why not say it in the open?
When a Treasury Minister next takes to the Dispatch Box, will he say how Britain's economic growth last year compared with that of other EU members? Is it true that we came 22nd out of the total of 27 member states?
I turn now to the rate of inflation. Is it true that our inflation rate is the highest for 16 years? Is it double the level of 1997, when the Conservatives left office? Is it above the EU average? One would have expected to hear such details in a Budget statement, but I do not think that we did.
Let me get through the rest of my list, as that may save a number of interventions.
Is it true that the UK's structural budget deficit is, at 2.6 per cent., the largest of all the major EU countries? Is it higher than Italy's structural deficit? Is real take-home pay falling? If we take the increase in the retail prices index to be 4.4 or 4.6 per cent. and say that average earnings, excluding bonuses, rose by 3.7 per cent., is that a fall in real pay?
The Government claim that the 3 per cent. rise in the prescription charge is less than the rate of inflation, but pay for nurses is going up by 1.9 per cent.—less than the rise in the prescription charge. Is that correct? How will that affect nurses' take-home pay in the forthcoming year? What is the forecast for that?
When a Treasury Minister next stands at the Dispatch Box, will he say how business investment as a proportion of GDP last year compared with the figure for 10 years ago? Is the present level the lowest on record? Was last year's 5 per cent. savings ratio half of what it was in 1997?
I am willing to praise the Chancellor for some of the good things that he may have done, and it is clear that Paul Farrelly would like to join me in asking for the whole picture. There are some things for which the Chancellor does not take credit, or even mention. That sort of selection is normal and natural, but it reveals the right hon. Gentleman to be an ordinary Chancellor, and not an extraordinary one. If I were to try to come up with something for his economic gravestone, I might say that his RIP was the RPI.
Is it right that the trade deficit is set to rise to £60 billion, the highest on record? Is it right that there are a million more people in this country who are not in education, employment or training than there were in 1997? The Chancellor talks about the increase in employment, but how many of the people involved were not in this country 10 years ago? They may have come here to take advantage of economic opportunities. If so, they contribute to our economy, but they do not offset the number of people out of work and not in training.
The Chancellor deserves praise for what he said about child benefit. I have long argued that the best way to help people when they have children is to make sure that they have money, resources or cash. It is important that those resources goes to families and households with children, regardless of whether there are two people earning, and of whether there are two adults present.
Child endowment is one of the most important functions of Government. We spend a lot of time arguing about appropriate levels of pension or state benefit income for people in retirement, and it is right that we do—but most retired people have at least had an opportunity during their lives to earn money or to put some by, through growing pension entitlements. Children cannot do that; the law does not allow them to, and their age prevents them. We must make sure that people who have children can give them a decent standard of living.
That matters a great deal, but we will never be able to ensure that every working person can earn enough at work to support children. Conventionally, child benefit comes in when a family goes from having two incomes and two mouths to feed, to one income and three mouths to feed. Arguments will continue about the appropriate levels of working families tax credits, or other benefits, but I have always believed that child benefit should be the centrepiece of the system. I learned that from the writing and campaigning of Eleanor Rathbone, and from the work of Sir Brandon Rhys-Williams, a former colleague in this House.
The Chancellor did not mention local government finance. When we consider the burden of taxation on people we have to include the amount of council tax they pay. Whether the Lyons review has not produced the result the Government wanted, or whether there are awkward decisions to be taken and difficult approaches to identify, is not for me to say. However, until we can look at the overall taxation burden we cannot look at equity and fair distribution over the life cycle between different income groups and owners of different asset classes.
I hope that my party will find a way to make sure that local government has a buoyant source of income—perhaps even a set of buoyant sources. Central Government benefit from rises in revenue from value added tax, excise duties, income tax and national insurance, including fiscal drag as the economy and incomes grow. Local government does not. Until local government can expect a share of economic growth, with more money and more spending decisions, and a variety of income sources, there will continue to be tensions between central Government and local government, and between local government and taxpayers. We need to move forward from that situation.
On local government finance, does the hon. Gentleman advocate relocating some or all of the ability to raise business rates to local government? That would provide the flexibility to which he referred.
It might, but I was not trying to go into detail. I just wanted to make the point— [ Interruption. ] I am not going to answer that. The point that I was trying to raise for discussion was the need for local government to have a variety of buoyant sources of income, and I shall leave it at that. If the hon. Gentleman catches your eye, Mr. Deputy Speaker, he can make his own speech on that issue, or any others that he wants to raise.
I want to move on to the subject of housing investment. It is clear that the amount available for new social housing is inadequate, as are the sources of income for investment in it. I have made the point before—and hope to go on making it for as long as I am a Member—that the sort of investment funds held for people such as me by our trade union, insurance company or pension provider do not go into social housing, for homes for people whether or not they can work. Until we have an investment regime and a housing system that gets a good chunk of money from people's savings—if I may put it like that—we shall have to rely far too much on the taxpayer and on Government decisions.
I should like changes in the tax rules, alongside possible changes in forms of housing tenure, so that it would be normal for a trade union to report in its annual accounts that, for example, 20 per cent. of its members' funds were invested in housing—not necessarily housing for union members. Unions could receive rental income from such homes, and that should be a decent class of investment. The same could apply to insurance companies and pension funds, and, for that matter, to private individuals. I do not see why one should not get the same welcome and proper advantages from providing homes for people who need them, or from maintaining the standard of one's own home in the last 20 or 30 years of life without the complication of equity release, as one does from investing in venture capital or small private businesses. I am not against equity release or private equity; all I am saying is that we should try to find a public purpose for some of the investment funds we hope to accumulate, rather than just chasing up the value of shares on the stock market.
Occasionally, we should consider the contribution that we in this place can make to reducing the burden on the public purse. I do not want my speech to be inordinately lengthy so I shall finish on this point. We have had some debates on House of Lords reform. I declare a sort of interest: I live with someone who is a member of the other place—but the remarks that I am about to make are not personal, either about her or about me.
We ought to ring-fence the budgets for Parliament. Any changes in the cost of the House of Lords should be offset by reductions in the cost of the House of Commons. For example, if we are going to have a number of people who get fuller remuneration or allowances in the House of Lords, either the rate of pay or the allowances for Members of the House of Commons should be reduced, or the numbers here should be reduced. The first bid that I have put in is that over the next 10 to 15 years, we ought to aim to cut the number of Members of this House from about 650 to about 450.
I know: that is why I said it. Denis Thatcher said that it might be called the Prince Albert Club, to greater advantage.
By reducing the number of Members of this House by about a third, we would have constituencies of about 100,000. In fact, we could set a rule saying that the population of the Isle of Wight will set the number of target voters in each constituency. As the population of the Isle of Wight grows, we would reduce the number of Members of this House. That would be a good way of cutting down on costs.
Lastly, although MPs' pay this year is not controversial, because the increase is, I think, only 0.6 per cent., when our pay is readjusted, we will face the same problem in the future that we have faced in the past—that MPs are on a final salary pension scheme. The House should decide to go on to an average salary pension scheme and our rates of pay during our service should be taken into account in setting our pension, rather than having MPs who retire five or 10 year later getting a dramatically higher pension than people with the same amount of service who retired five or 10 years before. We need to make some kind of contribution to a rational system that would be applicable to others in different circumstances, rather than saying to them, "We'll leave you to rot, or to suffer, and we'll go on looking after ourselves."
I congratulate my right hon. Friend the Chancellor on his 11th, and what is categorised as his last, Budget speech. It may be that it was his greatest Budget speech—I will come back to why in a moment. It is perhaps a few hours since Members dispersed from the Chamber after the main speeches. I just want to reflect on the alacrity with which Opposition Members dispersed from their Benches. I wonder whether that was because, on the back of what my right hon. Friend said, they all realised, severally and collectively, that they will face another six or seven years of opposition.
And the Leader of the Opposition—I am obliged to my hon. Friend.
The speech that I wanted to make nearly hit the buffers in the sense that the wind was taken out of my sails. However, I want to place on the record my thanks to Mr. Redwood for making it relevant. One of the traditional knockabouts in these debates—which I thought was going to go missing, but which, certainly from my point of view, has come back into play—consists of the doom and gloom that Opposition Members put about and the talk about black holes. Other colleagues mentioned all that sort of stuff. In preparation for that, I looked at the financial press with a little care over the past six weeks or so to see what was being said in the run-up to the Budget. It is often said in this place that much of the press is not necessarily friendly to the Labour party —[Laughter.] I hear laughter from Conservative Members. I am not sure which papers they read—I see that no one wants to intervene to tell me.
If, as the right hon. Member for Wokingham would have us believe, the Chancellor has got it so wrong in his Budgets over 10 years, let us, almost counter-intuitively, consider the situation in the City of London, which is traditionally thought of as not looked after efficiently or well by the Labour party. A reputable broadsheet that is not always favourable to the Labour party published some figures on the City of London in the past few weeks. It showed that 4.6 million people were employed in London, which is 15 per cent. of the UK total. The number of people employed in the City is 340,000, while up to 1 million are involved in support services. Some 9 per cent. of our gross domestic product is produced from financial services, which is up from 7 per cent. 10 years ago. The City of London's share of the global foreign equity market is 43 per cent., and it accounts for 36 per cent. of global derivates. The City accounts for 31 per cent. of world currency trading, which is more than New York and Tokyo combined.
I am sure that the list that the hon. Gentleman is reading would be very interesting in other circumstances. He talks about the success of the financial sector and the City, but surely he is aware that hon. Members representing every party in the House support the FSA and the fact that it should have a general framework that is light-touch, risk-based and principle-based. The financial sector has been driven forward by that common agreement, not simply the actions of the Chancellor.
The hon. Gentleman makes his point.
The final statistic that I will cite is that the London commodity market's share of world trade in metals is 90 per cent. That piece of financial journalism thus, perhaps counter-intuitively, supports the framework and environment that my right hon. Friend the Chancellor has set up.
I have in front of me a copy of the
David Smith's article included phrases such as
"as good as it gets" and
"It is hard to think of a better ... period in Britain's modern economic history."
On growth rates, he wrote:
"The average growth rate has been 2.8 per cent. better than Britain's ... long-run average of 2.5 per cent. ... The economy is nearly 5 per cent. larger than it would have been".
That means that some £60 billion to £70 billion extra wealth has been created than would have been the case under the long-term trend growth rate. He also writes:
"Inflation since 1992 has averaged 2.6 per cent." which is low in any historical circumstances. We still have that kind of average inflation rate. He also talks about stability, which I would say has been a key economic driver, and I am sure that Members in many quarters of the House would agree.
Important though inflation is, we should also take note of the surrounding absence of volatility. In previous economic cycles, and in the 18 years before the Labour Government, there was a trade-off between growth and inflation, but the volatility has come down sharply. In David Smith's words,
"It hasn't just been a case of no more boom-and-bust. There have also been no more wild swings in inflation."
That is good for business, and it is certainly good for my constituency. He rounds off his point on stability by saying:
"Britain's performance in terms of stability has gone from being the worst in the advanced world to something near the best"— and of course that success story continues.
We should not just take David Smith's word for it. He cast around for other unlikely sources of support to offer an objective view of the Government's record, and he quotes Professor Tim Congdon. Those who have followed the area of policy that we are discussing for a number of years know that Professor Tim Congdon is not acknowledged to be a Labour supporter. In fact, as David Smith says, Congdon was given a CBE by the Tories, but not necessarily for services rendered, but we will not go there. Congdon says that after
"two decades of boom-and-bust" we have the most stable and successful economy of modern times, with not only low inflation, but a short, sharp drop in volatility. He says:
"The improvement on...inflation...has not been at the expense of the so-called 'real economy'".
In other words, there is a firm basis for the belief that what we see as the proceeds of success—investment in our public services—are based on reality, contrary to what Opposition Members would have us believe.
One point that is raised, almost like a kiddies' scare story, is the subject of debt. It is often said that we are in a kind of overblown bubble and have a debt-ridden economy. Congdon has a view on that. On the idea that we are drowning in a sea of debt, he says that there is probably more nonsense talked on that issue than on anything else. He says that it is consistent with a grown-up economy that people should have control over their own lives, and that included their making decisions on debt. He goes on to say:
"Generally, people have a far better understanding of their own particular financial circumstances than anyone in Westminster, Whitehall or the London-based media."
The article then quotes a few figures:
"Unsecured debt is just 3 per cent.-4 per cent. of household wealth. All household debt is about 1½ times annual income, but the net wealth of the sector is seven times income. The surprise is not that debt has risen but, given the low-interest-rate environment, it has not risen more."
That once again emphasises the idea of stability.
The hon. Gentleman is quoting with approbation the words of an economist who would like Britain among other things, to, withdraw from the European Union, so we need to be careful when weighing up the merits of his argument. Is the hon. Gentleman really saying that personal debt totalling £1.3 trillion is something that we should not worry about too much? Does that not reflect the fact that one element of the Government's record to which he has not referred is the widening of the gap between the richest and the poorest in society, and is that not a legacy of which Labour Members should be ashamed?
The hon. Gentleman has only just come into the Chamber, but if he had followed the debate he might have had something more apposite to say. He misunderstands entirely the point that I was making. I was not quoting Congdon verbatim to demonstrate his absolute support; I wanted to show that someone on that side of the economic debate supports the notion that we have achieved stability. He says that the economy is not the scare story that Conservative Members would have the public believe.
