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. Darling.]
It is not difficult to see what is wrong with the Budget. It is not just that it was, on the whole, a dire list of reviews and re-announcements delivered with all the excitement of someone reading out a telephone directory, although that did not help. But people watching this Budget for the last hour will conclude that the Chancellor and the Prime Minister live in an entirely different world from everybody else. Every time people refinance their mortgage, it is costing them more. Every time they fill up their car, they are paying more. Every time they shop, food bills are higher. Yet every time they get a tax bill, they are paying more. There was no recognition of that in the Budget. The cost of living is going up and Labour is making it worse. Everybody has now learned the cost of living under Labour.
Everybody listening to the Budget will have noticed something else. This Government and the Prime Minister took all of the credit when the global economy was growing, but now there are difficulties, they will not take any of the blame. Here are some of the things that they would not tell us in the Budget. The Chancellor boasted about trade, but he did not tell us that the current account deficit is set to rise to a record £72 billion. That was on page 165 of the Red Book. He told us about investment, but he did not tell us that the rate of growth of business investment is slumping by two thirds. That is on page 163 of the Red Book. He talked about debt as a share of GDP and boasted about his rules, but if we include Northern Rock, debt as a share of GDP is 43.8 per cent., busting his fiscal rule.
The Chancellor made one central claim at the heart of his Budget: he told us that Britain is well prepared for economic slowdown. I have to tell him that he is absolutely wrong. As this country enters troubled times, it could hardly be worse prepared. We have the highest tax burden in our history.
"So what?" says the Secretary of State for Children, Schools and Families. I know he wants to be Chancellor so badly it hurts. I have to tell him that another Budget like the one we have just heard and he will not have to wait very long.
We have the highest Budget deficit in western Europe. Today, the Chancellor told us that borrowing would be up by £20 billion over the next four years. Those are truly dreadful figures; there is a £7 billion increase in the next year alone. We have the highest interest rates in the G7, which means that on top of high taxes, home owners and businesses have a higher interest rate burden, too. Today, for the second time in his very short period as Chancellor, he downgraded his growth forecast once again—not that he could bring himself to use that word.
High debt, high interest rates, high taxes and now lower growth—those are the facts that this Budget cannot hide. They tell the story of just how badly prepared we are for the downturn. We all know why; because in the years of plenty, Labour Governments put nothing aside. They did not fix the roof when the sun was shining. What better metaphor could there be today, when it has started to blow off at No. 11 Downing street?
What we needed in the Budget was real leadership and a serious plan to get this country out of the mess that they have made. We need a Government who help people when times are tough; instead, we have a Government who kick them when they are down. The key test of competence for any Government is not how they perform when things are going well, but how well prepared they are to cope when things get tough. The key question at these times is how much room for manoeuvre one has given oneself. The answer with the Government is, "No room for manoeuvre at all."
In America, they are cutting taxes by 1 per cent of national income. In Sweden, there is a 2 per cent budget surplus to help them out. [ Interruption. ] I am not surprised that hon. Members do not want to hear the consequences of the waste and incompetence of the last decade with their Prime Minister. In other countries, they are debating what to do with their surpluses. In this country, there is no debate because there is no surplus. In Britain, we have nothing—no room for manoeuvre on the deficit, no room for manoeuvre on interest rates and no room for manoeuvre on taxes. I want to take each of those in turn.
On debt, the Government said that they would borrow £47 billion over the last five years. In fact, they have borrowed £165 billion—over £100 billion more debt than planned. Today, it is worse again. They have told us that the current Budget deficit is up another £23 billion over four years. That is the extent of the Government's economic incompetence.
This Chancellor, just like the last one, likes to read out the league tables. Let me read a list of major countries with deficits higher than Britain: Hungary, Pakistan and Egypt. That is the league of debt to which we have been relegated today. For years the Prime Minister and the Chancellor liked to tell us about their fiscal rules and how they would stop us getting into this kind of mess. The Chancellor tried today, and I do not know how he did it with a straight face. The truth is that they have forgotten the most important rule of all: in good years you put money aside for bad years, because you cannot spend money that you have not got.
We are ill-prepared on fiscal policy; let us look at monetary policy. Again there is virtually no room for manoeuvre. The Chancellor boasted about low inflation, but let us listen to what the Governor of the Bank of England expects. He predicts
"inflation rising sharply alongside a marked slowing in growth", and it says on page 139 of the Red Book that inflation—on whichever measure we take—is higher now than in May 1997. That is why the Bank of England has the highest interest rates in the G7. But the situation is in fact worse than that. Let us look at the real figures for inflation. Food inflation: 7 per cent. Housing costs: up 8 per cent. Petrol and oil: up 19 per cent. That is the real inflation paid by families in Britain.
If anybody still needs proof of how little room for manoeuvre the Chancellor has, they should just take a look at what is happening to taxes. While our competitors are cutting taxes on enterprise, the Chancellor confirmed today that he is putting such taxes up. Capital gains tax: up by £700 million when we are heading for a downturn. Taxes on family businesses: up by £200 million—that is the new income-shifting rules for family businesses that he did not even mention in his speech. Corporation tax on small businesses: up £800 million as we head for a downturn. This is a crazy way to respond to a slowdown—hitting the very people who create the wealth, the jobs and the investment that this country so badly needs.
However, the true extent of the Chancellor's dreadful predicament is the fact that the Budget— [Interruption.] I am going to mention something that last year was the centrepiece of the tax-con Budget, but which this year does not get even a single mention. He is abolishing the 10p starting rate of tax. That is the tax con that Labour Members all cheered so loudly last year, and soon they will find out what it means. Low-paid NHS workers will have to pay more tax. Part-time teaching assistants will have to pay more tax. [Interruption.] Is the Prime Minister shaking his head? Well, that is the Budget that he introduced. Our soldiers fighting in the heat and dust of Afghanistan will pay more tax. That is the consequence of the tax con. [Interruption.] Labour Members say, "Shame"; well, they should be ashamed for taxing our soldiers more. The fact is that 5.3 million of the lowest paid will be worse off, and what have the Government got to say to them? They say, "If you fill in a form, some of you can get some of the money back." Taking away people's money, reducing self-reliance and increasing people's dependence on the state: that tells us everything we need to know about this Prime Minister and this Chancellor.
Let me explain what we would do differently. We would ensure that higher green taxes were paid into a family fund and were used to cut taxes on all Britain's hard-pressed families. We would help business by sweeping away the allowances and reliefs and cutting the headline rate of corporation tax. We would target tax on binge drinkers, not on every responsible drinker in this country who wants a glass of wine or a pint of beer at the end of a hard day's work.
What was the most important thing the Chancellor should have done in this Budget? He should have set a long-term strategy for economic policy that learns the lessons of the waste and extravagance of the last decade. He should have set out how to share the proceeds of growth so we could get borrowing and tax rates down. That would help not only Britain's families, but Britain's businesses, too.
Business knows just how bad this situation is. The CBI says it is now like a "banana republic". [Interruption.] Those are its words; that is the effect of the prawn cocktail offensive of all those years ago. The British Chambers of Commerce says the Government have "lost the plot". Nine in 10 small businesses have lost confidence in the Government. Business has fallen out of love with Labour. The very least businesses expected was competent leadership in uncertain times, but all they have got is dithering.
Five months ago, the Chancellor stood at the Dispatch Box and proposed changes to capital gains tax; all the Labour Members cheered, and the policy fell apart. Five months ago, he announced his plans on non-doms; they all cheered, and the policy fell apart. Month after month, the Government said they did not want to nationalise Northern Rock, and they did. They cancelled the general election, which, unbelievably, they had planned to fight on the issue of competence, and they promptly lost half the country's personal data in the post.
Who is to blame for this? It is tempting to blame the Chancellor; after all, he has had the most disastrous start of any Chancellor in modern history. But I do not think that would be fair. Let us be in no doubt as to the real source of this Government's problems. Ask any question about this Budget, and the answer comes back to one man: the Prime Minister. Why is the Chancellor hitting the low-paid with higher tax? Because his predecessor put it in his Budget last year. Why is the Chancellor left with the biggest Budget deficit in western Europe? Because the Prime Minister spent all the money in the last 11 Budgets. Why is the Chancellor imposing £1 billion in extra taxes on capital gains and family businesses? Because the Prime Minister got himself in a panic trying to copy our proposals on inheritance tax. This country should not be in any doubt about the source of the difficulties that Britain is now in: the Chancellor was put in a hole by the Prime Minister and they both kept digging.
What is the situation now? We have the highest taxes in history, the highest deficit in western Europe, the highest interest rates in the G7— [Interruption.] I thank the Secretary of State for Children, Schools and Families for his comment; I know he is Minister for children, but he does not have to behave like one. We have all of that, and the Government are asking us to trust them to get the country out of this mess. They just do not get it. The City may be having a credit crunch, but this Government have a credibility crunch. The Treasury has run out of money, and they have left Britain running on empty.
All over this country, people are asking questions: "I am paying more tax, so why is my post office closing?" and "I am paying more tax, so why is my maternity unit closing?" and "I am paying more tax, so why do I see so much waste and incompetence?" The answer is sitting opposite me. Never has so much money been raised in taxes spent and wasted. Never again should we be so unprepared for a world downturn. Never again should there be so little room for manoeuvre when things get tough. This Budget shows the whole country the cost of living under Labour, and everyone will conclude that the Prime Minister, who got us into this mess, cannot possibly be the person to get us out of it.
I am told that during the Government's previous 10 Budgets Prime Minster Blair did not know what the proposals would be until Chancellor Brown rose to his feet in the Chamber. This time, the situation is exactly the other way round: the Chancellor is the Prime Minister's creature, struggling to clear up a mess left by his boss under instruction from No. 10. What we have seen today is an act of political ventriloquism. I would like to compliment the Prime Minister: I watched him very closely, and his lips barely moved all the while that the Chancellor was speaking.
