Budget Resolutions and Economic Situation

Part of Royal Assent – in the House of Commons at 10:31 pm on 27 March 2007.

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Photo of Philip Dunne Philip Dunne Conservative, Ludlow 10:31, 27 March 2007

I am grateful to my hon. Friend for pointing out the reality of what the Chancellor has done. The Budget was camouflaged as one that would cut taxes for all levels of income, but we understand now that that is not so.

The income tax cut so dramatically flourished at the end of the Chancellor's remarks hid the impact of increasing the starting rate for the poorest members of society, especially those who do not have children. That is an astonishing redistribution from the poor to middle Britain, given that it comes from a Labour Chancellor who has sought to do the reverse during his tenure in office.

I come now to the Chancellor's track record with the public finances over the past 10 years. The chief executive of the Forum of Private Business has talked about "smoke and mirrors" in respect of the Budget, and that metaphor is appropriate. We have heard this evening about the public debt and the Chancellor's stewardship of public borrowing. My right hon. and learned Friend Mr. Clarke eloquently highlighted the problem with the Chancellor's forecasting skills. This is the seventh year in a row that the Budget forecasts for public sector borrowing have had to be increased. In fact, the Chancellor managed to get those numbers right only when they had been set by my right hon. and learned Friend—that is, when the right hon. Gentleman was following the spending plans of the previous Chancellor—and we heard last week that there would be a further £8 billion increase in public borrowing over the next few years.

Tucked away in about four words in the Chancellor's statement was an announcement that although future spending increases had been set out for almost every Department of state—but not for the NHS, as that is still to come—the right hon. Gentleman had decided to delay publication of the comprehensive spending review until October. Why? The political tone of the Chancellor's endeavours suggests to me that he wants to make sure that it will be his hand on the tiller, and not the current Prime Minister's, when the CSR is eventually published. That means that he will be seeking to tie the hands of the Chancellor who succeeds him.

The Budget speech contained a great deal about tax cuts, but a detailed reading of the Red Book makes it clear that the tax burden is rising significantly. Last year it was 39.2 per cent. of GDP, but in 2008-09 it will be 40.4 per cent., an increase of £17 billion. The total of tax and national insurance as a percentage of GDP is now the highest since 1997, and will increase over the next five years. I accept that the Red Book uses the OECD definition of these matters, but it does not include tax credits—another of the Chancellor's smoke-infested attempts to hide the amount of spending undertaken on his watch.

The Chancellor made some big-picture announcements. He said, with a great fanfare that was well received by Labour Back Benchers, that he would be responding to the parliamentary ombudsman's criticism of the Government's pensions mis-selling allegations by increasing the amount available to the financial assistance scheme to £8 billion. A huge cheer went up, and people might be forgiven for thinking that the entire amount would be put to use. However, on making a closer inspection—and as the Secretary of State for Work and Pensions clarified for members of the parliamentary Labour party—we see that the money is to be spread over 60 years. If we apply conventional net present value calculations to £8 billion over 60 years, the total is reduced to £1.9 billion—not quite such an attractive figure to announce. That is another example of smoke and mirrors. The financial assistance scheme has cost almost £9 million to administer, and as of the last month it had paid out the princely sum of £3.2 million to a mere 1,000 of the 125,000 pensioners who have lost their pensions and for whom it was designed in the first place.

May I move on to comment on what the Budget has done for business? Another flourish from the Chancellor was the cut in corporation tax to 28 per cent. That is welcome news, and it almost went as far as my hon. Friend the shadow Chancellor proposed a few days earlier. However, it is still higher than the average for the 25 members of the European Union, which is under 26 per cent. Financial services companies will benefit the most, but capital-intensive non-financial businesses will not achieve the benefits that the Chancellor seeks to introduce. That is curious. Manufacturing industry is under intense pressure as a result of threats from low-cost countries to which manufacturing has migrated in recent years, and profitability in manufacturing is at its lowest level since 1992. The Bank of England recently produced research that described the loss of industrial capacity in this country as the most dramatic of any G7 country. Indeed, the share of the economy taken up by manufacturing has fallen from 20 to 15 per cent. in recent years.