The economy is in good shape, despite the list of questions posed by Peter Bottomley, who would not allow me to intervene. I do not know what my hon. Friend the Economic Secretary will say in due course, but it is not for me to answer those questions. My constituents are not professional economists or London-based financial journalists, but they share the genuine concerns of hard-working families in constituencies throughout the country. Given the climate, which is sometimes exaggerated, mums and dads in my constituency have some worries, but it is important to set them against the background of stability. People are worried, even though the economy is doing well, so we must find out the disconnect. This winter, some of my constituents were worried about utility prices, but British Gas and other major utilities have dropped their prices considerably, which I welcome. People are worried about council tax, but I am pleased that my local authority will introduce a council rise below the national average. There have been three interest rate rises in the past six to nine months, which is worrying for people with mortgages.
Nonsense is talked by Opposition Members about the state of the NHS, and they do so to create uncertainty and worry. That is the climate that my constituents have experienced for the past six to nine months. It is counter-intuitive but, unbelievably, the latest polling evidence suggests that the Tories are favoured for their handling of the economy. I was genuinely looking forward to the Budget, as I hoped that it would answer those concerns and worries. My hon. Friends may agree that in the past six to nine months we have failed to construct a narrative or connect with our constituents to enable them to understand where the Government are going. There was therefore a big ask for the Chancellor, as we wanted him to try to answer those serious concerns.
Like every constituency, mine is composed of different sectors of society, and about 20 per cent. of the electorate—that is one of the highest percentages in the country—are pensioners. What did the Chancellor do with respect to pensioners? What I am about to say deals with a sector of the pensioner public who have missed out on our previous efforts to tackle pensioner poverty—those who are just above the pensioner poverty line and sometimes complain that they do not have access to some of the benefits. Since 1997 the Chancellor will almost have doubled the tax-exempt income of pensioners who pay income tax. That will be a significant benefit for a considerable number of my pensioners. The other item that I warmly welcome is the raising of the level of pension credit, which will help the middle sector of my pensioner population.
By far the largest part of my population, as is probably the case in most constituencies, are hard-working families with children. The Chancellor has gone a long way towards settling their worries. First, tax credits for a typical family with two children will effectively wipe out income tax liability on an income of £450 a week. That will be extremely helpful to many of my hard-working families. Secondly, child benefit will rise to £20 for the first child by 2010. That works out at more than £1,000 a year. The House should reflect that, when we came to power, the Major Government had been chipping away with a view to abolishing the child benefit. That was the climate as I recall it.
The final piece of assistance for families with children was progress towards equalising the amount spent per pupil in the state sector and in the private sector. That will be widely welcomed by my hard-working families.
The 2p cut in corporation tax will send out a message that the Government are business-friendly, that the economy will be looked after and that growth in employment and jobs will continue to be a feature.
Is it not my hon. Friend's understanding—this might help him out—that the changes in small company corporation tax are designed to prevent the loophole that allowed people to fudge the difference between being self-employed or working as a small company in order to gain advantage from the different tax rates?
I am grateful to my hon. Friend . [Interruption.] My hon. Friend the Economic Secretary says that there is no net increase in taxation.
Order. I should make it plain to the hon. Gentleman, and to the House in general in case it is not aware of the situation, that there are no wind-up speeches on the first day of the Budget debates.
I am obliged, Mr. Deputy Speaker. We will therefore have to wait with bated breath for a few days for the answer.
Does the hon. Gentleman accept that the 2 per cent. increase in corporation tax for small businesses, which represents a net gain of £820 million for the Exchequer, will have a significant impact on small businesses, especially at a time when the Government are trying to encourage growth in the private sector?
The hon. Gentleman can make his speech if he catches your eye, Mr. Deputy Speaker.
My constituents were looking for real assistance, and I believe that they got it—not gimmicks or unworkable policies such as VAT on air travel that would punish hard-working people who take their holidays as they well might and should not necessarily be interfered with.
I come to the final piece of the jigsaw in my little tour d'horizon of journalism. Tim Hames—he is not a financial journalist but a well-respected commentator in The Times—had a piece last week in which he suggested, in the context of the idea of reconnecting, that my right hon. Friend the Chancellor should cut income tax by 1p. I thought, "Yes, I can see why that would reconnect." As the House now knows, my right hon. Friend was better than that and cut income tax by 2p. That will be very welcome in my constituency.
My right hon. Friend the Chancellor rescued my speech for me. I had been ordering my thoughts on how the various unsettling issues that had unwound over the past six to nine months would be dealt with, but he more than met most of those worries. I thoroughly look forward to going back to my constituency and proselytising—
Lest there is any possibility that my hon. Friend might have been unsettled by some of the interventions from Opposition Members, he may recall that the Chancellor said in his speech that he is taking action to address the issue of small companies avoiding paying their due through artificially incorporating in a way that will not raise the tax burden on the self-employed and small businesses overall, and that the small companies rate will be raised in three stages from 20p to 22p in 2009, recycling all these revenues to legitimate small businesses investing for the future. Does my hon. Friend agree that if Opposition Members had listened to the Chancellor's speech more carefully they might have understood the point the first time?
I do agree. Of course, I had that in the back of my mind.
I will not detain the House overlong but leave that to other hon. Members who want to speak. I welcome the Budget and the chance to go back and tell my constituents that many of their worries have been settled by today's Budget.
May I comment first on the corporation tax change? It should have been greatly welcomed, as a cut in corporation tax is something that we have called for, although I am not sure whether the 2p cut will be sufficient to give Scottish business the competitive advantage it needs in order to close the 25-year 30 per cent. growth gap with the rest of the UK. When I see that in two years' time the change to capital allowances on plant and machinery will generate £2.27 billion-worth of yield, yet the corporation tax change will only generate £2.23 billion, I am not sure whether, rather, it is a case of robbing Peter to pay Paul.
I welcome the additional investment of £8 billion in the pension financial assistance scheme. I will look into the detail, of course, but I very much hope that there will be enough money for it to work to assist many of my constituents who have suffered from the failure or collapse of their occupational pension schemes. We all recognise that the biggest threat that we face globally is from terrorism, so I very much welcome the increase in the security budget to £2.25 billion.
I also welcome the announcement of extra money for shared equity. Again, we will have to look into it in more detail, but I hope that it will provide new affordable homes. I have been through the Red Book and cannot see any forecast future revenue from planning gain supplement. I mention that in the context of the shared equity scheme and the Budget. Many hon. Members are very worried that, if the PGS were to proceed and increase the price of land by, say, 30 per cent., even the shared equity scheme announced today might not be able to deliver the number of affordable houses that the Government may expect.
I should also like to comment on the announcement to sell off the student loan debt. That will certainly generate quick revenue for the Treasury, but it is my understanding that to keep the interest rates charged to ex-students low, there will still be a cost of about £1 billion to the taxpayer. Although, as I say, it will generate some quick revenue for the Exchequer this year, there will be a long-term liability to the UK, while it does nothing, of course, to help those paying off the loans for the time being.
The Budget is supposed to lay out to the House and the country the economic position in which we find ourselves, to measure the success or otherwise of economic policy and to map out the Government's future plans, expected revenue, spending, inflation, debt and so forth. It underpins the social and economic policy that the Government intend to deliver in the year ahead.
The Chancellor has set out today what he expects in terms of future investment in—and, indeed, reform of—the public sector. He talked about discipline in public sector pay, but he ignored any real assessment of the many economic reforms and savings that he has made. We now know from the National Audit Office that only £3.5 billion of the claimed £13.3 billion of savings can definitely be said to represent efficiencies. Some of the rest may, but the NAO says that more than £3 billion of those savings do not demonstrate efficiency or may be substantially incorrect.
In previous Budgets, the Chancellor has spoken more about his reform of the public sector, particularly the loss of jobs. That was not mentioned at all today and I wonder whether the balance has been struck correctly in terms of losing jobs. For example, at the moment HMRC currently has a million pieces of unopened mail and has spent £160 million on agency staff to cover some of the manpower gaps that appear to exist.
Did the hon. Gentleman hear the comment from his colleague, the leader of Plaid Cymru, this afternoon, who said that the only reference to Wales in the Budget speech was to 5,000 shelf-stacking jobs in Tesco? Does he reflect the same disdain for those jobs and share the views of his nationalist colleague, or does he join me in believing that that was a very unfair slur on hard-working people—often Union of Shop, Distributive and Allied Workers members—in our country?
It is for Plaid Cymru to make its own points, and I think the spokesman was referring to the fact that there was only a single reference to Wales in the Budget statement. Perhaps he was also referring to the provision of certain kinds of jobs in the retail sector. However, every job is to be welcomed, and I am sure that none of my colleagues in Plaid Cymru would be dismissive of any jobs—
The hon. Gentleman might say that, but I think that my colleagues were being critical of the fact that the Chancellor mentioned Wales on only one occasion in the Budget statement. I think that he mentioned Scotland twice. That is about average for the past 10 Budgets.
The Chancellor said last year that inflation had been virtually halved to 2 per cent., and that long-term interest rates were at their lowest for 40 years at just 4 per cent. Over the past few months, the consumer prices index reached 3 per cent. in December and 2.7 per cent. in January, and the retail prices index hit 4.4 per cent., moving down to 4.2 per cent. In January, however, The Scotsman, quoting the Capital Economics consultancy, identified that pensioner inflation was actually running at 9 per cent., and that real inflation for households on a modest income was hitting 4.6 per cent. We know that today the RPI has hit 4.6 per cent. and that the CPI has hit 2.8 per cent. I am troubled that, when the Chancellor is looking at pension increases and forecasts, he is basing those rises on inflation rates of 2.8 per cent.—or 4.6 per cent. if we are lucky—when real inflation, especially for pensioners, is certainly hitting 9 per cent.
No Budget would be complete without the repetition of the assertion that there have now been 59 quarters of unbroken economic growth, and no Budget would be complete without me saying, "Except in Scotland." In Scotland, under this Chancellor, there have been four quarters of falling growth, a full-blown manufacturing recession and only six quarters in which growth outstripped that of the UK. To look at that another way, since the second quarter of 1999 and the start of 2006, manufacturing GVA—gross value added—in Scotland has fallen by 12 per cent. against a modest rise in the UK.
The Chancellor also said, as usual, that the UK was doing very well economically. I think that he said that its economy was growing faster than those of the EU and the G7. However, information published today says that the economies of the UK, the G7 and the eurozone all grew by 2.75 per cent. in 2006; so, at best, the UK is marking time; it is not powering ahead as the Chancellor would have us believe.
The Chancellor also talked a lot about his various golden rules and fiscal rules, and in particular about keeping debt below 40 per cent. of GDP over the economic cycle. The problem is that the debt is being hidden. In particular, the Government's private finance initiative debt is off balance sheet. We know that there are 48 major private finance initiative and public-private partnership projects, with a capital value of £2.7 billion, in Scotland. The Edinburgh royal infirmary project had a capital cost of £184 million, but a repayment of £1.26 billion over its lifetime. We also know about the spectacular failure, in terms of value for money, that led to the Inverness airport terminal—with a capital cost of £9.6 million—being bought out with taxpayers' money to the tune of £36 million. The problem with PPP/PFI is that the cost of borrowing—at rates of between 2.5 and 4 per cent. above public borrowing rates—costs the Scottish taxpayer about £110 million a year extra, which is enough to fund about £2 billion-worth of new public investment.
The UK position is even worse. The 2006 pre-Budget report showed total outstanding PFI payments, over 30 years or so, of £158 billion, which is up 11 per cent. from the £142 billion reported nine months earlier in the 2006 Budget. The cumulative effect today is that payments of £169 billion are to be made up to 2032. These are huge, frightening numbers.
The Chancellor repeated his claims of improving research and development in business, and I welcome the extra £100 million for R and D tax credits. I have raised this issue on a number of occasions and I am glad that that extra money is being put in. It is worth noting, however, that the rates of spend on R and D as a proportion of GDP still pale into insignificance compared with those in our major competitor countries.
The Chancellor also made great play of those who are in work, but it is worth reminding ourselves that, in Scotland, we have lost 90,000 manufacturing jobs since Labour came to power. The figure is about 1 million in the UK.
I thank the hon. Gentleman, and I apologise. Has not the Chancellor shot the Scottish National party fox this afternoon? If the SNP is voted into power in Scotland next year, and we have independence, people in work will be paying 3p on their local income tax and not getting the benefit of the 2p cut in income tax. That is a difference of 5p in the pound.
When we are talking about the loss of 1 million manufacturing jobs, it is disappointing to be subjected to a question that ignores the net increase in personal taxation because of the removal of the 10p rate. I do not expect the hon. Gentleman to understand that, but the rest of us do. When the general public in Scotland and elsewhere open their newspapers tomorrow and find out that they have been conned, he might be left with egg on his face.
We have lost 1 million jobs. To localise that, Dundee is currently seeing 600 job losses at NCR, which are part of 1,100 manufacturing and distribution job losses announced in the city over the past year. While I concede that there have been some successes, the heart of the economy—the modern manufacturing base—remains under serious pressure.
The hon. Gentleman mentions that manufacturing job losses have been greater, unfortunately, in Scotland than in England. Does he think that that is in any way owing to the fact that industrial policy is devolved?
No, I do not, because many of the drivers of investment, particularly in manufacturing, are reserved matters: the R and D tax credit, corporation tax levels and so on. I understand the hon. Lady's question but I disagree with her premise.
May I caution the hon. Gentleman against saying that the 10p rate has been abolished? Is it not much more accurate to say that it has been doubled?
I am almost underwhelmed by such wonderful Liberal semantics. The 10p rate has been abolished, and people will pay more tax.