This Budget has inevitably brought a lot of bad news. It has also massively over-egged and exaggerated any good news. Why, for instance, did the Chancellor not admit in his statement that the winter fuel allowance increases are a one-off? How can he bring himself to play with the hopes and expectations of some of the oldest and most vulnerable people in our society? Is this just another pre-election bribe? Are we now to expect an election in 2009?
There are tough times ahead, of course, and the world economy remains uncertain, so this was an opportunity to give whatever help possible to the millions of hard-pressed families who are feeling the pinch—whose money simply does not stretch as far as it once did—but the Chancellor has not delivered such a Budget. This is a meagre, tinkering Budget, which gives precious little help to the poor but maintains special treatment for the rich. It is a Budget designed to fill a black hole, masquerading as good for the environment. It is a Budget that will not make Britain fairer. It is a Budget that is a green cop-out.
The Chancellor bravely suggests that the problems afflicting our economy were all caused elsewhere. He has to do that; he cannot tell the truth. He cannot blame his boss; a monkey never blames the organ grinder. It is deeply disingenuous to claim, as he did, that a housing market crash in the United States is the main reason for our economic woes. The reality is that a swelling tide of personal, private debt secured against high house prices that are now declining is creating the conditions for a perfect economic storm. High oil and food prices make it difficult for the Bank of England to cut interest rates, and with Britain now up to £2 trillion in debt, the Chancellor has backed himself into a corner with no room for manoeuvre. The sustainable debt rule is in tatters, even without Northern Rock and private finance initiative projects being put on to the national accounts, and the "golden rule" has become the "gamblers rule". Deep in the red, the Government keep betting more and more of our money in the hope that someday, somehow, they will find themselves back in the black. As we have heard today, that prospect is moving ever further into the distance.
We heard much today about the Chancellor's wish to cut child poverty, but the meagre, piecemeal reforms that he is introducing to the chaotic tax credit system will not get the Government anywhere near meeting their 2010 child poverty target. By my reckoning, only about a third of what is needed is being provided; the ridiculously complex set of proposals that we have heard about today will be difficult for the most hard-pressed families to understand. Using the Government's own calculations, the Chancellor would have to find an additional £3.5 billion to stand even a faint chance of achieving their goal, and they are nowhere near doing that. The reality is that this Government's approach to child poverty has failed. If we are to abolish child poverty for good, we must increase not only income but opportunity. We must target more investment to help the poorest children in our schools and offer them genuine opportunity for life. Crucially, we must deal with the link between poor housing and persistent poverty.
This Budget was widely trailed by the Treasury as the greenest ever, but at the first sign of political difficulty the Government have run away, by postponing the petrol duty increase until October. The fact is that the real cost of motoring has fallen consistently over the past two decades while the real cost of public transport has risen by a third. We of course welcome the Government's increasing vehicle excise duty on the most polluting cars. Like many of the Treasury's best proposals—nationalising Northern Rock, reforming aviation tax and increasing stamp duty thresholds—that started life as a Liberal Democrat policy. We have got used to the fact that a while after we have a good idea, the Treasury, too, finally gets round to realising it is the best way forward.
Green taxes should be revenue-neutral. They should not be treated as a wheeze to squeeze ever more money out of the British people, but should instead be designed to encourage green behaviour and cut the taxes of the most needy. By my reckoning, the figures that we have heard today will mean that the Government will be taking approximately £1.7 billion in new green taxes, but less than £1 billion of that will be spent on the poor. Much of the revenue from those green taxes, plus other duties, will clearly go straight back into the black hole that the Prime Minister and the Chancellor have created in the UK's finances. By 2010, an additional £1.9 billion will go straight to filling that black hole. This is not a Budget for the environment; it is a Budget driven by fiscal incompetence and political desperation.
Is it not the case that the only people who will welcome this Budget are those at the top of the income scale, not those at the bottom? The Government's policy on non-doms is laughable. Their new poll tax, which the Conservatives unsurprisingly support, will be wildly punitive for ordinary foreign workers, but it will be no more than a flea-bite for foreign billionaires, who have come to regard the United Kingdom as nothing more than a tax haven.
The Government's approach to capital gains tax policy continues to be mired in chaos. It is frankly amazing that the Chancellor has contrived to create a tax change that has caused howls of anguish from businesses and cries of derision from commentators but still allows hedge fund managers to pay lower rates of tax than their cleaners. Surely it would make more sense to return to the capital gains tax system of Nigel Lawson—not a man with whom I readily agree—and tax capital like income. Until the two taxes are united, we will continue to see mass tax avoidance by the wealthy, presenting their income as capital for a 23 per cent. tax break. Surely this is also the time to take a much wider look at tax avoidance by big business. It is scandalous that companies such as Tesco avoid paying millions in stamp duty by placing British properties in foreign special purpose vehicles, which are based in offshore tax havens.
Finally, the Chancellor's announcement on fuel poverty is, once again, too little, too late. Why has he not had the guts to claw back the huge excess profits made by energy companies thanks to the emissions permits that the Government have given them for free? Some 4.5 million people still live in fuel poverty, but the Government's 2010 fuel poverty target appears to have been conveniently shelved by Ministers. Limiting his measures to prepayment meters and only a modest increase in money for social tariffs does not go nearly far enough. Surely this is the time to compel all energy companies to introduce real, fair, social tariffs for all vulnerable people, not just those on prepayment meters.
This Budget gives no real help to families struggling with higher food bills, higher energy bills and higher debt repayments. What will this Budget do to help junior nurses, teaching assistants and soldiers serving in Afghanistan? The answer is nothing. What we have got instead is a sequel to last year's Budget, when the Chancellor's predecessor scandalously raised taxes exclusively on people earning less than £18,500 per year who do not get tax credits. What will the Chancellor say to those most vulnerable people when their income goes down in three weeks' time?
After 11 years in government, Labour has today completed its fiscal fusion with the Tory Party. Both parties believe in the same kind of Budget: the kind of Budget that kowtows to vested interests, but fleeces the average family; the kind of Budget that keeps tax loopholes for the super rich, but closes in mercilessly on single mothers who have been overpaid tax credits; and the kind of Budget that uses green taxes as an excuse to take more money from the kitty of low earners. This is not a green Budget. This is not a people's Budget. This is a tinkering, con-trick Budget that protects the rich and abandons the poor.
I welcome the opportunity to speak in the Budget debate. Given the economic instability and turbulence in the markets, I am delighted that the Chancellor referred to the targets on child poverty—a primary target of the 1997 Government—the initiatives on environmental taxation, the savings gateway and the measures for elderly citizens. He did so against a background of economic turbulence and the globalised world in which we live. Indeed, only yesterday the Federal Reserve put $235 billion into the market by providing Treasury securities to the bond market for it to accept as ordinary triple-A-rated mortgages for collateral. That was done to encourage banks to lend to one another.
We are in the Northern Rock situation because of a failure of the private sector in the United Kingdom. We face the global crisis because of a failure of the private sector in the international system. The Treasury Committee has examined Northern Rock over the past six months, producing a report on "The run on the Rock". Just as importantly, it produced a report a few weeks ago on "Financial Stability and Transparency", pointing the way forward for the Government and the international community. We said that markets need a clear message about the risks that they are taking. We could see that in the Northern Rock fiasco, its board in particular did not appreciate the risks that it was taking. We are thus asking the Financial Services Authority and the Bank of England to ensure every year that their warnings are heeded, and that they come out with two or three main issues for boards to study. The boards should then report back to the FSA and the Bank of England that they have understood those messages.
I can only describe what we have seen in the markets as a bout of collective madness. How much write-down is taking place at the moment? On the Committee's visit to the United States in December, I was told that we could be talking about $600 billion, but a senior economist at the UBS bank is talking about $1 trillion, and others are coming out with figures of $2 trillion, $3 trillion or $4 trillion. We do not know where we stand at the moment, but there is no doubt that things will get worse. We must remember the globalised background against which events in the United Kingdom are taking place.
The reason for that situation is that the low inflation and low interest rate environment of the past decade has encouraged a search for yield, which has resulted in complex and opaque products. The designers of those products often do not understand what they are producing. We had the chairman of an investment bank before the Treasury Committee, and when I asked him what a CDO-squared was, he said that he was not there to explain that. If the designers did not understand them, certainly investors did not.
CDOs are collateralised debt obligations, and I shall explain the CDO-squared to my hon. Friend over a cup of tea in the Tea Room if he is interested.
Investors did not exercise due diligence when considering such products. They equated complexity with security. That has been compounded by the role of the credit rating agencies. All the members of the Committee appreciated that the credit agencies' conflicts of interests need to be sorted out. The agencies are paid by the issuers, which is unacceptable. The Basle II international agreement must be examined, because we need to correct the perverse incentive for companies to meet the capital adequacy requirements by reducing their liquidity. That has to stop. There are both national and international elements to the current situation.
Does the Chairman of the Treasury Committee share my disappointment that the Chancellor did not have the courage to refer to Northern Rock on a single occasion in his Budget speech? Given that he has just taken on a potential £100 billion of public debt, surely the Budget provided him with an opportunity to explain how it would be treated in the public accounts.
The hon. Gentleman is a very good member of the Treasury Committee, so he knows that we have been studying the matter in depth for six months and made reports to the House. I can only quote a wise old central banker from the City who said to me, "John, there have been no casualties in this. Nobody has lost any money, and the system has been stabilised." The public's response shows that they share that sentiment. I am not surprised that the Chancellor did not mention Northern Rock, because it has been the focus for six months, and arrangements have been put in place.
I wish to cover a number of matters. The first is economic prospects and forecasts. The second is fiscal policy and fiscal sustainability, and the third is child poverty. I was one of the 72 Members who wrote a letter to a national newspaper last week urging the Chancellor to ensure that the child poverty targets were re-established. The fourth is environmental taxation, the fifth is the savings gateway and the last is rogue trading and insider dealing.
When considering the economic prospects and forecasts, I am mindful of the globalised, turbulent background. At the time of last year's pre-Budget report, the Treasury's forecast was for economic growth of between 2 per cent. and 2.5 per cent. in 2008, and between 2.5 per cent. and 3 per cent. in 2009. That forecast was prepared when the wider economic situation was far from clear. When the Committee reported on the pre-Budget report last November, we cautioned that there remained a risk that the credit crunch would have a greater economic effect than expected. That has been confirmed today by the downgrading of those economic forecasts. We also observed that the Treasury's optimism that the economy would revert to trend in 2009 was not adequately explained. When the Chancellor and others come before the Committee, we will wish to test whether the new forecasts are realistic.
I expect the Committee to focus particularly on three areas of risk. First, the Government have been looking for a growth in exports as part of the rebalancing of the economy. The International Monetary Fund is now forecasting US and eurozone growth of well below 2 per cent. for 2008, with world economic growth as a whole at its slowest rate since 2003. If exports are to grow significantly against that backdrop, exports to growing markets, including China, India and the oil-rich countries, will need to increase.
In some of those markets, the UK has not performed as impressively as some of our European competitors. On a visit to India 18 months ago, the Committee was made aware that the links between the UK and India could be developed. We were convinced that the UK's exports to India could complement what is happening there rather than challenge it. Developments could take place in high technology, and particularly clean coal technology. I would also like to see further developments between the UK and China in that area.
Secondly, the Committee will consider the fact that the UK's growth in recent years has been fuelled by the prosperity of the financial sector. On an international basis, that sector is the main cause of the current slow-down in the world economy. It is bearing some of the costs of its past exuberance. I believe that the British financial sector remains competitive and innovative, but it is still to be seen whether its relative contribution to the economy will diminish during the current period of consolidation.
Thirdly, we will consider the dependence of the British economy on wealth and confidence linked to rising house prices, which is well known. In recent years, Treasury forecasters have prided themselves on defying the doom-mongers who have repeatedly forecast a sharp downward adjustment in house prices. There is a risk that house prices will prove less resilient than the Government expect in the face of the credit crunch. I expect that the Committee will explore that matter, and particularly the Chancellor's initiatives in the mortgage market, with our witnesses next week.
I am pleased to hear that the Committee will examine that. While doing so, will it examine the related matter of arm's length management organisations? Is the right hon. Gentleman willing to consider the funding arrangements for ALMOs, which look after a large amount of social housing stock? They are concerned about the limitations on how they can borrow money. Would it be reasonable for the Committee to have a little look at ALMOs when they examine the housing market in general?
I suggest that the hon. Gentleman do a bit of homework between now and next week and send me a letter, and we will consider the matter in the Committee.
I turn to fiscal policy and fiscal sustainability. In several reports during the current Parliament, the Committee has argued that the fiscal rules need to be more forward-looking and less dependent on the dating of the economic cycle. Although the fiscal rules have served the Government and the public finances well in the past decade, the Government and others might have focused too much attention on arithmetical arguments about whether the rules have been met, and insufficient attention on underlying issues of fiscal sustainability.
On the golden rule, the most pertinent question to ask ourselves is not about public borrowing over a notional economic cycle but about the current state of the public finances and the prospects for the near future. With regard to public sector debt, it is clear that performance against the sustainable investment rule will be affected by both the public sector control of Northern Rock and the eventual implementation of international financial reporting standards, which will mean almost all private finance initiative projects appearing on the public sector balance sheet. I expect the Committee to consider in detail the impact of that, and how it is reported. In doing so, we must bear in mind the underlying purpose of the fiscal rules: to set parameters for fiscal sustainability. It remains to be seen whether either accounting changes or the public control of Northern Rock represent a threat to that sustainability.
On child poverty, I am delighted to note the Chancellor's initiatives, but we must remember that there are still 2.8 million young people in poverty. One big issue that the Treasury Committee has tackled in recent years is financial inclusion. We have produced four reports on it since November 2006, which have stated the need for people to be included in the banking services and financial network. Those who are excluded from that network are largely socially excluded as well.
Let us not forget that 600,000 children have been taken out of poverty. That is six times the population of my constituency, more than the population of Bristol and two thirds of the size of the population of Glasgow, so the achievement is considerable—but the Treasury Committee was concerned about the idea that the Government might be resiling from their child poverty targets. I am delighted to see today that the Government have stuck to those targets. Some 700,000 more children must be taken out of poverty by 2010 if the Government are to achieve their interim target, and there will be a long way to go by 2020. I can say with confidence that the Committee will examine the Chancellor on that matter in the next few weeks.
In relation to poverty more widely, will the Chairman of the Select Committee also examine the Government's handling of fuel poverty, which has increased? The Government placed far too much reliance on cheap energy during a period when prices fell because the UK had a temporary surplus of supply, and now that prices are rising, more people are being pushed into fuel poverty. Will his Committee examine Ofgem's advice that the Chancellor should consider whether he can make a one-off gain on the profits made by energy companies as a result of the issue of emissions trading licences, so as to fund a one-off investment in improving people's housing, so that they can reduce their fuel bills?
The hon. Gentleman was a member of that Committee the last time we spoke, but he has left it now. I forgot the turbulence on the Liberal Benches.
The Treasury Committee will be happy to look at those matters. Fuel poverty is defined as individuals spending more than 10 per cent. of their income on energy. Some 4.5 million people, including 2 million pensioners, suffer from fuel poverty, so it is an important matter. However, I am delighted to welcome the Chancellor's initiative on the winter fuel allowance, which is to increase from £200 to £250 for our elderly constituents, and from £300 to £400 for the over-80s.
Does the right hon. Gentleman accept that for many pensioners, some of whom have a small private pension, who now face the loss of the 10 per cent. income tax band, the extra money made available for this year's winter fuel payment will be more than offset by the tax loss?
I know that personally, the hon. Gentleman is a bright and optimistic individual, but politically he is always pretty gloomy. I look at the glass as half full today, and I welcome the increased winter fuel allowance. I challenge the hon. Gentleman to go knock on his constituents' doors and ask them whether they want that allowance to be taken away; I reckon he will get a raspberry in response. We should welcome that good initiative.
On environmental taxation, when the Treasury Committee reported on climate change and the Stern review last month, we expressed disappointment that the Government's commitment to the 1997 statement of intent on environmental taxation had not been maintained. The Treasury has used a different definition of environmental tax from the one used by the Office for National Statistics; the Treasury definition, which excludes energy taxes and taxes on transport, is, in my opinion, too narrow. I do not believe that tax measures are the only, or even the best, way to tackle climate change at national level, but the Treasury cannot continue to hide behind definitions to defend its caution in moving to a position where environmental taxes more accurately reflect the environmental damage associated with certain activities. In that context, I welcome moves to replace air passenger duty with a per-plane duty, as well as the other measures announced.
The Chancellor mentioned the savings gateway, on which the Treasury Committee has focused in the past. Indeed, last October we published a report that emphasised the importance of secure short-term savings to the financial well-being of the least well-off. We examined the success of savings gateway pilot projects, where private contributions are matched by Exchequer support. In our report, we stated that the national savings gateway
"could achieve some of the Government's aims of promoting saving among low-income groups" where it encourages
"genuinely new savers and new saving".
"It can bring some individuals into contact with mainstream financial institutions for the first time", thereby starting
"a savings habit which continues even when the incentive of Government matching is no longer available."
Such a scheme can certainly have a positive effect on participants' attitudes to saving. Professor Elaine Kempson, who undertook the survey of the first savings gateway pilot project, made the point that matching strongly encouraged people on low incomes to save. I suggest that the Chancellor and others consider going further. The Institute for Public Policy Research has provided estimates of the first-year cost of a national savings gateway scheme. The IPPR assumes eligibility criteria based on those for working tax credit and qualifying benefits for those out of work, and individual contributions averaging £16 per month. On that basis, it estimates that the first-year costs of a scheme taken up by 50 per cent. of the eligible population, with Government matching of 50p for every pound invested, and pound-for- pound matching for the first two months, would be £249 million. In contrast, the Government estimates that individual savings account and personal equity plan savings are supported by £2.1 billion in tax relief each year, and employee tax reliefs for pension contributions have been valued at £5.3 billion. Expenditure of £249 million pales into insignificance next to the support given to ISAs and tax relief on pensions. I welcome the Government's initiative, but I urge them to go further to encourage more low-income people into the financial network.
My last theme is rogue trading and insider dealing. I note in today's press that the Financial Services Authority has taken action on rogue trading. We certainly want no repeat here of the Société Générale incident, or of the Barings scandal involving Nick Leeson in the 1990s. Rogue trading remains a big problem, and I want the Government to support the FSA in its efforts, but I also want them to support the FSA on insider dealing. There is no doubt that insider dealing goes on regularly; I am told that by City executives. However, very little is done to bring people to court or to get to the bottom of such incidents.
An important foundation of the City's reputation is the quality of its markets and the authorities' determination to investigate and prosecute insider dealing. In that context, I endorse the FSA's view that it should be given powers to confer statutory immunity from prosecution or otherwise encourage people to come forward to give evidence against the criminals who commit insider dealing. The FSA has civil and criminal powers to tackle such market abuse, but sometimes there are real challenges in securing the evidence necessary to prove that the offence has been committed. It is in the nature of the offence that there is seldom a smoking gun. Legislative change to enable the FSA to confer immunity would send a clear message to those who contemplate insider dealing: they should know that the FSA has the fullest range of tools to bring them to justice.