The manufacturing base remains under serious pressure, and while the corporation tax cut of 2p is to be welcomed, some of the other changes are not. There was no hint at support for a reduction in business rates for smaller growing firms, whose tax rate has risen.
There was mention of the creative industries, which I was pleased about, and a clear reference to intellectual capital, about which I am very pleased and have been talking for some time. Important measures must be taken to protect intellectual property. Enforcement raises specific issues in Scotland, although primary legislation is reserved. We must further tighten copyright legislation, not just to avoid losses of profit to business but losses of yield to the Exchequer.
On that point, I want to mention the whisky industry. I am glad that there was no change to duty on spirits, but more protection could be offered to an industry that generates £2.4 billion in exports, supports 40,000 jobs, and if my memory serves, generates about £800 million in duty alone. By protecting its trademarks, descriptions and regional names in law in the UK, we would be seeking the same protection in the overseas market on a much firmer basis. The Government could consider that to protect revenue yield, too.
Order. I remind the hon. Gentleman that he should not be using the second person. By doing so, he is referring to me, and I am sure that he does not mean to do that.
When the Chancellor referred to research funding, he neglected to inform the House that there has been a huge cut in research council funding, which is having a huge impact on the science community in universities and the rest of the UK. Does not the hon. Gentleman think that that is a disgrace?
We need to consider all the R and D funding pots in the round. The hon. Gentleman was right to refer to the one that he did, but he will know that there are separate funding pots for research and development in Scotland—SPAR, SPAR plus and SEEKIT—with different programmes available in England, and some UK-wide ones. Some of the money that used to be in the pots to which he referred may now be in R and D tax credits. Yes, that is wrong, but we need to view the issue in the round and work out how we can increase total R and D expenditure rather than concentrating on what has been taken from one particular pot.
What the Chancellor did say today was a great deal about the environment. Perhaps the Government can answer a couple of questions. When will they finally act to end disparity in charges for connection to the national grid? This is an old story. It costs more than £20 per kW to connect to the grid in the north of Scotland, but a subsidy of £8 per kW can be paid in the south of England. The Government promised to do something about that. I raised it with the then Secretary of State for Trade and Industry, Alan Johnson during last year's Budget debate, and with the Secretary of State for Environment, Food and Rural Affairs on
The Chancellor also made great play of carbon capture and storage, but I fear that we have heard all that before. In the 2005 Red Book, he said:
"The Government is therefore examining how it might support the development of CCS in the Climate Change Programme Review, including the potential for new economic incentives."
In his pre-Budget speech in the same year, he said:
"Carbon capture and storage protect the environment from carbon emissions by containing them at source".—[ Hansard, 5 December 2005; Vol. 440, c. 612.]
In his 2006 Budget statement, he said:
"Following a joint study with the Norwegian Government, we have found that carbon capture and storage in the North sea can reduce emissions from gas and coal power stations by 80 per cent." —[ Hansard, 22 March 2006; Vol. 666, c. 294.]
In the 2006 pre-Budget report, he said:
"Today, Norway and Britain are together launching the first feasibility study for a new infrastructure for carbon capture and storage under the North sea."—[ Hansard, 6 December 2006; Vol. 666, c. 309.]
The Chancellor announced today that there would be a competition, about which the Minister for Trade will tell us at some point today or in the near future.
Talk is cheap, and there has been an awful lot of it. The President of the United States has made available a $90 million tax allowance for a carbon capture and storage pilot project in the US. After all the warm words we have heard, intended to reinforce our green credentials, the Chancellor had an opportunity today to announce how much would be provided for the Peterhead CCS project and how the funding mechanism would work.
The Chancellor referred many times to senior citizens. What he failed to do was end the shame of means-testing and introduce a proper living pension. Like Kitty Ussher, I welcome the change in income tax for pensioners—the new threshold will help those who were previously just above the threshold and were missing out—but one in five pensioners in Scotland still lives in poverty. Means-testing has been extended, and nothing was said today to give me any comfort. With real pension inflation at about 9 per cent., the Government have missed an opportunity to provide a living citizen's pension and to index-link it properly.
I do not recall the Chancellor's saying anything about the Olympics, although I know he has done so on a number of occasions in the past. That may be because he, or a future Chancellor, has written a blank cheque. The cost has already reached £9 billion, and everyone assumes that it will "go north" to £15 billion or £20 billion. This is an open-ended spending commitment, and—as with the war in Iraq and the decision to extend the life of Trident—we will be paying the costs for generations to come.
I agreed with some of what was said by Stewart Hosie, as he would expect—he is a learned Member when it comes to topics of this kind. However, I must cavil at his quibble over the current Chancellor of the Exchequer, who in round terms has been in charge for 40 of the 59 quarters to which he referred. He said that for four of those quarters—I do not know whether this is true, but I take his word for it—economic growth in Scotland had stuttered. He criticised the Chancellor for a 90 per cent. hit rate; I think that that is pretty good going.
Everything in the garden is not rosy. I will give the hon. Gentleman figures later to show that in a large number of other quarters, growth was at 0.1 or 0.2 per cent.—absolutely minuscule. When I give him that information, we will see whether he is really proud of Labour's record in government.
I concede that I am somewhat greedy and that I want more growth, but growth is growth and that record is much better than that of many, if not all, of the Chancellor's predecessors.
Things are difficult for the Opposition. The most recent Organisation for Economic Co-operation and Development economic survey described the United Kingdom as a
"paragon of stability".
It expects us in 2007 to be the second-fastest growing G7 economy, the fastest being Canada with a growth rate of 2.7 per cent. as against 2.6 per cent. for the UK. I know a little about Canada's economy and, as there is massive development at the tar sands at Fort McMurray and external investment is pouring in, it does not surprise me that Canada has a higher growth rate than us. Also, its proportional population growth is higher each year than ours. However, it is still only slightly ahead of us in terms of the growth forecast not of our Government but of the OECD.
We need to consider the robustness of the economic figures that we are given. The National Audit Office "Audit of Assumptions for Budget 2007" was ordered to be printed today. In that, the NAO looked at some—but not all—of the Budget assumptions. The report is only about 30 pages long, and I would not expect it to look at every Budget assumption, but it has looked at four of them. Its conclusions underline the robustness of the Treasury's model, assumptions and forecasts.
Paragraph 80 of the 2007 report states of the Budget 2004 direct tax and national insurance contributions compliance and enforcement package that there would be
"an estimated yield greater than the revised forecast, and it was therefore cautious on this basis."
I want the Treasury to be cautious—not too cautious, obviously, because that can mislead people and it does not wish to do that—and it was suitably cautious on direct tax and national insurance contributions, albeit in the Budget 2004 as the NAO can look into such matters only in hindsight.
The 2007 report also studied what it calls the VAT gap assumption. I confess that I do not know exactly what that is, but I might have done if I had had time to read the whole report. Paragraph 82 states:
"The use of the VAT gap assumption over the Rolling Review period from 2003 resulted in forecasts which were cautious in three of the four years and over the Rolling Review period as a whole, underforecasting of overall VAT receipts."
Therefore, it is not the case that the Treasury was wildly optimistic in terms of the figures forecast in previous Budgets. The NAO looked at them ex post facto to see whether they were or not, and they were not.
Tobacco revenues are even more difficult for the Treasury to forecast than VAT because of matters such as tobacco smuggling. The NAO report states at paragraph 89:
"The assumed rate of 3 per cent. per year decline in underlying duty paid consumption is consistent with the recent available data".
However, the Comptroller and Auditor General states at paragraph 90:
"I recommend that the Treasury and HMRC closely monitor trends in the monthly data".
Factor income shares are addressed at paragraph 91:
"The assumption of broadly constant factor shares was a reasonable one over the three year Rolling Review period".
Debt interest is addressed at paragraph 92:
"I am satisfied that the calculations of debt interest payments were consistent with forecasts for central government's net financing requirement and with current financing policy at the time of each forecast made since Budget 2004, and are for Budget 2007."
The NAO looked at only a few aspects of Treasury forecasting, but income tax, national insurance and VAT are big aspects. It found that Treasury forecasting is pretty robust—those are my words. That gives me, as a Labour Member, confidence that the forecasts of the Treasury and the Chancellor today are likely to come true; the evidence of the past supports that. That gives me some hope about where our economy and society are heading.
I accept the argument about growth forecasts. Indeed, it is fair to say that the Opposition have occasionally rubbished those forecasts in years gone by, and been confounded by the outcome. However, does the hon. Gentleman not accept that some of those forecasts have been met partly because of large-scale migration, which has added to the economy's growth? Moreover, many other Treasury forecasts, such as the overall debt forecast—and, therefore, the overall outcome of the Budget—have proved to be very optimistic. It is our contention that that pattern might well continue in respect of the overall public debt in the next three or four years.
The hon. Gentleman is gracious in defeat, as ever. Of course migration has had an effect on growth, and some of that, although, as far as I am aware, not all of it—I am not in the Treasury—was taken into account by the Treasury in its forecasting. There are some questions on the national debt, and I will come to where we stand and where we were in that regard.
Our employment rate is the highest of the G7 advanced industrial countries, and is far higher than the EU27 average. Our unemployment rate is only about two thirds of the EU27 average. In one sense, that is a dry economic statistic, but in another, it is not. We are talking about people's lives and independence and the dignity of work, so that figure means something very important to the 29 million people now in work in the United Kingdom—a figure that has risen by more than 2.5 million in the past 10 years. That is a fantastic step forward for many people. Besides their own families, work is the central thing in most people's lives.
My hon. Friend is absolutely right. When the Conservatives were in power, unemployment in my constituency was in excess of 20 per cent. I worked in primary care psychiatry, and general practitioners were prescribing anti-depressants and Valium to people who, if they could have been prescribed a job, would have been nowhere near the health centre.
My hon. Friend is absolutely right. A little Brown pill is much better than a little blue pill.
The flavour of what the Leader of the Opposition and the very knowledgeable right hon. Member for Wokingham (Mr. Redwood) seemed to be saying was that nothing has improved in 10 years: that we have spent all this money—yes, we have, and it is a jolly good thing—and it has all been wasted. The right hon. Member for Wokingham repeatedly used that word, and it was implied, if not used in terms, by the Leader of the Opposition. I do not know what it is like in Witney—I have not been there in probably 40 years—or in Wokingham, which I have never had the pleasure of visiting. However, I know what it is like in Wolverhampton, where I was born and have lived almost all my life, and which I have the honour to represent.
I invite the Leader of the Opposition and the right hon. Member for Wokingham to visit Wolverhampton if they think that nothing has changed, and to consider not just factors such as the dignity of work and people's lives—I referred to them earlier—but the physical things that one can see, which is the simplest measure. There are all kinds of other things going on behind closed doors, if I might put it that way, but let them consider the physical factors. My partner and I have lived in the same house for more than 23 years, and I know the streets in my area like the back of my hand. I know who has had double glazing in the past 10 years. It is not always possible to see round the back of people's houses; even so, I know who has had a conservatory fitted in the past 10 years. [Interruption.] Opposition Members are having a little giggle, which is fair enough, but those are visible symptoms of increased prosperity. I can tell who has had a new roof, and so could the Leader of the Opposition, the right hon. Member for Wokingham or any other Member who visited the street where I live, which is in one of the most deprived wards in the country. I can see who has had their dormer windows done. Such prosperity is visible, but it is also visible on a public scale. The idea is that all the money has been wasted somehow, but those right hon. Members could come and see the new—well, it is about three years old—heart and lung centre at New Cross hospital, the acute hospital that serves my constituents in Wolverhampton and some of the surrounding areas. It is arguably—according to the professionals, not just to the politicians—the best in Europe. It is a fantastic facility. Consultants from other parts of the world visit. They look at the machinery and say, "We've got one of those: you've got one for every bed." They are goggle-eyed at the centre, which was built under this Government. It was also financed by this Government, and it is not PFI, I am glad to say.
My hon. Friend Mr. Devine mentioned his previous career. He and others might wish to visit Penn mental health hospital in my constituency, which has been almost totally rebuilt and deals with out-patients and in-patients. The mental health trust run by the PCT has a three-star rating. Hon. Members could see the new building and the refurbished old building. They could also see the Tettenhall Wood institute community centre, which has had £500,000 of taxpayers' money spent on it, half of which was euro-dosh. The children's centre in my constituency is a brand new building near West park and around 300 m from my office. On a smaller scale, hon. Members could also see the Oakley Buckley community centre, which has been completely refurbished under this Government. The university has had a £70 million investment, including the new glass front on the Mick Harrison building. If my right hon. Friend the Paymaster General, who is in her place on the Front Bench, visited the university of Wolverhampton—I know that she knows it well, but has not visited it for a while—she would be amazed by the development that has taken place.
The hon. Gentleman is making a great case for Wolverhampton and we might all be tempted to go there. The argument that all the money has been wasted is not very nuanced, and of course not all of it has been wasted, but the question is whether the taxpayer has had value for money, given the amounts that have been put into the health service, education and the other things that the hon. Gentleman mentioned. A lot of public money has been spent in the public realm, but we would argue that much has been wasted and an opportunity lost.
I am in a marginal seat—Enoch Powell's old seat, as many hon. Members know—so I guess that I will find out in two years' time whether the electors think that it is value for money. They have thought so thus far. They elected a Labour MP for the first time in 46 years in 1997 and re-elected me in 2001 and 2005. They thought that they had had value for money then and I think that they will still think so in two years' time. The electorate will decide, and so they should in a democracy.