I welcome my right hon. Friend's comments, because when I considered that matter 18 months or two years ago, I found that the track record of the Serious Fraud Office and the Financial Services Authority on insider dealing was absolutely shocking—not a handful of cases had they prosecuted. What is needed is not only legislative change, but for those bodies to use the powers that they already have. They should also examine how such powers are used in the United States of America, where the authorities have a very different and far more successful way of proceeding on such charges.
Exactly. When we compare what happens in the US with what has happened in the City, we see that the UK is a soft touch in that respect. Our record is abysmal. I want the Government to consider that, paying regard to what has been going on in the United States, and the FSA's desire to ensure that the City's reputation is cleaner, and is kept clean. They should also give the FSA the powers that other bodies have.
We did visit America, and it is on the basis of that experience that I make my point. Those taking part in insider dealing should be aware that others who know of their criminality may turn against them. We need the Government to give the FSA those powers.
Does the Chairman of the Select Committee not accept that if we simply allow people to come forward and get immunity, without introducing the other measures to which hon. Members have referred, it would lead to a situation in which there were super-rich supergrasses? That would be a public scandal.
I know where my hon. Friend is coming from, but the FSA and others have a legitimate point. As I say, people should be aware that others who know about their criminality may turn against them, because we are making no progress at all on the issue. Something needs to be done, and the Government need to consider the issue urgently. I encourage them to ensure that the powers available to other prosecutors are extended to the FSA, and to make progress with the work of considering in which cases a plea-bargaining, or plea-discussion, framework would be of benefit to all prosecutors, including the FSA.
As I have said, I welcome the Budget. I welcome the stability, as the next 12 months or so will be difficult for all of us, because we live in a globalised world. We do not need any fancy initiatives; we need to hunker down to get through the next 12 months. I am delighted, in an economic sense, that the Government are doing that while paying due regard to social obligations such as the need to tackle child poverty and the problems that people are experiencing with fuel. I welcome the Government's initiatives, and I look forward to the Chancellor and his colleagues appearing before the Treasury Committee in the next seven days or so.
My impression of the Budget is overwhelmingly one of boredom. It was illuminating to look around the Chamber and see the number of people who were nodding off. It was predicted that it would be a boring Budget, and it most certainly was. It will probably be remembered as the carrier bag Budget, rather than as any other kind of Budget. If that is to be the Chancellor's main claim to fame, I suspect that he will not be in his job for very long.
It was striking that in the midst of the anodyne messages that the Chancellor poured out in order to send us all to sleep there was little reference to Northern Rock and the issues that it has created for the British economy, and little reference to the problem that the world economy faces. I sincerely hope that we are not facing the sort of economic downturn that I remember from 1974, when the stock market fell to some 120 points, which seems unbelievable in this day and age. It may seem odd for a Conservative to quote JK Galbraith, but a close analysis of his book on the great crash of 1929 shows the similarities between the situation that the world economy is facing, and the factors that contributed so greatly to the world crash in '29. That crash was based on pyramid selling of investment trusts, and we now face the prospect of pyramid selling of derivatives in an attempt to defy risk, but of course when one attempts to defy risk, it is spread more widely.
When risk finally comes into the equation—as it inevitably does, because nothing is risk free—the potential for collapse is much more calamitous. We are on the cusp of witnessing such a collapse as the various derivatives that have been developed in the past few years unwind through the system. My understanding is that banks across the world have lost 10 per cent. of their capital base. It is an indication of the severity of the problem that the central banks have fed so much money into the system, just a few months after they last did so. The expectation is that for some weeks, or perhaps months, there may be some loosening in the international credit market, but as the underlying problems are severe, and as unwinding has not yet been completed, we are seeing the same situation being created for a third time in a year. If we prop up a market that is in denial about risk, those concerned will not learn their lesson, and the same pattern of behaviour will be repeated. However, if they are allowed to confront their actions and take responsibility for them, we will see the sort of scenario that we saw in 1929. I should say that I did not see what happened in 1929; I read about it. However, I did witness the crunch in 1974, and that was fingertip.
I thank the hon. Lady very much for the history lesson about 1929 and Galbraith's treatise on the subject. Would she say that there will be a market correction in the near future, or will we have to adopt far more Galbraithian responses to the current crisis?
I know exactly what the hon. Gentleman is getting at, but I suspect that if the central banks continue to pump liquidity into the market, it will not cure the problem. The potential consequences are terrifying.
Regarding 1929, I am reminded of the remarks of Judge Pecora, who undertook the commission of inquiry. He said that if the financiers had repeated to themselves time and again that two and two add up to four, they would not have got into the mess that they did. Does the hon. Lady see parallels with that situation today?
I think that I have already said that that is the potential problem that we face. As a Scot, I have to say that the investment trust vehicle that caused so much of the '29 problem was of course invented in Scotland, but there it was managed by, dare I say it, dour Scots. It was transported to the States and was then leveraged; that was the problem. That is precisely what has happened with the risks that have been leveraged into various derivatives. I have real concerns that if the central banks keep pumping money into the market, we will not unwind the derivatives, and this generation of financiers will not learn the lesson of risk.
We cannot defeat risk, and one of my criticisms, as a Conservative, is that the whole thrust of what the Government have done since 1997 is to try to deny that risk exists, and that is a very dangerous thing to do. Year after year, the Prime Minister, when he was Chancellor, would say, "I have abolished boom and bust." We are potentially about to have another bust. We are certainly on a downturn. That causes me more concern than anything else. It is my overriding concern about the Budget, because no preparations are being made to deal with the worst-case scenario.
The Treasury is in denial. It has to be in denial; it has no money. Where the £10 billion from the Bank of England has come from, I can only guess. Is it printing money? If so, we have inflation. Is it borrowing it from the Arab states, which are raising so much money as a result of petrol prices? If so, the money has to be paid back. At some point, the latitude that we allow ourselves with regard to money will catch up with us. I have serious concerns about the fact that no preparations are being made in the Treasury to deal with the situation; the Budget tinkers round the edges.
As for the green taxes, interestingly, it is proposed that tuppence be put on fuel in six months' time. It is not until 2010, if I read the statement correctly, that we will get ½p per litre—not per year, but per litre— [Interruption.] I stand corrected—½p above the index, but that is still as a means of dealing with carbon emissions, and is not a significant change.
Taxes are being raised, but we see no offset for the coping classes, the people who have been hit for so long by the Government, with the increase in taxes being piled on top of them, along with, as my right hon. Friend Mr. Cameron, who responded on behalf of the Conservative party, said, all the extra costs that are coming with higher inflation, higher food prices and all the extra pressures on those people, who are keeping the economy afloat.
My hon. Friend speaks about fuel. She will accept that that now costs £1.08 or £1.12 a litre, or over a fiver a gallon. For people in my rural constituency, having a car is not a luxury; it is a necessity. The rural bus transport service is not sufficient. They need a car and they are being clobbered. The fact that they are being given a six-month reprieve before another 2p is placed on a litre will not be welcome news.
I entirely agree with my hon. Friend, and I would love to find his rural garage that is charging only £1.12 a litre. I am paying considerably more than that. It will be exceedingly hard for people who must rely on their own cars, unlike the situation in London.
London buses no longer come in threes—they come in dozens and most of them are empty, which has a serious impact on congestion in London. I notice that there are mixed messages coming from the Government about road pricing. As we understand it, the Secretary of State for Transport has withdrawn road pricing, yet the Chancellor is putting money into developing road pricing. It will be interesting to get some response in due course about what is happening with road pricing.
The Budget ignores the big picture and focuses entirely on small issues. I want to examine some of the issues that I picked up from the Chancellor's speech. There was a mention of a contract between the Government and families in an attempt to get parents into work. I am having a hard time envisaging how such a contract would work. Is it a series of separate contracts, such as those that parents had with schools to ensure that the children turned up at school? Is it a contract with the jobcentre, whereby people agree to take the first job they are offered? Is it a contract with the local authority, whereby people accept lower housing benefit and council tax, provided they get a job?
What is the contract? Will there be red tape coming out of the ears of families who just want to get back to work, because the Government think it might be a nice idea to have a contract and make people responsible, even if they do not agree with the Government's objectives?
There is a promise about business red tape and a limit on regulation. Again, I have difficulty working out how that will happen, given that every time the Government introduce a Bill, it increases regulation. Does that promise mean, for example, that at Report stage on a planning Bill, we will see the Treasury finally releasing its grip on planning gain supplement and tabling an amendment to repeal entirely the Planning-gain Supplement (Preparations) Act 2007? That would be a serious step towards reducing red tape, and a simple one, because the Government say they do not intend to introduce PGS at all. Why keep the Act on the statute book? Let us have a gesture of good will. What is the limit on regulation and how will it work?
The Government want to encourage zero-carbon homes. We all share that aim, but anybody who talks to the building industry will know very well that zero- carbon homes are technically impossible at present. It is possible to have, on balance and using a very complicated formula, zero-carbon communities, but not zero-carbon homes, as I understand it. The Government are trying to sound as though they are developing some serious strategic thinking on green taxes, so there are proposals on vehicle excise duty and the first year tax rate.
My problem with the Government is that they like red tape. They like producing pieces of paper that limit people's scope, rather than encouraging it. If there is one message after 10 years of this Government, it is that they are unable to trust people to respond and to act positively in their own and their community's best interests. If the Government want to put over a message about green issues, people will not respond to taxation on their vehicles, particularly because of the need, as my hon. Friend Mr. Evans pointed out, to use cars in the countryside.
We should be ensuring that manufacturers and scientists work together to develop the science. There are exciting opportunities in environmental sciences. The Chancellor referred to that, although it was the usual glancing reference. The best way to make us green is through technological development, not by dragooning people into patterns of behaviour. Have the Government, after 10 years, not learned the law of unintended consequences? The minute anybody is forced into a pattern of behaviour, they find ways out of it. It is much better for people to decide willingly to go green than to force them.
We all take the hon. Lady's point that to make sure that vehicle emissions are at a much lower level, we want science and the motor industry to co-operate fully, but does she accept that fiscal measures such as vehicle excise duty are intended to create market conditions and market incentives that will motivate a partnership between science and industry? Unless there is a market in which they can meet with new products, it will not happen. That is why it has not happened to date to the degree that it should have.
I disagree that that has not been happening. The hon. Gentleman may be disappointed that it is not happening at the speed he would wish, but the science is still in its relative infancy, so it is difficult to produce the family car for five. When the science moves on, the market will move—when it becomes sensible to do so. To tinker at the edges and add vehicle excise duty to the cost of motoring is not the most effective way to deliver the changes that the Government and the whole House wish to see. We are all concerned about our green taxes.
I want to let others in, as I know that many hon. Members wish to contribute.
I shall move on to one last point, which was not mentioned but which has been brought to my attention by a number of constituency cases—inheritance tax. The Chancellor announced last year that all widows would benefit from changes in inheritance tax. There is one very small group that is possibly the hardest hit—those whose husbands died before 1972. The people in that group are now very elderly; one such constituent is 106 and her husband died 40 years ago. The inheritance tax changes do not apply to that group of widows. I am sure that that is an oversight—at least, I would like to think so. I would hate to think that that group of very elderly widows was deliberately missed out. The money involved cannot be enormous. I hope that by the end of the Budget debate, perhaps tucked away somewhere in the Finance Bill, there will be a proposal from which every person who is liable for inheritance tax could benefit.
I have covered the broad points that I wanted to mention and have picked up on one or two smaller points. Overall, the Budget was a yawn and will have little impact on the wider economy. All it will do is reinforce the difficulties that the coping classes face under this Government.
Mrs. Lait made an interesting speech; the House will hope that her more pessimistic predictions for the global economy do not come to pass.
I am grateful for this opportunity to congratulate the Chancellor of the Exchequer, my right hon. Friend and Edinburgh colleague, on his first Budget. I particularly welcome the increases in child benefit and child tax credit and the winter fuel allowance for 2008-09.
By any standards, the past 10 years of economic management have been a success story. Continued economic growth throughout the decade has been enjoyed alongside 10 years of low inflation and modest interest rates. Thanks to the stable and prospering economy, the number of people in employment in this country has risen steadily to record levels. The number of unemployed is at its lowest for 28 years and in my area that number has fallen by 57 per cent.
It is fair to add that the economic success of the UK in the past decade has not taken place against a background of great global economic stability and tranquillity. After all, during that period there have been a number of shocks to the global economy, such as the dotcom bubble and the Asian financial crisis. All other G7 countries have experienced at least one quarter of negative growth in the past decade.
Currently, the global background is once again somewhat tumultuous. I guess that at this time there is more apprehension about the future of the global economy than at any time since Labour came to power. Hon. Members and those outside no doubt listened more carefully than usual to the Chancellor's statement on the outlook for the global economy. There is clearly a big question mark over where the world economy will be in 12 months' time—primarily, of course, because of what has been happening in the US.
In the context of the Budget debate, there is always a huge focus on what we now call the public sector net cash requirement. That is understandable; the Chancellor has direct responsibility for striking the right balance between what the Government spend in any year and what they take into the Exchequer through taxation.
During the Budget debate of two years ago, I raised the question of our balance of trade in goods and services. My question, to which I did not receive an answer, was about the extent to which we should be concerned about our trade deficit. Our balance of trade in goods and services has been negative for many years. We are net exporters of services; the balance of trade in services reached £36 billion in 2007. However, the increase in the negative balance of trade in goods has been even faster; it reached £87 billion last year.
Is the right hon. Gentleman equally concerned that the tables in the Red Book have been changed? It is now almost impossible to do a like-for-like comparison without flicking through to other tables and small references to "MTIC adjustment". The total balance of trade is not the £48.75 billion on the table, which would have been the same as for the year before, but £70 billion—and that is tucked away somewhere else in the Red Book.
I congratulate the hon. Gentleman on his detailed scrutiny of the figures. He will certainly agree with me that the substance of the issue is more than worthy of comment.
We have a positive balance in respect of services, but the position is different for goods. Even faster than the rise in the positive balance has been the increase in the negative balance of trade in goods, which reached £87 billion last year. In 1998, our overall total goods and services trade deficit was £7 billion. In the past five years, that deficit has increased from more than £30 billion in 2002 to more than £50 billion last year. I see the Exchequer Secretary on the Treasury Bench; I hope that at some point a Treasury Minister will say a few words about the significance of the trade balance in the modern world. I invite her, or any other Minister with the opportunity, to do so—the issue is clearly of considerable interest.
To varying degrees, any one tax has two outcomes: it raises revenue and it influences behaviour. To their credit, in 1997 the Government declared a commitment to shift the burden of taxation away from activities that we want to encourage, such as the creation of employment, to activities that we want to discourage. That is clearly right in principle, and important steps have already been taken in that direction. One of the most significant measures for lifting taxation away from desirable activity was the introduction of the tax credit system in 1999. Through that, the tax system is used to help ensure that work pays and removes disincentives preventing people entering employment. The tax credit system has been a factor in raising employment throughout the country.
However, I particularly want to focus on the environment, to which a number of hon. Members, including my right hon. Friend John McFall, have referred. I am thinking in particular of the need to put in place measures to reduce greenhouse gas emissions. Some years ago, the Government made a start on using the tax system to make our behaviour on these islands more environmentally friendly. The climate change levy was introduced in 2001 and the aggregates levy was introduced in 2002. Vehicle excise duty was restructured to reflect, for the first time, the environmental damage done by different makes of car. Alongside other environmental actions by the Government, those changes made for a promising start. Office for National Statistics figures show that the proportion of tax revenues raised from environmental taxes saw a modest rise—from 9.4 per cent. in 1997 to 9.7 per cent. in 1999.
However, as the Environmental Audit Committee brought out in its recent report, that was followed by a series of cuts and freezes in key environmental taxes. As a consequence, green taxes as a proportion of all tax revenue fell below 1997 levels—to 7.3 per cent. in 2006.
The Government should take credit for our being on track to meet the Kyoto targets, but we must also look at current trends and where they will take us. The Exchequer Secretary will be aware that the trajectory of UK greenhouse gas emissions is not as it should be. Our emissions have been on a plateau, with only the faintest trace of a decline between 2002 and 2006, the latest year for which figures are available. If the UK is going to do its bit to prevent catastrophic climate change, we will have to take far stronger action than we are taking now. The taxation system has an important part to play. I welcome some of the things that the Chancellor announced in that context, but I suspect that we will have to go further still.
Does the right hon. Gentleman agree that any "green taxes" should be revenue-neutral? Green taxes should be for encouraging people to lead more sustainable lives, but a lot of people are suspicious that they are being used as a smokescreen behind which the Government can raise extra revenue.
I hear what the hon. Gentleman says. If the tax is put on, it will have an effect, whatever happens. However, the hon. Gentleman's point is valid. Such taxes will be more acceptable to the electorate if they feel that although they are paying more tax for some things, they are paying less for others. We can hardly dispute that such a situation would make green taxes more acceptable.
One of the duties that has been subject to cuts and freezes in recent years has been air passenger duty, and—as the Environmental Audit Committee identified—the doubling of rates from February last year simply restored most rates to 1997 levels. Aviation is acutely undertaxed. It pays no value added tax, and hardly any aviation fuel is subject to duty. At the same time, aviation is the UK's fastest growing emitter of greenhouse gases.
The announcement by my right hon. Friend the Chancellor in October's pre-Budget report that air passenger duty was to be reformed was welcome news. The Treasury proposes that air passenger duty become a charge per flight rather than a charge per passenger. In its recent report, the Environmental Audit Committee concluded that that will incentivise airlines to fill their flights. The Committee believes that short haul charges must reflect relatively high emissions and the fact that alternative means of travel are available. The Committee also recommends that the Government consider the introduction of an extra band to cover very long haul flights. I welcome my right hon. Friend's acknowledgement that he will not only maintain his policy on this tax but expect to secure a very substantial rise in air passenger duty in subsequent years.
Did the right hon. Gentleman find anything in the Budget that might encourage expanding areas of aviation, such as the low-cost carriers, to adopt the most modern and least emitting types of aircraft?
The proposal to move from taxing flights as opposed to passengers is certainly a positive move. I hear what the right hon. Gentleman says. I am not sure how easy it would be to implement something like that, but we should constantly be looking at other ways of bringing pressure to bear. The inclusion of aviation within the figures—it is excluded at the moment—is in itself long overdue.
I want to move on to carbon capture and storage, which has already been mentioned by my right hon. Friend the Member for West Dunbartonshire and others. Electricity generation is the UK's largest single producer of carbon dioxide emissions. Traditionally, our coal-powered stations have been the highest emitters of carbon dioxide, and the move away from coal to gas in electricity generation played a large part in our being on track to meet our Kyoto target. However, coal is still the source of about a third of our electricity, and the House will be aware that new coal plant is planned.
To reduce the carbon footprint of fossil fuel-fired power stations, carbon capture and storage—CCS—technologies are being developed to remove the carbon dioxide that is produced and to store it for the long term. With the 2005 pre-Budget report, the Government launched a consultation and a competition for a full-scale demonstration plant, and with the 2007 pre-Budget report came details of the competition and the news that it would apply only to a post-combustion coal plant. That competition is welcome.