The new St. Jude's school—costing £4.5 million—was recently opened by the Secretary of State for Education and Skills. Hon. Members should see the buildings and talk to the people who use them. Mr. Field was a distinguished and well-to-do businessman before he entered Parliament—he might well still be, as I do not know whether he is moonlighting. So many hon. Members on his side of the Chamber do —[ Interruption. ] Perhaps he has a two-day a week cleaning job. I did not have as distinguished a business career, but I was a partner in a law firm with a turnover of some £30 million—not peanuts—so like the hon. Gentleman I know that not every investment, whether in the private sector or the public sector, is successful. That is in the nature of encouraging risk and innovation.
Can I say, hand on heart, that none of the money has been wasted? Of course I cannot. Do I think that overall and taken in the round—not on a project-by-project basis—in terms of both the bricks and mortar that I have mentioned, and in terms of the changes in people's lives, we have had value for money? Undoubtedly we have. If we segment the provision, of course we are going to find, for example, a computer that should not have been bought because an office that already had two did not need a third. That can be said about the private sector as much as it can about the public sector, but I have absolutely no doubt that, taken in the round, we have achieved value for money.
The police do not get talked about much when we discuss Treasury matters, but I believe that we have achieved value for money with them, too. Of course, there is a long way to go on crime, and the recent knife crimes are very worrying. Parenthetically, may I say how pleased I was that the Home Office announced a knife amnesty the day after I lobbied Ministers on that issue last year? I do not know whether that was an example of cause and effect.
It is true that we have huge problems with violent crime, and gun crime is a massive problem in Wolverhampton, but what is the true story of crime, overall? The independent British crime survey shows that taxpayers' money has been used in a way that has achieved value for money. It has been spent on the police themselves, and on the other forms of policing—the neighbourhood wardens, community support officers and so on—that we must now call the police family. It is difficult for the Opposition to attack us about that, as we have achieved value for money in our spending.
The private company Manpower UK Ltd. has sent me its employment outlook survey. On page 1, in answer to a question about how total employment might change in the three months to the end of June 2007 compared to the previous quarter, the report says:
"UK employers forecast a steady hiring climate for the second quarter of 2007".
Responses such as that give me confidence in the future. I am aware that there will be undulations and oscillations in the economy, but capitalism is cyclical. However, the Chancellor and his Treasury team have tried to smooth some of those undulations over the past 10 years. I think that they have done well, in general terms, and the outlook—as far as one can ever tell the future—is relatively rosy.
I turn now to tax credits for research and development. I represent a west midlands constituency to which manufacturing is very important. The hon. Member for Dundee, East will recognise what I mean. The Government can do only so much, without returning to the discredited days of a nationalised manufacturing industry. A tiny minority of people in my area wanted to return to that after the closure of Coventry's Peugeot plant, and an even smaller minority wanted it after what happened with Rover in Birmingham. Both closures were devastating, but even so they were handled very well.
If we are not to renationalise, we need to encourage R and D through the use of tax credits. What is the UK's role in the global economy? I believe that we are a niche marketer in certain sectors. For instance, 8.5 per cent. of our economy is devoted to finance matters, and we are also a niche market in Formula 1 racing, which has a manufacturing crossover.
On a global scale, then, the UK is a niche marketer. Our population amounts to one fortieth of the combined populations of China and India, the two most populous countries in the world. To succeed as a niche marketer, the UK must, as has been noted, put the intellectual property rights regime in order, because it goes hand in hand with R and D: no one will develop new products if the ideas—and the profits—are going to be ripped off by someone else.
A little remarked-on element of the Budget is that the R and D tax credit for small and medium-size companies is to rise from 150 to 175 per cent. Not only that but, from April 2008, the tax credit for non-SMEs is to rise from 125 to 130 per cent. That is not a huge increase, but it sends the message that the Government are open for business on R and D. Moreover, the Budget contains investment incentives, with the annual investment allowance and the proposed reformation of the capital allowances regime. All of that is very helpful. Even when corporation tax is cut to below the EU27 per cent. average, as it is in the Budget, we still have to hope that companies stay in the UK and come to this country and invest for jobs and productivity. We can hurl dry economic statistics back and forth across the Chamber, but we are talking about people's lives.
This is the sixth Budget debate in which I have participated on Budget day. There is usually a barrage of criticism and comments from the Conservatives about productivity and Government debt, coupled with stories of doom and gloom, but after 10 years, they are running out of steam— [ Interruption. ] Mr. Evans is laughing, so we may hear something later, but so far we have heard hardly anything about productivity and not much about Government debt.
The right hon. Member for Wokingham referred to productivity, but only in one undefined sense—we had to infer the definition. In fact, he was talking about output per hour worked. That is an important measure, but we must also consider the output of the economy as a whole and the output per annum per person of working age. When we have such a high employment rate and such a high proportion of people of working age in work—the number of people in the UK labour force is at a historically high 29 million—the actual pie is bigger. Taken in the round our economy is more productive, so there is a bigger pie to divide. Of course, output per hour worked is important, although I accept that there are questions about the statistics on how much growth there has been and how much we have faltered, but the total pie to be divided among people resident in the UK continues to expand.
High productivity is continuing and, as far as I am aware, gross national income per capita in the UK remains in advance of Germany's. I think our gross domestic product per capita is ahead of Germany's, too. Fifteen years ago, if we had told most people in western Europe that the UK would overtake its European competitors in terms of per capita GDP—or gross national income per capita, which is a slightly different measure although both are measures of prosperity—they would have said, "We think you're wrong. We're not expecting a war in western Europe and we cannot see how else that would come about." I admit that I would have said the same: "Chances of us thrashing Germany economically in 15 years' time? Nah, wouldn't put my money on that." Not that I am a betting person.
Some of the reasons for that growth are what my hon. Friend the Economic Secretary would call exogenous—external factors—but some of them are due to what has been done by the Government and the Treasury team over the past 10 years. That is not to say that things are perfect, but taken in the round we have gone in the right direction in terms of people's lives and the prosperity of our country.
I cannot let the hon. Gentleman's remarks go without some comment, not least because my mother is German and I visited Germany many times in the 1970s, 1980s and 1990s. One of the issues for that country was the sheer cost of reunification. Much more important in the UK, as German politicians and business men would confirm, were the micro-economic changes of the 1980s under the Thatcher Government, which made a fundamental difference for our future competitiveness. I hope the hon. Gentleman will give credit where it is due for the work that has been done not just in the past 10 years but in the past 25.
I accept that there were some positive changes under the 18 years of Conservative government. There is one with which Labour Members certainly agree: workers were allowed to strike—without a seven-day ballot notice—for safety reasons. There may have been economic positives as well, but, blow me down, I can never quite bring them to mind when I am asked questions such as that by the hon. Gentleman, for whom I have a great deal of time, and his colleagues. I can never quite remember all the positives, but I can remember—perhaps this crowds out the positives—a whole lot of negatives, be they the interest rates or the high unemployment. I could recite them all and Members on both sides of the House could recite them all. Whether one agrees with them or not—a lot of Opposition Members do not, but Government Members do—we could all recite them. There were all kinds of negatives. Taking things in the round and trying to be even-handed with the hon. Gentleman, the negatives certainly outweighed the positives, in as much as there were any positives.
This Budget is good for those at the lower end of the income tax scale as it were, because of what has happened with tax credits and so on. I refer the hon. Gentleman to page 208 of the Budget book in terms of what has happened with income tax. Yes, there are people who will lose because of the abolition of the 10p rate, but there are people skewed towards the bottom end of the income scale who will gain, so the measures are redistributive and I support that. I think that most Labour MPs, if not all of them, would support redistribution from the upper end of the income scale towards the lower end of the income scale. I am comfortable with that as a Labour MP.
I want to move on from some of the macro-economic stuff to pay tribute to the speech of my hon. Friend Alan Simpson on climate change. He made a couple of remarks on what I might unashamedly call my specialist subject, or aspect, of climate change: adapting to its effects. But apart from those couple of remarks, all his speech—it was very worthy and good and I agreed with quite a lot of it—was about dealing with the causes of climate change and what we can do to cut emissions in this country and encourage people to generate their own electricity, and all those kinds of things. He did not deal with adapting to the effects of climate change.
We have a crazy situation in this country, whereby, when we talk about climate change in public or parliamentary debates—whether we are talking about it in some kind of ecological context, or in a Treasury context, as we are today—we talk about the aspect that is beyond our control on a world scale: causes. The United Kingdom is responsible for 2 per cent. of world emissions of greenhouse gases. That is twice as high as it should be given that we have 1 per cent. of the population. However, in order to slow down and reverse climate change we need international agreement and action. The Government have a great record on trying to achieve that, but they have not really achieved it so far in relation to China, India, or the USA. The public debate is skewed in as much as we discuss that which is beyond our control, but we do not discuss that which is entirely within our control: dealing with the effects of climate change.
The effects of climate change are already upon us. One can see that by looking at how early the daffodils came out this year, or whatever measure one wants to take. Whether one looks at anecdotal evidence, or the hard science, we already have the effects of climate change, but we do not talk about what measures, including fiscal measures, that we can use to adapt to the climate change that we already have and that, according to the preponderance of scientific knowledge, we will have for at least the next 40 years, even if the world gets its act together and stops pumping out nearly as many greenhouse gases as it does now. If we stopped pumping out those gases tomorrow, we would still have to deal with the effects of climate change. They would grow roughly on a bell curve over 20 years and then start to come down—that is if we stopped all the greenhouse gas emissions, or the excess ones, tomorrow, which is not going to happen.
I am somewhat curious, although I sympathise with what the hon. Gentleman is saying. What aspect of the Chancellor's Budget will change the behaviour of consumers, whom the hon. Gentleman sees as causing the greenhouse gases, rather than measures as merely revenue-collecting mechanisms?
With respect to the hon. Gentleman, he appears to be completely missing the point that I am making. I am talking not about the causes side of the equation, although I have referred to it by saying that we spend too much of the available time talking about it, but about the effects side of the equation. I think that when the hon. Gentleman talks about changing behaviour, he is referring to, for example, people flying less. I am saying not that he advocates that, but that that is the sort of behaviour change to which he is referring. However, that is on the causes side of the equation; I am talking about the effects side of the equation.
We are talking about the Budget, and in addressing the Budget one should examine what the Chancellor is doing to change the behaviour that has led to the effects about which the hon. Gentleman talks. I would thus once again like to ask him what aspect of the Budget will change the way in which people behave, rather than charge already-rich people with 4x4s a few extra pounds that the Chancellor can shove into his coffers.
I humbly suggest that the hon. Gentleman should make his speech and let me make mine. I am not talking about causes—that is not the point that I am trying to make. If he wishes to speak about causes and behaviour, he will be very welcome to do so, if he can catch the eye of the Speaker or Deputy Speaker. I am talking about effects. There is something in the Budget about effects. It is not enough, but I will go on to speak about it.
Last Thursday, the Minister for Climate Change and the Environment and I went to a conference in Oxford that was held by the UK Climate Impacts Programme. It was very weird for me to go to a conference in the morning that was held at my wife's old college and then to go to a community meeting in the evening that was held at her old primary school, although that seemed to bookend the day nicely. UKCIP is doing wonderful work on climate impacts—this is on the effects side of the equation—although I think that it is underfunded, so I hope that the comprehensive spending review will address that. The Organisation for Economic Co-operation and Development places us as a world leader in addressing the effects and impacts of climate change—the adaptation, as the scientists call it—but we need to do far more.
Many of the issues that we need to address relate to water. Summer droughts will increase, as will winter flooding. It is likely that coastal erosion will increase, as will coastal flooding caused by higher tides. Sadly, I think that that took place in north Norfolk last night. We need to address the effects of those changes, whether that is by building better sea defences, larger diameter storm sewers to take away excess winter rains, or more reservoirs. There is a whole host of stuff that we could do, although I will not go into it now—anyone who is especially interested can look up in Hansard my previous speeches on the matter. UKCIP is driving forward, with an incredible amount of regional involvement, all the stuff that is going on below the surface on adapting to climate change that we never really talk about in the House.
Let me address the effects that the hon. Gentleman is talking about. In my constituency of Braintree, the village of Coggeshall faces severe flooding. However, when we ask the Department for Environment, Food and Rural Affairs for money for flood defences, we are told that it is not available. What aspect of the Budget showed that the Chancellor might be allocating more for better flood defences in this country?
That ultimately is a matter for the Department for Environment, Food and Rural Affairs. In the past 10 years, under this Government, the flood defence budget has increased by about 35 per cent. in real terms. I hope that the hon. Gentleman and the House will forgive me if I am wrong, but I quote that figure from memory. That budget has gone up markedly, but I agree with the hon. Gentleman that it needs to go up more. I have said that to the Government on a number of occasions, and I hope that they are listening.
Climate change and international development are mentioned in the Budget, and that is very important, because historically, principally over the past 200 years, we in the rich north and west of the world have produced a great deal of pollution and greenhouse gases, and we have adversely affected the climate around the world. The area worst affected is, crudely speaking, in the belt between the tropics. We caused the problem, and we are feeling the effects in our country. The Government should do more to deal with those effects, although they are already doing some stuff, but we have caused problems elsewhere in the world, too. We invade countries, steal their people through slavery, steal their raw materials, and leave them with the heritage of a ruined climate and no economic development. I am delighted that there is money for the problem in the Budget; to some extent, it is only symbolic money, but I am delighted that the Chancellor has recognised the issue in the Budget.
PN01 of the Budget press notices booklet, published today, says:
"The Government recognises the need to urgently do more both to mitigate climate change and to help developing countries adapt to its impact."