The fact that post-combustion CCS should be suitable for retro-fitting existing plants is also an important consideration. However, the winning plant will not be built until 2014, and even then the CCS element need not be fully operational. The response to the potential of CCS should be on a larger scale and of greater urgency. In this context, I should mention last year's regrettable decision by BP to abandon its planned CCS project at Peterhead.
As the Environmental Audit Committee pointed out, CCS power stations will cost more to build and run than conventionally built plants and will need ongoing support. That support could be financial, through mechanisms such as feed-in tariffs. It could also come in a regulatory form. The regulations could apply to plants that had been in operation for some years and that, it is to be hoped, should be able to retro-fit if the technology becomes available. In addition, we need to ensure that the new power stations are built with CCS in place, if the technology is sufficiently advanced, or, if it is not, that they are built ready for CCS to be fitted as soon as that technology becomes available.
We do not know what the world economy holds for us in the next year. Clearly, the outlook is uncertain. I believe that the Budget gives us a good opportunity to do the best for this country and ensure that whatever the world economy holds we have the best opportunity of maintaining the stability that we need for our people and industry in this country.
It is a pleasure to follow my fellow member of the Select Committee on Environment, Food and Rural Affairs, Dr. Strang. I acknowledge his commitment to environmental issues and welcome his remarks on that subject.
Before proceeding, I remind the House of my entry in the Register of Members' Interests.
The first thing that one does when one listens to a Budget speech is to judge whether the overall impression is going to impress, depress or whatever. It is usually said that if there are great cheers, particularly from the Government Benches, the next day people will adjudge that the speech was not really quite as good as they thought—a bit like a Chinese meal that will be quickly forgotten. The deadly silence with which most of the Chancellor's remarks were received on the Labour Benches makes me tremble a little bit and think that perhaps there is something more inside this Budget that I did not spot. A silent Budget is usually one of those that has a longer-lasting effect. I am certain that that last prediction will come true, because it deals with some long-term economic trends.
When it comes to people outside—the public whom we represent in this House—digesting what the Chancellor said, the first thing that they will realise is that they have heard it all before. It seems that the old idea of Treasury purdah has departed, as most of the content of the Budget, if not in specifics then certainly in themes, was well trailed by journalists at the BBC and elsewhere who seem to have had privileged access to what was in it. I would ask those on the Treasury Bench at least to give us some measure of excitement and, at a time when the Chancellor is struggling to say anything of great interest, to stop briefing the press and allow future Budgets to contain one or two measures of genuine surprise.
Was there anything in the Budget for my constituents, who would perhaps have sought some comfort from its content in dealing with the things that worry them? They will have heard the Chancellor talk about this country's low inflation policy. However, I am afraid that although the target may be 2 per cent. on the consumer prices index, which the Chancellor has selected, inflation is much higher than that in the real world, as the retail prices index is well above 4 per cent. When people get their council tax bill through their door, see their rising cost of living and reflect on their rising uncertainty about their economic prospects, I think that they will find their own situation difficult to reconcile with the Chancellor's words of certainty as regards the economy.
Will not the right hon. Gentleman's constituents, especially those on low incomes, welcome the increases in child benefit and in child tax credit, and, from October next year, the very important disregard of child benefit in the calculation of housing benefit and council tax benefit, which will make a real difference to the incomes of many people on low wages?
The right hon. Gentleman is right to paint some positive pictures. I am sure that those who are able to access the sources of funds to which he referred will be pleased so to do. However, my postbag is still heavy with correspondence from people who have problems with tax credits. Those people will still face an uphill struggle to ensure that they get that money, and when they review it against the rising costs of the basics in their living standards, they may well find that it is a case of giving with one hand and taking with the other. Those who are lucky enough to see themselves on a rising trend of income will immediately discover that fiscal drag is an issue that has not been addressed in this Budget. Many lower-paid workers will come into the tax bracket before they should, while those who are a little further up the income scale will find themselves paying the higher rate of tax when they might have hoped for some salvation from that. Fiscal drag is again being used by the Treasury to maintain income going into its coffers. The elderly, whom the right hon. Gentleman did not mention, and who might rejoice at the thought of another £50 on the winter fuel allowance, had better be warned that the Red Book tells us that that money is there only for one year—so that is, I suppose, this Budget's special offer.
The Chancellor made a lot of reducing corporate taxation in terms of reducing the basic rate of corporation tax from 30 per cent. to 28 per cent. However, he forgot to remind the House that capital allowances are simultaneously being reduced. When those numbers are netted off, we find from the Red Book that there is a £100 million increase in income to the Treasury. By all means let us talk about competitive tax rates, which I welcome, but let us talk about the complete picture: business as a whole will pay more taxes.
Does the right hon. Gentleman agree that while larger businesses will experience a small decrease in tax, small and medium-sized businesses will not? They will be greatly disadvantaged.
The hon. Lady, who had the pleasure of visiting my constituency not very long ago, makes a telling point. The Chancellor talked about the competitiveness of business, but she has just reminded the House that small and medium-sized enterprises are effectively suffering a tax penalty. To go back to the impression given by the Budget, once the numbers and the total picture have been gone through by financial commentators, people will find that it ain't as good as the Chancellor tried to paint it.
The right hon. Gentleman referred to the fact that the picture is not so good, and to fiscal drag on tax bands. However, on page 113 of the Red Book there is an increase in the personal allowance for those under 65 of about 4 per cent. The starting point for the higher rate of tax has also gone up by about 4 per cent. That does not sound like fiscal drag to me.
It may not, but I suggest that the hon. Gentleman, who I know takes a keen interest in these matters, looks again. He will find that the allowance for under-65s has gone up by a total of 210 allowable pounds, which represents about £45, which is roughly speaking a reduction in tax of £1 a week. Set against the cost of living increase that I mentioned earlier, people will not find that a particularly pleasant situation. I hope that the hon. Gentleman has not confused the amount of tax paid with the number of people paying tax, which is what the concept of fiscal drag is meant to address.
While on the state of public finances, the other thing that intrigues me is that if we consider the next financial year, the Red Book last year had a projected borrowing level of £30 billion, but one year later, that figure has now risen to £43 billion—an increase of £13 billion. If we consider receipts, we find that they are forecast to rise by £22 billion on last year's Budget. We therefore have rising receipts, bearing out what my right hon. Friend Mr. Cameron said from the Dispatch Box: a rising trend in the payment of taxation and a rising trend in the level of Government borrowing. That illustrates keenly the difficult situation that the Treasury finds itself in, hence the overall gloomy tone of the Chancellor's remarks. He does not have any fiscal room for manoeuvre.
I turn to three specific areas, the first of which is monetary policy. I am still concerned about the structure of the British economy. In my remarks on the Budget speech last year, I conjectured as to why, of all the western economies, the UK needed higher interest rates to achieve a similar performance with regard to inflation—a target of 2 per cent. I query whether we need a national debate, if I may put it that way, on monetary policy. The drivers for inflation are matters that affect people's consumption at the moment—the cost of food, fuel and energy. Most people have a choice: they can spend on the basics, but their discretionary spending diminishes. We have witnessed that already in the reduction in retail expenditure.
We have a zero-sum game, where money is going round, but is being spent on basics, rather than being part of discretionary spend. In recent times, the response of our monetary policy in trying to keep global inflation down has been to raise interest rates, or marginally to lower them with a potential depressive effect on the economy's ability to sustain employment and investment. I mention that because, to me, the most difficult element of the inflationary equation is whether people seek to address inflationary pressures through inflationary pay demands. In the public sector, the Government have already put a cap of 2 per cent. on what they are prepared to have as the norm. I suspect that the figure is between 2.5 per cent. and 4 per cent. in the private sector. I have not heard much from the Monetary Policy Committee or the Treasury about whether there needs to be a revised view of what constitutes inflation in the 21st century.
I find myself in the paradoxical and unusual position of agreeing with the right hon. Gentleman. Does he agree that if the Bank of England had the double-header rubric, like the Fed, to keep inflation down and to maximise employment, it would make for better and more flexible policy?
It is a pleasure to agree with the hon. Gentleman. I seem to recall that section 11 of the Bank of England Act 1998 defines clearly what the Bank's Monetary Policy Committee is all about; it is achieving the target that the Chancellor set. It is interesting that the previous Chancellor reset the inflation target from 2.5 per cent. to 2 per cent., just as we ran into the first serious series of commodity price rises that we had experienced for a long period of time. It is interesting to speculate as to whether we conspired to have a more difficult monetary situation simply by decreasing the target for inflation by a half of 1 per cent.
I have a slightly different point from that of my hon. Friend Mr. Mitchell on monetary policy and the use of interest rates to calm inflation. Is it not the case that the measures announced by the Chancellor on longer-term mortgages will assist monetary policy by taking some pressure off the Bank of England when it sets interest rates, while recognising that a different market will come about with the longer-term interest rates announced today?
The hon. Gentleman raises an interesting point, but longer-term mortgages relate to the stabilisation of people's personal finances, not the heart of the inflationary issue. Current inflation is being driven not by wage demands, although they may come, but by commodity prices and the world economic situation. With respect to the hon. Gentleman's point, long-term mortgages are a response but not a solution to those overall inflationary factors. I say to the Treasury that the time is right to have a discussion and analysis of the current nature of inflation because our response is still geared to previous inflationary cycles in the economy.
I am interested to hear my right hon. Friend's remarks. Conversely, is it not the case that during the last couple of months, the Bank of England has decided to reduce interest rates at a time when it was clear that there were significant inflationary pressures? Does that not show a little more flexibility in its response than he suggests?