The press notice goes on to refer to the Stern review and other matters, and it refers to a point that my right hon. Friend the Chancellor of the Exchequer mentioned in his Budget statement:
"The Government will allocate £50 million from the fund to help tackle deforestation in the Congo basin, led by Nobel prize winner Wangari Maathai."
The chink in the Treasury's armour, if I may say so to Ministers, is that it should do more on adapting to the effects of climate change. We need to take action internationally, because we bear responsibility as a rich, formerly imperialist western country. We also need to do more within the United Kingdom, and I hope that the Government can do more.
I am delighted to say that clause 37 of the Government's draft Climate Change Bill incorporates the proposal set out in my ten-minute Bill, which I have now withdrawn, for periodic reporting to Parliament of steps taken by the Government to address the effects of climate change. We are starting to move, but I urge the Treasury team to do more in that respect. It is right that we should talk about our international leadership and responsibility on the causes side of the equation—that is, in respect of emissions, greenhouse gases and so on. However, we must not neglect the side of the equation that is totally within our control as a sovereign country—the need to deal with the effects of climate change.
I do not know how much carbon was emitted during the speech made by Rob Marris, but a lot of trees would need to be planted to offset it. This was supposed to be the green Budget, but it is the Chancellor who thought that we were all green, and that we would buy everything that was said at the Dispatch Box. Perhaps we should change Budget day completely, and just publish the Red Book. We would all sit down and read it, and then we would all be able to work out for ourselves what was in it. We would not have all the spin, or have some points excluded, or have the fast delivery of some announcements. That delivery means that it is only when we sit down and work it out that we realise, "That was a couple of billion of pounds that was just spoken about."
It is amazing how much emphasis was put on the finale of the Budget speech, about the 2p cut in the basic rate, but the simplification of the tax rates, which means the disappearance of the 10p rate, was rattled through. When we sit down and work through all the tax changes in the Budget, including the national insurance contribution threshold rise, we realise that overall there has been an increase in taxation, and an increase in business taxation, too.
Does the hon. Gentleman accept that on page 301 of the Red Book, the line that deals with increase in taxes on income and wealth shows that over the next year there will be a change of 8 per cent., while the Chancellor is predicting growth of 2 to 3 per cent., so the real burden of taxation will increase?
Alan Simpson spoke about "cheat infidelity", which would enable people to offset their cheating behaviour. We should do the same with something called "cheat Budget": one announcement is made to make it look as if everything will be okay, but the devil is in the detail, which shows that there will be an overall increase. I remember that after one Budget, The Daily Telegraph chose to examine the impact on four families, but two days later it had to come back and reassess the position. Its original assessment was based on what the Chancellor said, but when it looked at the detail of the Budget, the impact on all the families was worse. The Budget should be far more transparent. When the Chancellor announces something, he should say what the overall impact will be. We ought to know how much money the disappearance of the 10p rate, as well as the increased thresholds for national insurance, will raise.
Does my hon. Friend not agree that this is another classic case of the Chancellor giving something away with one hand but clawing back even more money with the other? A case in point is the impact on a single person without children earning £16,000 as an NHS maternity care assistant, or a police community support officer, who will pay more in tax but fail to gain from the tax credits touted by the Chancellor.
As in all cases, there are winners and losers. For the Chancellor to suggest that everyone will win in the Budget, and to dress up the 2p reduction as an additional bonus, is a somewhat dishonest portrayal of what the Budget is all about. There was one win-win situation—the landfill tax and the increase in the aggregates levy mean that the Chancellor will earn money when a hole is created, and then earn more money when the hole is filled up. That is one environmental measure that puts him in a win-win situation.
My hon. Friend Mr. Newmark said that the wealthy could afford the tax on 4x4s, but in the main, 4x4s in the Ribble Valley are working farm vehicles. The hard-pressed dairy farmers on my patch earn small sums of money—some of them earn less than £13,000; if we counted up the hours that they work they would not even earn the minimum wage—while milk production costs have increased, and the money that they obtain for their products has been reduced for various reasons, including the strength of the supermarkets. It is not right that their working vehicles should be taxed even more, and I urge the Government, even at this late stage, to exclude from the tax increase 4x4s used as farming vehicles.
As chairman of the all-party group on dairy farmers, may I reinforce the points made by my hon. Friend? All the hard-working Shropshire farmers in my constituency who are struggling to make a living will be badly hit by the tax on 4x4s, which they need for their work.
I am sure that the House is aware of the work that my hon. Friend has done in that field. [ Laughter. ] I am sorry, that was unintentional; I was being funny without meaning to be. Everyone knows what hard work my hon. Friend has done in that area, not just for his local dairy farmers but for dairy farmers throughout the United Kingdom.
A few months ago we saw the stealthy way in which the Chancellor operates, when he doubled the passenger air duty. I know that many in the House would say that that was an environmental measure. My hon. Friend Mr. Newmark asked about the effects of the taxes announced in the Budget, and I shall be interested to see what impact that measure has on people travelling. I take issue with the Chancellor on the way in which he introduced it. Those who had already booked and paid for their flight turned up at the airport and were told that they had to pay extra. It is one thing to announce a measure in advance so that everybody knows what taxation they will pay. It is quite another thing when people think they have bought and paid for their flight and then get clobbered with another duty at the airport. That is not fair.
I know the hon. Gentleman's constituency well, as it is next door to mine. As a result of the Budget, people living in the Ribble valley may find that there is greater potential to invest in microgeneration, as it is not an unwindy place. The hon. Gentleman questions the impact of the Budget on his constituents, so what is his view of the net benefit to his constituents of the additional grants for microgeneration and the possibility of mortgages for investing in installing microgeneration and reaping the financial rewards, as against the increased duty on 4x4s?
This will be an interesting one for me. I know that the hon. Lady knows my patch well. She will also know that many tourists come to the Ribble valley because of its unspoilt beauty. The area round the Trough of Bowland is wonderful. Do I want to see that littered with wind turbines? No, I do not. I am also president of the Country Guardians, and one of our duties is to ensure that the countryside is not scarred with industrial furniture.
I am a sceptic about some of the benefits claimed for wind turbines. I would much prefer the money that has been used to subsidise turbines to be invested in conservation. The Chancellor did some of that today, and I applaud him for it, although I wonder why we have to wait some time before VAT on energy-saving domestic appliances comes down to 5 per cent., yet he could introduce the nicotine VAT change straight away. I welcome the fact that he has introduced some measures on that front, but he could do a lot more, and sooner.
On energy generally, the energy review is trundling on. It is late and I do not understand why. If we want energy security and environmentally friendly energy production, let us get on with it and start the nuclear power building programme. I do not know why we are delaying. We know that it will happen at some stage, so let us just get on with it.
Returning to the hon. Gentleman's point about wind turbines, I share his cynicism about their contribution in urban areas, although I believe that wind could have great potential in larger schemes. On energy efficiency, does he not realise that grants will be given only if the householder has already, for example, installed cavity wall insulation and loft insulation? His point about energy efficiency and conservation is not well made.
More can be done to incentivise people to conserve energy in their homes. If a small percentage of the money that goes towards subsidising wind turbines went straight into more grants to enable people to insulate homes and be more environmentally friendly, and perhaps give them all those wonderful energy-saving light bulbs, even though they cost a little more, we could conserve more energy than we need to create with those dreadful wind turbines.
As Kitty Ussher knows my patch well, she will know that Ribble Valley's council tax is going up by 5.1 per cent. this year. We do not know what to believe about inflation these days, as we have heard so many statistics, but I suspect that it is nearer to 5 per cent. than anything else. I heard Stewart Hosie say that for some people, depending on what they buy, it is a lot higher, and could be nearer to 9 per cent. The increase for Lancashire county council—the hon. Member for Burnley will also have that element in her council tax—is 4.95 per cent.
At the same time, just to save money, the Government have cut back on rural buses, which goes against everything that I thought they were trying to achieve environmentally. Twenty-nine of our services are being chopped, which means that many people in rural areas will have no choice but to get into their cars and drive. For many of them it is not a reduction in the service—that happened a long time ago—but an abolition of the service. People are paying more in their council tax, yet having a poorer service as well. Moreover, the Lancashire police authority precept has gone up by 11.4 per cent. I would like to know exactly how every penny of that is being accounted for, because it is at least three times the rate of inflation.
The Chancellor altered stamp duty for carbon-free homes, but only until 2012. I do not know why he set that limit, because if it is such a good idea for all homes to be carbon-neutral, perhaps no sunset date should be put on it. He has done incredibly well out of stamp duty over the years. The Halifax bank has calculated that if the threshold had risen in line with inflation, the £250,000 threshold would now be nearer to £680,000 and the £500,000 threshold would be about £1,360,000. I hope that the Chancellor will reconsider that issue.
There is currently a campaign by nurses about pay. Doctors have done very well out of the Government, but is it not about time the nurses got their fair share for the work that they do? A 1.9 per cent. pay increase is simply insufficient when inflation is running at 5 per cent. One nurse wrote to me to say that she is losing about £570 because the pay increase is so low compared with all the other increases taking place.
Does the hon. Gentleman not agree that as a result of the "Agenda for Change" process the average nurse's pay is much higher now than it was under the Government whom he supported?
What I do know is that nurses are so agitated about the level of pay that they are getting that they are writing to every Member of Parliament about it. I am sure that the hon. Lady has received several postcards from nurses in her area complaining about the pay increase.
On pensions, there is an issue that has been a bugbear of mine for some time. I am sorry that we did not deal with it when we were in power, and I hope that the Government will consider it in the dying days of their Administration. If not, I hope that we will do something about it when we take over. Pensioners from the United Kingdom who have gone to live in certain countries abroad, such as Australia, Canada, Hong Kong, South Africa and New Zealand, have not had the pensions for which they have paid in uprated. Why not? The Government say that there are not reciprocal arrangements in several of those countries, but I do not understand how that comes about. If somebody from this country retires to another part of the European Union they will get their pension uprated straight away. There are all sorts of links with Commonwealth countries such as Australia and New Zealand, and people like to go and live in or retire to them. This problem affects 520,000 people who have moved to the countries that I mentioned, and I hope that Ministers will re-examine it. If the pensioner moved away from this country 20 years ago, one can only imagine what level of income they have to live on in those countries.
When I last asked the Government to look into that, the annual cost of what the hon. Gentleman seeks came to £450 million a year. He spoke earlier about paying nurses more money, and I understand his point about vehicle excise duty on 4x4s used by farmers in his constituency, but he started out by talking about transparency and urging it on the Government. In the light of that transparency, will he tell the House what services he would cut, what taxes he would raise, or how much money he believes a Government should borrow, to fund the spending commitments that he urges on the House tonight?
I fully accept what the hon. Gentleman says, but when my hon. Friend Mr. Field was talking about spending, he invited the hon. Gentleman to think of examples of where money has been wasted, and a poor example was given, of some computer that may not have been necessary. The fact is that when the Government are spending something in the order of £685 billion a year, we are talking about substantial sums of money—and we all know about effective spending.
I recently attended a conference where Bill Gates was speaking, and when the richest man in the world speaks, I listen. He spoke about how much money he was giving to help eradicate HIV/AIDS in Africa. He always talked about the effective spending of money—not just spending, but effective spending. That is what the Government should be doing when they spend money. They do not have money of their own; they take it from us, as they have done in increasing amounts over the last 10 years. I want to see the Government properly and effectively spending that money. That is where the transparency lies.
We know that all sorts of computer schemes have cost billions, yet they have not even worked properly. We talk about the tax credit system, and we will all have had constituents in our surgeries complaining about tax credits being overpaid. They have been in touch with the organisation but they are still being paid the extra money, even though they have asked not to be paid it. Somehow or other, something in the system keeps paying the money. Then, of course, six months later, there is an attempt to get the money back, but it has already been spent. There are real problems there. That is where effective spending of money will come in.
I have two further points. The first is about spectrum, which the Chancellor mentioned. I do not know how much money he thinks he will get for the spectrum, but it will certainly not be anything like as much as when the 3G licences were first auctioned off, raising bumper sums in the region of £25 billion. I have one particular worry. If the entire spectrum is going to be auctioned off at the best price and none of it is to be allocated to the terrestrial channels, I am afraid that we could see an HDTV divide in this country, whereby high definition will appear on the Sky platform but not on freeview, which simply does not have the capacity. Attempting to put it on freeview would mean a reduction in the number of channels, which runs counter to providing choice. If that were attempted on freeview with the same number of channels, the picture would pixellate and freeze. I hope that we will look further into how spectrum will be allocated for those with terrestrial reception only, and, indeed, for theatres on radio mics, which I understand will also be affected.
I declare my interest as a retailer of tobacco and alcoholic products. I am also vice-chairman of the all-party beer group, so we are making our usual representations about alcohol, particularly beer. I know that spirits have been protected—I scratch my head and wonder why—as opposed to wines and beers. I know that the on-trade is finding it incredibly difficult, in comparison with supermarkets, which seem to be doing amazing deals for the public. I rather hoped that the Government would have been persuaded of the argument for a freeze on beer duty, particularly for on-sales, though it is difficult to differentiate.
The hon. Gentleman clearly was not listening. We are in favour of the effective spending of the huge sums of money that are being raised from the public. One has only to open the public appointments section of The Guardian to see huge sums of money being offered for what I would term non-jobs. Huge savings could be made there. As I have said, the Government do not have any money of their own; they have only the money that they take from us in increasing amounts.
Huge amounts of beer and other alcoholic drinks are being smuggled in and sold in car parks, pubs and clubs all over the country. This affects not only the businesses of those who live near Dover, but the Government's tax take. The Chancellor has raised the duty on these products, yet they are also being smuggled in through the back door. By buying those smuggled products, people are stealing the taxes that would otherwise go into the national health service, education, or law and order, which is where we want to see money being spent effectively. Will any money be earmarked for bearing down further on people who smuggle products on which taxes are levied into the United Kingdom, whatever they happen to be? Such practices undermine the Government's health and taxation priorities for this country.
I am grateful for the opportunity to speak in the debate, and it is of course a pleasure to follow my neighbour, Mr. Evans, although I do not agree with everything that he says. I did not want to intervene on him for a third time, but I wondered what kind of jobs advertised in The Guardian he would define as non-jobs. He and I can, however, agree on one thing, which is that it is completely absurd that Lancashire county council should cut school bus transport. I have lobbied hard locally and nationally on that issue.
I have not been looking for a job, so I did not notice those jobs being advertised. However, I can think of some excellent readers of The Guardian whom we could ask to operate as spies.
Anecdotally, it is said that if we ask two economists the same question, we will get two quite different answers. Speaking as someone with two degrees in the dismal science, my experience is that the number of answers is often at least four or five. On a serious note, I believe that the Chancellor has added even more answers over the past 10 years to some of the questions that have been out there since the dismal science first became a discipline. In a sense, he has confounded the textbooks. When I was at university, I learned as a fact that there was a trade-off between inflation and unemployment, for example. Indeed, brains bigger than my own have earned their reputation by describing that trade-off and plotting the graphs to illustrate it. The experience of the past 10 years has been precisely the opposite, however, with low inflation and low unemployment occurring at the same time.
I also learned from political theory that there was a trade-off between parties that promoted economic prosperity and those that prioritised social justice, and that the two were mutually exclusive. The experience of the past 10 years has shown that there are new answers in that field as well, given that we are now in the longest period of sustained growth for 200 years under this Chancellor, and that 2.5 million people have been taken out of relative poverty. Relative poverty is the hardest measure of poverty, involving those on less than 60 per cent. of median income, even accounting for overall incomes going up. Within that overall figure of 2.5 million, pensioner poverty has improved dramatically, as I have seen directly in my constituency. There have also been measures to improve child poverty, which perhaps have not taken effect as fast as we would like, but I am sure that the measures announced today will be faster.
I want to delve deeper into the concept of relative poverty and how it has changed. A briefing note from the House of Commons Library, including a useful time series, showed that, according to the definition that I have explained, 12 per cent. of people lived in relative poverty in 1979. By 1997, that figure had risen to 18 per cent. That is the legacy of the Conservative years. By 2005, the trend had moved in the opposite direction: it rises, plateaus, then starts to fall again. The latest data, from 2005, show the figure to be 16 per cent. That is not as fast a fall as we would like, but I think that the figure will fall faster in subsequent years, and I am convinced that it will continue to fall as a direct result of today's Budget. It is a redistributive Budget, and I am extremely proud to be a member of the party that proposed that.
We have seen a shift in the way in which the UK economy works. We are a richer and more just society. We have low inflation and low unemployment. How has that been achieved? It has been done in a number of different ways, and I want to pick out three in particular. First, and most importantly, the Government had the foresight to realise that reducing levels of debt at an early stage would free resources later. When I was working in the dismal science, it was my job to forecast macro-economic trends in countries in eastern Europe and the former Soviet bloc, which are in no way comparable with our own. I remember looking at the levels of debt in different economies and forming an understanding of the impact that critical levels of debt have on living standards. To reduce our debt to below 40 per cent. is a substantial achievement, and has freed up the resources that we are now able to spend on investment.
While, on the surface, the national debt figures appear to have been held, does the hon. Lady accept that the exclusion of huge amounts of capital expenditure that would normally have been part of the public sector borrowing requirement means that the debt picture is not, in reality, as rosy as she describes?
No, I would not accept that. Very good economists have analysed whether that expenditure should be included, and concluded that it should not. Furthermore, we are talking about direct Government debt, for which the Government are responsible, and because the Government are by far the largest player in the economy that has a direct macro-economic effect. Perhaps my hon. Friends on the Front Bench would like to respond further to that later, but that is my understanding.
Secondly, the Government set a low and credible inflation target—credible because it was managed by an independent central bank, which has been long debated. The effect, which we have seen recently, is to bring down inflationary expectations, and therefore interest rate expectations. Consequently, when companies and individuals seek to borrow, they can do so at much more preferential rates, which has had a huge effect on building the capacity of the economy and keeping more people in work.
Thirdly, and crucially for this Budget, the Government have not been afraid of massive interventions on the supply side to raise the capacity in the economy and to increase levels of education, research, science and so on. Conservative Members may mock the new deal, and they did so while the Chancellor was speaking—that is not surprising, as perhaps they would abolish it—but they must realise that that kind of targeted welfare-to-work policy has had a transformational effect on employment levels and on the individuals affected. My argument is that it should go further. I am delighted that we are now using the same techniques to lift the long-term unemployed and those on incapacity benefit into the workplace where that is possible for them.
We now need to focus on people in work with low salaries. Immediately and crucially, we must do so through the tax credit system, but we should also learn some of the lessons of the welfare-to-work and new deal programmes. We should consider a new deal for those in work, with targeted career advice so that they understand where, if they invest in such training, it could be expected to take them in five or 10 years' time. Experience has shown that such an approach is effective for people who are out of work; let us apply it more widely and, perhaps, draw lessons from organisations such as learndirect in extending it to the workplace. I should be interested to know what Conservative Members think of the idea, but I doubt that they could cope with it conceptually.
I can see them thinking hard.
Over the past 10 years or so, our policies have shifted the United Kingdom's economy to a different paradigm. It has more capacity than it used to have. As a relatively new Member, I can see the effects on my constituents. Employment levels are high—higher than they have been for a long time.
I look at newspaper cuttings and I talk to my predecessor Peter Pike, who served Burnley well for many years. He says that people no longer turn up looking for work as they used to do. When the structure of the economy changes and factories close, people do not tend to be out of work for long now because there are other opportunities—although I am proud to say that much of our manufacturing sector is doing extremely well. In the past six months I have visited 10 or 15 high-tech manufacturing companies, the vast majority of which are taking people on. I am sure that businesses in my constituency will welcome the fall in corporation tax, and people who have been employed in firms that have gone bust will certainly welcome the extension of the financial assistance scheme.
As a result of the improved national economic situation, my constituents are benefiting not only from higher employment levels, but from direct transfers from the centre. That is right and proper, because ours is one of the poorest parts of the country.
I am loth to mention football, given Burnley's current position, but I am sure that that will improve.
National money is being invested in the regeneration of some of what must be termed our outdated stock of terraced housing. All our secondary schools are being rebuilt under the 'Building Schools for the Future' programme. The public sector in its various guises, through the regional development agency, the Higher Education Funding Council and the Learning and Skills Council, is putting together an exciting project for a university in Burnley town centre that will specialise in advanced manufacturing, building on our experience and skills base. I am sure that Members will be intrigued to learn that phase 5 of the development of Burnley general hospital, which has involved capital investment, is opening today. I am only sorry that I cannot be there.
I have talked about the national macro-economic situation and the dramatic way in which it has tunnelled into one of the poorest parts of the country, in terms of both direct transfers and individual opportunities for my constituents. The Budget will be good news for them. The 5,000 or so who are pensioners will benefit from the increase in pension credit and the tax-free allowance, while working people will benefit from the £1 billion being spent to raise the value of working tax credit. Families will benefit hugely from the increase in child benefit.
I want to say something about the environmental measures in the Budget. My constituency contains more terraced housing, and more people eligible for the warm front scheme, than any other constituency. Mr. Evans—my neighbour—nods. The Warm Front scheme is providing precisely the type of energy efficiency help, central heating help and similar measures that will reduce fuel poverty. The hon. Gentleman questioned their existence earlier. I can assure him that they do exist, because I see them being implemented throughout my constituency.
The Warm Front scheme is a win-win. It is good for our carbon footprint, and it also benefits people on low incomes who will end up spending less on fuel as a result of the Government's investment. As a result of that and our measures to reduce pensioner poverty, we need no longer deal with the problems with which my predecessor says he had to deal. Elderly people were coming to his surgery and saying, "I don't know what to do. I don't have enough money so I have to choose between heating and eating." That used to happen—I am sure that it did not happen only in Burnley—but it no longer happens because of the investment that we have put in. In terms of what we have achieved, that, if nothing else, is something to be incredibly proud of.
There has been huge progress on fuel poverty, as has been mentioned. However, in the last year that progress has plateaued—and perhaps has gone slightly backwards—because of the blip in oil prices that translated into astonishing fuel bill costs for everybody, and which hit the poorest the hardest, of course. I want to highlight how some of the measures that the Chancellor announced today will prevent such problems from arising in the future. When people are on a budget they budget their income, and they might do so for every element of their expenditure. Therefore, the last thing they need is a fuel bill that they were not expecting that blows all of that budgeting out of the water. That is fundamentally unempowering, and when that bill comes from a private sector company very little can be done. Of course, we can help in various ways, but volatility in fuel bills affects the poor disproportionately.
There are various things that we can do immediately to alleviate that, and we have heard about some of them. I am attracted by the solution of smart metering technology, which enables people to realise on an hour-by-hour, day-by-day basis the value of the energy that they are consuming. Therefore, if there are simple things that people can do that will make an impact, such as turning down the thermostat by 1° or washing clothes at 30° rather than 40°, they will be aware before it is too late that they need to start doing them now. I understand from people who know more about this subject than I do that there is a new generation of smart meters that will not only tell people how much in monetary terms they have already spent, without them having to put 50p pieces and pound coins into the machine or having to buy a card at the newsagent which costs more per therm than any other way of paying for heating. The new generation smart meters can also be used to provide the necessary infrastructure to enable people to sell surplus electricity generated at home back into the grid. It is inevitable that everybody will have such kit in a few years' time and I urge my Front-Bench colleagues to work with Ofgem to try to find a way to accelerate the roll-out.
Let me explain what the Chancellor has, effectively, done today. He has provided a mechanism for the fuel poor to trade their way out of fuel poverty by giving grants for microgeneration and financial instruments that can be used—as I mentioned in my intervention on the hon. Member for Ribble Valley—to invest in the necessary capital equipment that will reduce people's fuel bills and enable them in time to sell surplus generation back into the grid. That will not require there being huge eyesore wind turbines. I do not know whether Mr. Cameron is selling any surplus generation back into his local grid—or, indeed, whether he needs to do so. [Interruption.] Just hot air, an hon. Friend says. What I am discussing is theoretically possible. It happens in other parts of the world. I am told that it happens routinely in Germany. However, it need not just apply to wind turbines; it can apply to many other forms of generation, such as solar panels.
What better solution can we offer to the less well-off than the following? Instead of just saying, "We're using Warm Front to introduce central heating so you don't have to rely on expensive electric heating", or "we're using Warm Front to put in cavity wall insulation", we can say, "We're also, with a Government-assisted scheme, giving you the means to control your own bills—and, what is more, there is the potential for you to make a small income out of it for yourself."
I urge colleagues to consider this measure. It works on several levels. It reduces the amount of CO2 emissions that we produce as a country. We could catch up with, and possibly overtake, other European countries in being innovative in this way. It is good for the fuel poor, too, as it reduces their budgets. It will also, of course, provide more jobs in the type of 21st-century advanced manufacturing of the future in which constituencies such as mine have the potential to be involved. I am extremely encouraged by what the Chancellor said about mortgages for capital investment in energy efficiency and working with Ofgem to offer that. I am encouraged that he specifically mentioned the possibility of selling back into the grid. In a few years' time, such ideas will be regarded as obvious.
The past 10 years have confounded standard economic thought. As I said at the outset, if we put more than one economist into a room—perhaps just one would do—we get several different views. However, one point on which future economic historians will be united is that we have seen something spectacular in the past 10 years.
It is always a great pleasure to speak in a Budget debate, representing as I do the City of London, as well as the city of Westminster. In many ways, this Budget has not involved that much economics. Bearing in mind the contribution of Kitty Ussher, I am always a tad sceptical when people suggest that the economic cycle has ended or that this Government's economic record in the past 10 years is beyond any norm. I am afraid that it is always the way that, on thinking that one has reached a new paradigm, reality comes back to bite before too long. The hon. Lady raised a number of issues that I, too, wish to discuss, but I am less convinced than she is that there has been a turnaround in all economic fortunes and that it is entirely down to the current Chancellor.
To a large extent, this Budget will be remembered as a great political Budget. For those who were here, the first 48 minutes or so perhaps did not seem terribly exciting. Then, the Chancellor pulled the rabbit out of the hat in the last 30 seconds with a cut in the level of income tax, but it has to be said that it will not come into play until some 13 months' time—from
Today's Budget is also politically quite clever. Its income tax and corporation tax cuts could drive a wedge between members of my party, and bring the tax cuts debate nearer to the surface in a party that considers itself—rightly—as a potential Government in waiting.
Like one or two other contributors to today's debate, I feel it appropriate to take a broad overview of the past decade. It might well be the Prime Minister's last Budget, but—who knows?—it might not necessarily be the Chancellor's last. We assume that he is going to make the move from No. 11 Downing street to No. 10. He may yet produce further Budgets—perhaps not—but presumably, this 11th Budget will indeed be his last. It is only fair to give credit where credit is due: there has been a tremendous record of economic stability. As someone who used to be in business, I wanted stability, and most incumbents in business do. However, one problem with a somewhat flat level of stability—I am not suggesting that we have that now—is that it is often a big disincentive to innovation. So we should not look upon stability itself as a tremendous goal, but it must be recognised that we have had great stability in the past decade, and most people in business would give the Government credit for that.