Sadly, Mr. Mitchell is no longer in his place, but my hon. Friend's point goes back to the fact that we look to the Monetary Policy Committee to drive not only the fight against inflation, but the level of activity in the economy. Inevitably, the two are linked, but commentators ascribe to the Monetary Policy Committee the ability to influence all kinds of economic factors by virtue of its attempt to focus on the achievement of the inflation target. Although I acknowledge my hon. Friend's point, he does not go to the heart of what is driving our present inflationary situation. I would welcome a debate on whether we have the right mechanism. Broadening the scope of the Monetary Policy Committee may be right—I do not want to come to a conclusion on that matter without considering it carefully—but the time is right for a reappraisal of what drives UK monetary policy.
The second area that I want to consider is that of sub-prime lending. Such lending grew in the United States in a situation where there was a lot of cheap money and people were looking for opportunities to deploy it. They suddenly alighted on the opportunity to allow mortgages to many people who probably should not have had one. The net result was that the American economy turned down and people defaulted on their mortgages—we saw what happened next. I carried out a little exercise to examine the corporate social responsibility reports of some of the banks in America that have suffered the most, in order to see what they said about their responsibility to wider society. Why did I do that? One of the clear trends in provision for, for example, old age, investment and paying mortgages is the weight that we now have to place on private sector investment vehicles. People's security and future well-being depend on the integrity of the products that the financial system now delivers. Events in the sub-prime market have shaken people's faith in those financial vehicles' ability to deliver long-term future funding.
It is therefore interesting to read some of the American banks' corporate social responsibility reports. Citibank, which lost $18.1 billion, states in its corporate social responsibility report on its website:
"From affordable housing to sustainable economic development to financial education, our network of employees and resources provides many meaningful opportunities to serve our communities to really make a difference."
What a difference chasing that last margin of those sub-prime loans made. It has contributed to shaking the foundation of western capitalism. We are now considering the instability of the banking system. Central banks are pumping in hundreds of billions of dollars to stabilise the system when so much depends on its stability.
Merrill Lynch, which lost $14.1 billion, wrote under the heading "Integrity" on its website:
"No one's personal bottom line is more important than the reputation of our company."
What, in the psyche of those banks, got them into a position whereby they put at risk not only their products but the statement of their public position and intent? I know from what the Chancellor said that a great deal is happening in international banking—through the World Bank, the IMF and so on—but if there is one issue with which it must deal, it is the integrity of those banks' actions. They should be forced to re-examine their commercial policies, which put at risk the very security of the millions of people whom we represent.
A recent edition of The Economist conducted some analysis of how good some of the experts are who run the funds that have been so badly affected by sub-prime lending. It concluded that the costs of the so-called professional management of our money were high and the returns were not much better than they would be if people simply followed the general indices of stocks and shares. It pointed out that, in Sweden, which privatised much of its future pension provision, many people invested in a fund that had grown by 534 per cent. in the five years preceding the change in Swedish policy, only to lose 70 per cent. of its value in the next three years. People were so frightened by that that inertia set in and they did not know what to do.
That is the problem. Unsophisticated investors, of whom I count myself one, subcontract to experts the well-being of our future position. In the light of events in sub-prime lending, those in whom I and many millions put their trust have been found wanting. A fundamental re-examination of those banks' commercial requirements and their responsibilities to their shareholders and, more important, to wider society, is needed.
Does the right hon. Gentleman agree that the Government were right to step in on Northern Rock to stabilise the position? Does he also agree that nationalisation was right?
The Government had to take action on Northern Rock because many innocent individuals were caught up in something that was not of their making. Unlike the position of, for example, the Bank of Credit and Commerce International, whereby people were seduced by high returns on their money, Northern Rock looked like a good, normal bet. However, the Government have been found wanting on the speed of action and the direction of travel. The institution wallowed in difficulty and the share price has been adversely affected, perhaps disproportionately, by the delay in acting. However, some action had to be taken.
The article in The Economist that I cited earlier concluded:
"But whatever happens to the industry,"— the banking and investment industry—
"it would do its reputation a power of good if over the next ten years its activities were adjusted to benefit its clients a little more and its managers a little less."
I share my right hon. Friend's analysis, which he presents in a sophisticated manner. He mentioned the re-examination of the products of the businesses. Does he accept that an appreciation of what risk means has been missing?
I agree because no investment can be risk-free. However, on the cost of investment, the Government tried the stakeholder pension—their only venture into that territory. Perhaps if the Financial Services Authority, the Bank of England, the Government and bankers came together to re-examine the matter, a fundamental rethink might occur of the cost of investing, the risk:reward ratio and the corporate social responsibility provisions to which many of the institutions subscribe, but which have been threatened by sub-prime.
I want to comment on a couple of things that the Chancellor did not say. I find it intriguing that the former Chancellor said, when he first came to power, that the taper tax system had to be introduced because it would help capital accumulation in the economy. The current Chancellor has not explained why moving to a flat rate of capital gains tax is now better. I suppose that the only thing that is better is the £700 million in the Treasury's coffers. However, a little more plain speaking would be nice to explain what has changed in the fundamental operation of capital gains tax.
It is disappointing that the Chancellor has not tried to simplify inheritance tax. I suggested in my Budget speech last year that we could have a low single marginal rate of inheritance tax if we did away with the panoply of allowances, many of which are accessible only if one can afford the professional fees for the advice about how to use them. Again, that suggestion was ignored, and we retain an incredibly complicated, old-fashioned tax, which needs modification.
I stress to Treasury Ministers, especially the Financial Secretary, who is in her place, that I hope that, as the tax law rewrite project, with which I have been associated since its inception, nears the end of its major change to the clarity of tax law, the Treasury will not shy away from reacting to the enormous amount of work on improving the operation of the tax system. That is different from rewriting the law in a legible and understandable way. If the Treasury is to take with it the support of the accounting profession and others in the financial community to make Britain's tax laws work properly, the Financial Secretary needs to expand and change the tax law rewrite committee's remit to consider more carefully modifying and improving the efficiency of the tax system.
With respect to the Chancellor, changing the way in which small and medium-sized enterprises access the tax system and report their financial transactions is not the same as making the whole system work better and simplifying it. The word "simple" is often used but it is difficult to achieve. However, many lessons have been learned through the rewrite exercise and they need to be examined.
Let me consider green taxes. The Select Committee on Environment, Food and Rural Affairs, which I chair, suggested trying to encourage local investment in decentralised energy systems. We suggested to the Chancellor the introduction of a green ISA—a unique instrument for investing in green technology or local, decentralised low-carbon schemes. Sadly, that did not figure in the Chancellor's speech this year. However, there are some remarkable examples in Germany of small communities with local networks of investors, which have now got combined heat and power schemes, which would be the envy of many communities in this country.
Sadly, there was no mention of a buy-in tariff to encourage more decentralised electricity generation or help to deal with emissions from the heat sector. We all talk about electricity and transport, but heat accounts for one third of emissions in this country, yet is the one area where revolution and change are under-encouraged.
I hope that the Treasury will look carefully at what I have said about the state and security of our financial institutions. They are so vital to the well-being of so many of the millions whom we represent. If, as a result of reacting to Northern Rock, we could address some of those issues, there might be a different way of expressing the concept of financial stability, for the long-term benefit of the millions whom we represent.
It is a great pleasure to follow Mr. Jack and to listen to his words of wisdom about our financial institutions. He agrees with Mrs. Lait, who also made an excellent speech, about the problems resulting from, if I may say so, the misuse of financial instruments—the bundling up and selling off, the derivatives and futures, and the hedging. All are useful tools in the world of finance, but when misused, they have created enormous danger. The right hon. Gentleman made that extremely clear.
Interestingly, I recall the Leader of the Opposition suggesting not so long ago that the City was falling out of love with Labour. On the back of the remarks that we have heard from the right hon. Member for Fylde and the hon. Member for Beckenham, it would seem that the City has not yet found a new suitor in the Conservative party, with those attacks on the behaviour of the very institutions that, formally and traditionally, were its major supporters. The Conservative party's whole approach has to find a new pathway, so perhaps the right hon. Gentleman and the hon. Lady should communicate that to their leader.
I would not like my remarks to be construed as an attack; it is more a question of saying, "Watch out!" The expertise of those institutions is vital, and there is no substitute for long-term investment carried out responsibly by the City of London and other financial markets—but on this occasion they got things wrong.
I am pleased to hear the right hon. Gentleman moving back towards the middle path that I was suggesting, which is to have a use for those instruments, but not a misuse. We can now take that as read.
I want to concentrate my remarks on what I regard as the heart of the economy—the manufacturing capacity in this country. I want to focus particularly on the auto and aerospace industries, and to consider them as part of the export effort that we must continue to make. If a Budget is about the gathering and distribution of taxation, there must be real wealth before anything of note can happen. That is why I choose to speak about the manufacturing industries in our country.
Export is everything, as far as Britain is concerned. Whether in manufacturing or services, we must recognise that for an island economy, the choice is trade or die. Therefore, we have to make friends worldwide. The right approach to world peace is to have mutually advantageous trade. I wholeheartedly support the efforts of our exporting community to call for assistance wherever it is required, in their main effort of ensuring that Britain pays its way. I shall speak in a moment about the conditions of work in which we are operating, and the effect that those have on the balance of payments.
The overall thrust of our economic policy has not been particularly helpful to our manufacturing industries. If manufacturing is at the heart of what we do, and most else is peripheral to it, we have for many years not taken care of it as we should have done. Our current balance of payments deficit is some £51 billion—considerably different from what it was just 10 or 15 years ago. That figure is accounted for by a monthly deficit in manufacturing of £7 billion to £8 billion, which is offset only by a services surplus of some £3 billion.
Given that situation, it is right to recognise that manufacturing has continued to increase its output, although its share of GDP has fallen. In 1995, the output of manufacturing and allied services was overtaken, in terms of growth in GDP, by the services sector. The services sector now accounts for some 75 per cent. of total output. Again, that illustrates the fall from grace of manufacturing in our country.