It has been remarked that one of the most important early developments was giving independence to the Bank of England. However, it is less well remembered that in transferring responsibility for interest rates to the Bank, the Government took away its regulatory role. As a result, the Treasury's role within the City and economic affairs has been enhanced, compared with that of the Bank.
There is no doubt that growth has been maintained and that is partly as a result of global expansion. The economic power of India and China, which are the great super-powers of all of our lifetimes—I suspect that we will see accelerated evidence of that in the decade to come, let alone in the generation to come—has had a great deflationary effect and will continue to do so. There is an enormous amount of spare capacity in both India and China, assuming that neither has any political upheavals.
I recognise that there has been some skilful management of the economy, both here and in the US. One looks at Alan Greenspan's actions, especially in relation to the downturn in the fourth quarter of 1998 in south-east Asia, but also in the aftermath of 9/11. We also had a terrorist attack, on a much smaller scale, less than two years ago, which might have had a negative effect on the City and tourism in London, and we have to give credit where it is due to the Chancellor and the Treasury for the skilful management after that event.
That management stands in contrast to what has happened with many of our European neighbours, but as I said in an earlier intervention, it smacks of a paucity of aspiration for us to talk endlessly about our record in relation to Germany, France or Italy over the past 10 or 12 years. In many ways, those countries have not succeeded to any great extent and we should aspire higher.
I would give the Chancellor even as much credit as the hon. Gentleman would do for that policy. I know that the hon. Gentleman's view on that important decision is supported by many of his colleagues. The practical reality is that there is now, and has been for many years, a single world currency in the US dollar and its relative strength, but we have had great benefits from remaining outside the euro. A certain amount of credit has to go to the Treasury for that decision.
An issue close to my heart is the continued strength of the City of London. In the US, New York and Wall Street have been deeply concerned about the great strength of the City of London in recent years. Undoubtedly, after WorldCom and Enron, there was a rapid move towards regulation that was not entirely thought through and had unintended consequences, such as Sarbanes-Oxley. That has given London yet another competitive advantage. The lesson is plain. It is not that we want to be a bandit state—and we should be careful about the accusations that have been made about overly deregulated areas, whether in private equity or hedge funds—but we should ensure that regulation is kept to a sensible minimum. We also need to keep taxes low. The lesson comes not only from the past five years after Sarbanes-Oxley, but—perhaps more importantly—from the fact that the whole Eurobond and Eurodollar market came about only as a result of high US taxes some 40 years ago. We need to remain aware of problems that may arise. If there are crooks around, they will find a way to abuse any system, but I hope that the City of London has the balance right. It is greatly to the advantage of the UK as a whole to have a strong City. In many ways, without a strong financial services sector, our country would be in deep trouble.
There are knock-on effects, as was mentioned yesterday, of effectively having a City state in London, with so many of our indigenous population being left behind. That applies not only in London, but beyond. Kelvin Hopkins, for example, must look in horror at the way in which house prices have exploded in his constituency, and the same applies in many other areas in the home counties. There is a risk that those who do not work in the financial services or do not inherit wealth will be left behind and be unable to get on to the housing ladder, which so many of our young people wish to do.
In years gone by, the Opposition may have lacked a nuanced approach to certain aspects of the Government's record on the economy. We all remember in 1998 "the downturn in Downing street" that was about to take off. We have also been confounded many times by growth figures that turned out better than predicted. However, as I mentioned earlier, the practical reality is that more people are in work, although some of the jobs are part-time. In recent years, we have been able to maintain a high level of growth partly owing to migration, which has brought with it problems to do with housing, health and so on. Nonetheless, we must give credit where it is due, and the growth figures have remained fairly intact.
Even so, the Chancellor will leave the Treasury with many of the fundamentals not looking nearly as good as they did in 1997. The tax system is very complex and, although I accept that today's Budget contained a certain amount of simplification, the Tolley's tax guide is twice as thick as it was a decade ago. The spirit of the age supports simplicity, and we must simplify our tax system if we are to make a full impact in a global economy.
China and India are often spoken of as the tiger economies of the east that are ready to overtake us, but is not India's tax code even larger than ours?
In fairness, India is the only country with a more complicated tax code than ours. My point was that, in a global world, we need to have an eye to simplicity. In many ways, our tax system has become overly complex, so I am happy to take this opportunity to welcome the Chancellor's move today to simplify income tax. It also makes absolute sense to align the higher rate of tax with the national insurance level, as that will remove all the little overlaps with which I am sure that the Financial Secretary is familiar.
One legacy of 10 years of this Chancellor is the level of public debt. The golden fiscal rule, insofar as it still exists, has been breached on a number of occasions. The date of the economic cycle has been changed three times to force the facts to fit the theory. Spending is at almost £600 billion a year, and is reliably forecast to rise to about £670 billion by 2010. Too much has been—and will continue to be—funded by debt.
The public finance initiative is another problem. Much of the building of schools and hospitals to which Rob Marris referred earlier has been funded by the PFI, and there is a sense that we are relying on future generations to pay for what we are consuming today. Much of that off-balance sheet financing is delaying the tough decisions that need to be made about the future of public expenditure. I fear that this era will come to be regarded as the best of times, because we are consuming now without paying proper regard to future generations.
Off-balance sheet financing is a legitimate device, and I appreciate why the Government use it, but they are never going to let NHS buildings or schools collapse. Does my hon. Friend agree that there needs to be far greater transparency in off-balance sheet financing? Should not items such as hospitals or schools that the Government stand fully behind be put on the balance sheet, or be noted somewhere in the accounts as Government liabilities?
My hon. Friend is absolutely right. We have long argued that much of the off-balance sheet financing, especially in PFI and the public-private partnerships, should appear on the balance sheet. The obvious reason why that does not happen is that, if it did, public debt and public liabilities would rise to levels much higher than any prudent Chancellor could like. The invidious effect of the PFI is that it creates liabilities today that others in the future will have to pay for. The criticism has been muted, understandably, because contractors, lawyers, accountants and people in construction have benefited from PFI to a large extent. The great genius of PFI has been the way in which, in my view, it was abused over the past decade.
The hon. Gentleman seems to be making a critique of PFI, which I should be happy to support, especially if he went further and said that it would be much more sensible to invest with publicly borrowed money. That would be much cheaper and save the Exchequer a lot of money in the long term. I have written an article on the subject that he may have read in The House Magazine.
The operative word is "seems". I disagree with the hon. Gentleman's analysis. I would rather that we did not take on such debts. If we cannot pay for things now, the golden rule, which supposedly guides us, should not be breached. It should be for today's taxpayers to pay for the benefits that we receive.
From the Treasury's point of view, the real genius is that the increased tax burden on all of us for decades ahead to pay for many of the schools and hospitals built in recent years will be difficult for any incoming Government, Conservative or otherwise, to reverse. Furthermore, in 25 years, districts will need new or upgraded schools or hospitals. In many ways, we have the mirror image of privatisation in the 1980s and 1990s. Labour went into the 1997 election with a firm commitment to reverse the rail privatisation that had taken place only a year earlier, but the Labour Government quickly discovered that they had to jettison their commitment. I fear that when the Conservatives come back into government, we, too, will have limited room for manoeuvre due to the PFI liabilities that will come on stream in great number.
I suspect that the figure would be about 42 per cent., if not slightly higher. I am sure that was the figure the hon. Gentleman had in mind.
I have another general concern about the Chancellor's record—the unreformed state of our public services. The real losers now and in the future will be the impoverished, the vulnerable and the voiceless. The question that faces all of us in the political world is how to manage an ever larger state, which within the next few years will gobble up £680 billion and rising. Whether health care, law and order, education or security, the public services are in something of a mess—although not for the want of significant expenditure over the past six or seven years.
Many of the Government's more recent NHS reforms are to be welcomed, even though, to a large extent, they merely re-establish the position before 1997. My party has started a campaign to say "No" to what are regarded as NHS cuts, although we all appreciate that they are not actual cuts and that ever more money is being spent on the NHS—albeit at a decelerating rate. The Government used similar tactics to criticise the Conservatives during the general election two years ago. However, we need to consider not just tactical benefits; we need greater strategic insight on the better running of health care.
We have a stark choice in health care. The Budget was supposed to be a Budget for the NHS. Perhaps that will be more apparent in the Finance Bill and beyond. We need to support local decision making. I want the empowerment of primary care trusts and foundation hospitals. It is beholden on everyone who wants a locally oriented health service not to make cheap political points about postcode lotteries. Nothing will guarantee firmer, more inflexible centralised control of our public services than campaigns on those lines.
I should have liked more vision, insight and political courage from the Chancellor. In the Government's first two terms he had an enormous parliamentary majority and, in the early years at least, limitless public good will to bring about some of the fundamental reforms required in the public services. I fear that opportunity has been wasted.
We have an increasing number of supplicants of the state. One of the more shocking elements of that was the inadvertent revelation from the Paymaster General at the last Treasury Question Time that the parents of more than 10,000 children in the constituency of the shadow Paymaster General, my hon. Friend Mr. Francois, were in receipt of child tax credits. That is a relatively prosperous, middle-class, southern English constituency. None the less, even in that sort of constituency, a five-figure number of children are getting tax credits. As a backdrop to the changes in the income tax regime that were announced today, there will be even more reliance on child tax credits and working tax credits for those who are paid at the lowest levels, who will no longer benefit from a 10 per cent. tax band.
I acknowledge what the Chancellor said about tax credits, but there is no point in continuing to give out with largesse tax credits, day after day, unless there is fundamental reform of the tax credit system. Is my hon. Friend aware that three out of every five people who receive tax credits get the wrong amount? That is a significant problem.
I am aware of the great problems that exist. My hon. Friend rightly used the word "largesse". I worry that there is a sense of great public sector largesse. That may prove electorally beneficial to the Labour party and a Labour Government going forward, but there will obviously be great concerns about our global competitiveness.
During the course of the last few hours, the debate has touched on India and China. I again give credit to the Chancellor: he was probably the first leading-rank politician to identify those two countries as important trading countries going forward and to recognise the benefits of the deflationary pressure that their influence has on the world economy. He is also right to regard that as a great opportunity for this country—a challenge, of course, but not necessarily a threat. As the hon. Member for Luton, North pointed out earlier, the Chancellor has also been right to stay very much at arm's length from further integration into the European Union and the single currency.
To conclude, looking at the Chancellor's track record over the past decade, as it has affected the UK economy, we see a picture of unparalleled economic calm. Yes, the Chancellor is entitled to some significant credit in relation to Britain's performance. In the years and decades ahead, these times will be regarded by all of us here as the very best of times, but I fear that we may also look back upon this era as one when we failed to lay the foundations to ensure that, in the decades ahead, we could see the next generation prosper in a similar vein.
I come from a different political philosophy from Mr. Field. There was much in his speech with which I disagreed, but there was also much with which I agreed—particularly his point about means-testing and the level that tax credits go up the income scale. I will make some comments about that. I congratulate him on giving credit to the Chancellor where it is due and not indulging in political point-scoring.
The last measure that the Chancellor announced was the reduction in the basic rate of income tax. I have not seen the news, because I have mostly been in the Chamber, but I suspect that that is what has grabbed all the headlines. I believe in a progressive, fair tax system that is as simple as possible. In so far as the measures announced today have moved towards a simpler system, I welcome them. I am not intrinsically enthusiastic about cuts in the basic rate of tax, but I think that it is right to go to a 20 per cent. rate, if only because it is simple. However, we must not forget that—as Mr. Redwood quite rightly pointed out—that has been primarily paid for by the abolition of the 10p tax rate. I shed no tears over that either, because I thought that it was a gimmick when it was introduced. I am worried that far too many people are paying tax. The Red Book refers to a single-earner couple without children on half-median earnings of £13,500 a year who are in receipt of working tax credit being £175 a year better off. It is good that they are better off, but why are they paying tax in the first place?
The Chancellor has brought the national insurance and personal tax allowances into line and raised the threshold for the higher rate of tax. That is a welcome simplification, but I would like him to move down the radical road of raising substantially the threshold at which people begin to pay taxes. Such a measure would take many people out of income tax altogether and reduce the need for so many people to be in receipt of tax credits. I am unhappy with a system that takes on the one hand and gives on the other to make a neutral transaction. Such a process is unnecessary.
I accept that if we were to raise the threshold at which people started to pay tax, we would need to make adjustments at the higher levels. That could be achieved by introducing a 30 per cent. rate between the 20 per cent. and 40 per cent. rates. It is right that the threshold for the 40 per cent. rate should have been substantially increased because I have always been worried about people on moderate incomes paying the same rate of tax as millionaires.
Although I agree with my hon. Friend about raising thresholds, has not the focus in recent years been on the lower end of taxation, rather than the higher end? Does she agree that we need to re-examine the whole income tax system and to reform it thoroughly to make it much more dramatically progressive?
I do. Perhaps I am not being very clear, but that is what I am trying to say. When the Chancellor becomes Prime Minister, perhaps he will be bold enough to go down the route of developing a fairer and simpler system that people can understand. My problem with tax credits is that while we will always need to give help to low-income families, especially those with a large number of children, any system that is so complicated that people cannot understand it is not sustainable. It would be easy for future Governments to allow the largesse that we are seeing to wither on the vine. If we want a long-term legacy, we need a robust tax system that is fair and that people understand. When people receive benefits, they should understand what they are getting so that they can defend themselves against any attempts to cut them.
For children, the bedrock of such a proposal would be a high-value child benefit system. I know that that would reach better-off families, but if we had a progressive tax system, it would be clawed back from their other income. The advantage of child benefit is that it is reliable and understood, so people know what to expect. Although I welcome the Chancellor's proposed increase in child benefit for the first child to £20 by 2010, I do not think that it goes far enough. The same amount of benefit should be received for second and other children. However, the Budget is good for families. I especially welcome the commitment to the continued expansion of the Sure Start scheme.
I also welcome the Chancellor's commitment to invest in our science base, which is crucial if we are to compete against the tiger economies. We will have to compete on value-added and innovation. The investment that we put into our higher education and research institutes pays for itself and encourages private investment in research and development. If I have had criticisms of the Chancellor over the past 10 years—I suppose that I have just mentioned some of them—my biggest has been the lack of investment in our physical infrastructure, especially in our transport and housing infrastructure.
The hon. Member for Cities of London and Westminster seemed concerned about levels of debt. The Chancellor has a prudential rule—I do not think that it is a golden rule—under which a total debt of more than 40 per cent. of gross domestic product is unacceptable. I have asked many questions to try to elucidate the reasons for that arbitrary 40 per cent. figure, but I still cannot get a logical explanation. As hon. Members may recall, the Maastricht criterion for total Government debt was 60 per cent. of GDP. That is rather too high, and it is good that we are well within that. However, if we are keeping our debt artificially low by allowing our public infrastructure to decay, and if we are not investing at least the amount that is necessary to enable us to compete with other countries, not borrowing is imprudent, and borrowing is the prudent thing to do.
Perhaps I could help the hon. Lady. The Chancellor is in a difficult position, because he has set an artificial level of 40 per cent., as she says, but the problem that he faces is that he has put twice as much money off balance sheet. In fact, the real level of debt is 105 per cent. of GDP. The bind that he faces is that he can either continue to put things on the balance sheet, and breach the mythical 40 per cent. mark, or he can put more and more money off balance sheet, which will take us way over 100 per cent. of GDP.
I do not accept those figures. I am not a fan of private finance initiatives, but they are a relatively small proportion of overall investment. The figures are in the Red Book; they are relatively small compared to overall debt, and indeed compared to capital spending. Current annual capital spending is about 1 per cent. of GDP, which takes us back to the levels of 1992.
I am pleased that the Chancellor has announced a substantial increase in capital spending, which will go up to £60 billion in 2011-12. I accept that we cannot dramatically increase spending if we do not have the capacity to do so, so it is excellent that, under the Budget, there is to be a sustained increase in capital expenditure, which will rise from £43 billion in the current year to £60 billion in five years' time. I hope that that will mean that we can start to catch up in the areas of investment that are of great concern to me. I mentioned transport and housing, and I shall first deal with housing.
When I first became involved in politics, it was in local government. I was elected as a councillor for Birmingham city council in 1980. At the time, the housing investment programme was about £100 million a year—and that was at 1979-80 prices. Birmingham city has had a total of £80 million over the past two years for investment in new social housing, and that figure includes the housing associations. Investment in council housing stock is about £20 million. It does not take a financial genius to realise that although those figures sound large, the sum is only a minor proportion of the investment that was being made under the previous Labour Government. We are now seeing the effects of that; in Birmingham, thousands of council homes have been demolished. There used to be 150,000 council homes in Birmingham, many of which, particularly houses, have been lost as a result of the right to buy, so the majority of stock consists of the less popular apartments and flats. Only about 70,000 homes are left in council ownership, and there has been inadequate investment over the years to maintain them properly. However, investment is needed to meet the decent homes standard, so the response under the previous Labour council, which has continued under the so-called progressive alliance of Conservative and Liberal Democrat councillors, was simply to knock down large numbers of houses. As a result, we have a dreadful housing problem in the city. In the past, we never used temporary or bed-and-breakfast accommodation, but now there are several hundred families in temporary accommodation. It takes two months to obtain a decision on homelessness, and even longer to secure permanent accommodation.
Anyone living in unsatisfactory council housing—perhaps a family living in a flat that is not on the ground floor and does not have a garden, or someone with disabilities or suffering from ill health—has virtually no chance of being rehoused. I make regular inquiries on behalf of constituents with housing needs, and the council regularly sends me letters giving their position in the queue. Usually, they are well down in 200th or 300th place, and only one or two properties in that category become available every year. The market in social housing has seized up, and people are thought to be lucky if they have any accommodation at all and are not homeless.
The use of the private sector is growing. Proper investment in council housing would save us money spent on housing benefit and subsidies for privately rented accommodation. It is particularly odious that former council properties are let back to councils at double or treble the council rent so that they can house homeless families. We have not come close to implementing the recommendations of the 2004 Barker review for an additional 17,000 social housing units a year. A further 9,000 units are needed to deal with the backlog of need, and I very much hope that the promised investment in social housing that we were led to expect in the comprehensive spending review will be fulfilled. In announcing the increase in capital spending, the Chancellor has provided the money.
Like my hon. Friend, I entered politics because I realised the value of affordable, decent housing provided by accountable landlords. Does she accept that the pressure for coerced stock transfers away from local authorities flies in the face of those objectives, and does she hope that the next Prime Minister will encourage his Chancellor of the Exchequer to take a more flexible approach to the direct provision of housing by local authorities?
The Government say that they believe in choice, so council tenants who wish to remain council tenants should not be penalised for their decision.
The recent Eddington report concluded that there was a strong economic case for investment in transport. Rod Eddington said that transport projects can offer benefits that are worth four times the cost of investment. He discussed the huge cost to businesses if we fail to check the growing problem of congestion, which, he said, will cost £10 billion a year by 2025, and an additional £12 billion in wasted time for households. In the west midlands, it is reckoned that our economy suffers a loss of £2.3 billion a year as a result of congestion. Since I became a Member of Parliament in 1992 and have regularly attended meetings of the chamber of commerce and other business organisations, there has not been one meeting at which the need for greater investment in transport has not been mentioned. I hope that some of the additional capital spending will go into transport.
Recently the Environment Committee visited Baden-Württemberg in Germany. One of the cities that we visited was Freiburg. When we asked people there whether they were thinking of a congestion charge, they looked at us completely nonplussed. They said, "Why should we need a congestion charge? A third of our journeys are by bicycle and everybody else uses public transport. People only use their private cars for recreational journeys, because our public transport is so excellent." In Baden-Württemberg €1.25 billion a year goes into transport investment, and one can see the impact of that in a city such as Freiburg.
Sadly, we have not put in that investment, and the only option is to move to road pricing. The sooner we do that, the better for the health of our economy. I have often congratulated the Mayor of London on the brave move to introduce the congestion charge, which shows that when politicians are brave and do the right things, they get the reward. We are now in the position where we will have to invest in the implementation of a road pricing scheme. Had we been putting the money in over the past 10 years, perhaps that would not have been necessary.
On environmental issues, I agree with the points made by my hon. Friend Alan Simpson. The Chancellor announced today an additional £6 million for the low carbon buildings programme and tax relief on renewable obligations certificates. These are minuscule measures. At present, in the low carbon buildings programme there is a monthly allocation and it runs out within 75 minutes. The Chancellor has put in an additional third, so perhaps the money will not run out for 100 minutes.
About tax relief on renewables obligation certificates, I am rather sceptical. It has all the hallmarks of a gimmick. The system of ROCs was set up for larger generators of renewable energy. It is an extremely bureaucratic process to obtain the certificates and the transaction costs will heavily outweigh the benefits for small developments. My hon. Friend the Member for Nottingham, South was right to commend the German system—and it is not just the German system; most other European countries operate the feed-in tariff.
The proof of the pudding is in the eating. With our system of renewables obligation certificates, renewable generation has increased from 2 per cent. in 1990 to 4.22 per cent. in 2005. In Germany the increase has been from a slightly higher base, 3.2 per cent., to 10.2 per cent. The costs of the measures are similar. It costs the consumer in Germany about £12 a year, compared with £7 in our system, but obviously the German system is much more successful. I hope the Government will move away from the renewables obligation method to the feed-in tariff. That will be a sign that they are taking their obligation to tackle climate change seriously.
If we had good feed-in tariffs, the grants would not be nearly as relevant. There would be every incentive for local communities to set up community renewable energy schemes. We saw that in Germany, in a village with its own combined heat and power system, which was set up by two farmers who wanted another means of selling their arable crops. They were able to get investment on the back of the amount of money that they obtained from selling the electricity they generated as a by-product of the heat that heated the village.
Similarly, they had a photovoltaic system on the roof of the building where they stored their tractors, and I reckoned that that was bringing them in about €30,000 a year as a result of the feed-in tariff. That tariff also encourages innovation, because although the payment received from a particular investment is consistent over 20 years, a new investment the following year gets a lower payment. The big plus of that system over ours is that it is reliable. People know that they are going to get that income over the 20-year life of a project.
I disagree with my hon. Friend the Member for Nottingham, South about the emissions trading scheme. I would like to suggest a trading scheme for aviation. The proposal made by the Leader of the Opposition on aviation taxes has been rightly pilloried. An idea that has been suggested to me is that every individual should be given a personal air miles allocation equivalent to, say, a return trip to Spain, which they would be able to cash in for a holiday. People who do not travel abroad because they are too poor or think that it is better to holiday in this country would be able to trade their unused permits for income. That would benefit poorer people. If we had such a system, we could tax aviation more highly.
Finally, I should like to mention mental health. I am very pleased that on page 97 of the Red Book there is mention of the review of mental health and employment outcomes. It talks about an holistic approach to helping people with mental health problems who are in employment, on incapacity benefit, or out of employment and trying to get back into work. I look forward to the additional spending in the comprehensive spending review on talking therapies, counselling and other tried and tested support for people with mental health problems.
Overall, there are many welcome and positive features in the Budget, particularly on capital expenditure. However, in some measures, particularly on climate change, we are seeing no more than token gestures. If we are to meet our climate change targets, the Government will have to be much more radical in future.
I thank Lynne Jones for stopping short so that I have the opportunity to make a few remarks at the end of this debate.
Along with many other Members, I welcome the fact that for most of the past 10 years the Chancellor has overseen a strong economy. That has benefited people in Northern Ireland, where we have a much lower unemployment rate, where there is considerable private investment, and where there has been a change in the economy from the days of 15 to 20 years ago when we were at the height of the terrorist troubles.
However, those years of prosperity have, to a certain extent, been wasted, and the figures in the Red Book provide some evidence of that. If there is ever to be any chance of reducing the burden of taxation and keeping public finances under control, it should be during a period of growth. We will certainly not be able to do it during a period of economic stagnation or decline. Yet according to the figures in the Red Book, the burden of taxation in the economy has increased. The net public sector borrowing requirement has increased. As Mr. Field mentioned, that is bound to make us look back from future years and say that the best of times did not result in the best use of resources.
Which bit of public investment in Northern Ireland—or, indeed, in any part of the UK—would the hon. Gentleman have cut over the last 10 years?
We have already had this argument across the Chamber. It is not a case of cutting a piece of public investment, but making better use of available resources. We know that there have been huge amounts of waste. Indeed, at Question Time every week, Members point out examples of wasteful public expenditure, which Ministers sometimes oversee.
I have only about three minutes and I am not taking any more interventions.
The Chancellor is going to announce tomorrow what will happen to education expenditure in Northern Ireland. Of course, there is also the whole question of the economic package that will be required if the new devolved Administration are to be sustainable.
Let me come to some of the matters that cause me concern. The philosophy of our party is that a low-tax economy is a better economy—one that will have more sustainable growth—than a high-tax economy. It is quite clear, despite the euphoria with which the Chancellor's announcement was greeted on the Labour Benches, that as far as taxation is concerned, this Budget increases the burden. It increases the burden of personal taxation, as can be seen on page 208 of the Red Book. If we add in the taking away of the 10p income tax band and the changes to national insurance contributions, it is clear that taxpayers will be worse off.
I suppose it was a classic piece of Stalinist propaganda at the end of the Chancellor's speech—and it was cheered to the hilt by Labour Members. I know that the Chancellor has been compared to Stalin, but perhaps it would be better to compare him to Fagin—some kind of fiscal pickpocket who has people cheering him when he picks their pockets. That is exactly what is happening here. Indeed, according to the Red Book, the overall tax burden will go up by 8 per cent., while growth is predicted to be at 2.5 per cent. So the real burden of taxation will increase, even though the Chancellor claims that this is a Budget that rewards taxpayers and lightens the burden. All that, of course, impacts on personal initiative, which will in turn impact on economic growth.
My second area of concern is the increase in corporation tax for small businesses. The Secretary of State has quite rightly said that Northern Ireland must become less reliant on the public sector and more reliant on the private sector. I agree with that, but if we are to move towards a more private sector-based economy, the initial growth will be in small businesses. Yet here we have a Chancellor who is penalising small businesses. Again, if we look at the figures we find that when the impact of the increase in corporation tax for small businesses comes through, £820 million will have been taken from such businesses. That hardly provides a basis for moving from greater reliance on the public sector to greater reliance on the private sector.
The construction and haulage industries in Northern Ireland will be affected by the 20 per cent. increase in the aggregates tax. Northern Ireland has a specific problem in that regard, in that we have a border with the Irish Republic, where similar taxation is not imposed.
Debate adjourned.— [Steve McCabe.]
Debate to be resumed tomorrow.