At the same time, I should like to pay tribute to those in the manufacturing industries, by recognising that their productivity gain has been startling—startlingly good, it is nice to report. Indeed, in 2004-05, it reached the giddy heights of 8 per cent. per annum. The figure has moderated a little since then, but it is still well ahead of the productivity gains seen in the services sector. Although more should have been done to assist in the manufacturing endeavour, those increases in productivity illustrate that manufacturers have, in the vernacular, been playing a blinder.
I share the hon. Gentleman's interest in the manufacturing industry in the UK. We are all aware of the balance of payments deficits overall, in manufacturing and services put together. However, does he agree that the Government ought to be doing more to support small and medium-sized businesses in particular, by holding more exhibitions and trade missions abroad and by giving those businesses more assistance to participate in them?
The hon. Gentleman shares my views on such matters. Of course I agree with that, but it is worth reflecting on the fact that although we have some seriously good manufacturers—world champions in many respects—we have an enormous tale of underperforming small and medium-sized businesses, which tend to cause a drag on the entire system. The measures announced today to encourage small and medium-sized businesses are helpful—probably not sufficient, but the direction is helpful. I want to say a little about trade exhibitions and the export effort in a moment.
Although we could say that this Labour Government were slow to support manufacturing, would my hon. Friend give credit for the manufacturing strategy, its refresh, the manufacturing advisory services and the introduction of R and D tax credits? Does he think that such supports might explain why this year's survey of manufacturers by the EEF—formerly the Engineering Employers Association—says:
"Investment intentions this year have been the strongest since 1995"?
I think that I read the same paper. That is absolutely true, and the Government have taken a number of measures. I am merely saying that they are insufficient. Everything is helpful, and I am a fan of the manufacturing advisory services in particular. Hon. Members may be familiar with their work in different regions, especially in assisting small firms—in efficiency and lean manufacturing, for instance—which has been extremely helpful and well supported by the regional development agencies. In that sense, I readily concede that the Government whom I support have been taking measures to help small companies.
I repeat that the message that I want to get across to those on the Treasury Bench today is that we are not yet doing enough; more needs to be done. We can see from the industry's productivity gains that it is responding magnificently, but its general output is still falling behind that of the service sector. That is not a sustainable policy for the long term. We must move back to a more vigorous, growing manufacturing industry. There is not a country in the world that is successful in the way in which we want to be successful that does not have a strong, well-performing manufacturing sector.
I share my hon. Friend's passion for manufacturing. Does he welcome the Chancellor's statement today that Government Departments will be doing all they can to coach tendering propositions from companies in this country, and to procure goods from this country?
Yes, and may I also point out that many of our local authorities have a long and honourable record of putting together trade fairs especially for the benefit of local manufacturers, and traders in goods and services, in order to create a virtuous circle of economic growth within their districts? I want to see those practices expanded and made best use of, as they make a positive contribution to the overall effort.
It is important to look at exports, and I shall come to UK Trade and Investment—UKTI—in a moment. We now have perhaps the most favourable exchange rates for manufacturing that we have seen in a considerable time. We have seen a fall in the pound against the euro of 12 or 13 per cent. since last summer, which is extremely helpful to our exporters. We have also seen a growth in the strength of the pound against the dollar, which is helpful in so far as many of the raw materials that we import come from outside the euro area, from the dollar areas. We then sell our manufactured goods into the euro area. That provides an ideal opportunity for the Government to redouble their efforts to give more encouragement to exporters to take advantage of these circumstances, which could last for another 12 months or just until tomorrow—who knows? We just do not know, but we must recognise that we have that advantage.
In my constituency, some years ago, Goodyear—a world-famous company—was buying rubber in the dollar markets and selling its products overwhelmingly into Europe. It was facing a reverse premium on currency of about 15 per cent. Thank goodness that has gone. The advantage that we now have is extremely helpful. Exchange rates are creating very favourable conditions, and this is an ideal opportunity for the Government to look really hard at how we might assist our manufacturing and export industries.
The UK has the second largest aerospace industry in the world, outside the USA. In 2006, its sales reached almost £20 billion, and two thirds of that went into exports. The aerospace manufacturing community has responded magnificently to the challenges of global competition. It employs—directly and indirectly—about 275,000 people, and an additional 50,000 are employed abroad by the aerospace industry, mainly in the USA. It invests about £2.5 billion every year in research and development. Such investment certainly fell during the Tory years, but it has grown and stabilised since then, and it is still improving. That is to be welcomed. The aerospace industry remains very important to the future of our manufacturing industries. The technology base that it brings is invaluable, and must be nurtured. We have to cherish it, to ensure that the spin-off from the investment in R and D spreads out and benefits the whole country.
In the auto industry—manufacturing, distribution and servicing—the business sales are about £200 billion per annum. It has 200,000 direct employees and 500,000 people employed in distribution, sales, servicing and maintenance who are supported by the auto industry. The industry represents 5 to 6 per cent. of our total manufacturing output. It, too, must be cherished, and our people are responding.
The hon. Gentleman comes from the same region as I do. I have Land Rover in my constituency, and Jaguar is close by. Ford has invested £700 million in research and development technology to make the vehicles more carbon efficient. The vast majority of the vehicles manufactured by Land Rover in the UK go abroad, which enhances our export performance.
Thank you very much.
I endorse the remarks of Lorely Burt. We share a common interest in the success of the auto industry, not least because, although manufacturing employment in the west midlands has fallen from about 92,000 people 10 years ago to about 71,000 now, our region still massively outdoes any other region in auto industry employment. Our auto industry's exports in 2006 were almost double what they were in 2005, but imports of autos have risen even faster. We now have a trade imbalance of £6 billion- plus, compared with only £3 billion in 1995.
So there we are. Manufacturing industry in aerospace, in autos and in other areas has, without question, responded magnificently to the challenge of global competition by rapidly improving its productivity figures, and that is to be applauded. I am not saying that the Government have done nothing; I know very well that they have taken action, and I have been cheering along many of the initiatives that have been taken. However, we must also consider the kind of support that is being provided in France, Germany and Japan.
This brings me to the point raised by Mr. Evans about trade fairs. Frankly, we are pretty abysmal at all that. We set up an organisation—UKTI—under this Government in 1999, and we promised that it would do the job of ensuring that Britain's voice in trade was heard far and wide. The truth is, however, that we have under-resourced it ever since. A proper review of the needs of UKTI must take place without delay, so that it can fund the trade missions that make such a difference, especially to small and medium-sized companies. The bigger companies can look after themselves in the world market in most cases, as long as their own Governments are providing the right framework.
Our local chambers of trade and the regional agencies are anxious to promote the worldwide opportunities for export that the smaller companies often do not take advantage of, simply because they lack the support to take them abroad to do the business. I ask those on the Treasury Bench, again, please to recognise that in UKTI, whatever faults have been found and criticisms have been made, there are the tools to do the job—but as ever, we need to ensure that it has the resources to back up the work that it can do and the expertise that it has developed over these years. We need to recognise that we must stop fiddling with it—with name changes, different duties, sectionalising what can be done, and targeting this and that. For goodness' sake, let us recognise that in many ways one export product is as good as any other, and give that general support to the exporting effort that I know would be extremely welcome.
There you have it. We are doing good but, in the words of the advert, "We're no' doing great." The way to do that is to support our manufacturing and exporting industries and to ensure that the heart of this country and its wealth creation is in good shape for the future.
It is a pleasure to follow Mr. Purchase, who rightly reminded us of the importance of manufacturing industry. When I was Secretary of State for Trade and Industry, my mantra was that we could not have a healthy economy without a strong manufacturing sector, which, as he emphasised, is increasingly higher value-added and high tech.
Of course, Governments cannot always decide the proportion of economic activity in manufacturing and in services—they want both to be strong and good. As an economy, we have benefited from a strong service sector and a strong financial services sector over the past couple of decades because the relative demand for those services has risen. I fear that in a period of economic difficulty focused on the financial services sector we will have greater difficulties than some countries that rely less on that sector than we do. We need to be careful about that and we are jolly glad that we have a manufacturing sector such as that described by the hon. Member for Wolverhampton, North-East.
My right hon. Friend Mr. Jack described this Budget as a Chinese meal—soon eaten and even sooner forgotten. That is a fair description of the Budget, but a very unfair description of a Chinese meal. I invite him to join me for a meal in the Oriental Garden in the village of Offley, from which I come. He will have a very memorable meal.
I would like to enter that on the Register of Members' Interests.
A disgraceful feature of this Budget—it has, I am afraid, been a feature of Budgets in recent years—was the lack of transparency and the tendency to exclude from the speech important measures or any details that make comprehensible the measures that appear in it. I can remember, as I am sure my right hon. Friend can—we were both Financial Secretaries to the Treasury, and I was Economic Secretary before that—that when we drew up Budgets, officials would sometimes say, "You've got to include that measure. It might be boring, but it's important. It raises revenue." Invariably, we would say yes. There was a presumption that anything important or significant had to be included and explained and the cost made apparent. The tendency in recent years has been to do exactly the reverse and say that anything important, anything that will be painful or anything that imposes burdens of taxation on people will be hidden in the small print of some press release and barely mentioned in the speech.
We had the extraordinary experience of the Chancellor giving a Budget speech shortly after taking £100 billion of additional liabilities on to our balance sheet without mentioning that he had nationalised a dodgy bank or that he had included the extra loans on the nation's balance sheet. I find that disgraceful. It is not treating the House or the nation fairly. I understood that the Office for National Statistics had said that that would be on the balance sheet. The figures should be included in the nation's assets. The fact that the provision does not come in until the first day of the new financial year is not an excuse for not including it in today's Budget.
Closer inspection of the book leads us to discover that the lollipop in the speech—the offer of an increase in the winter heating allowance that the Chancellor announced—will be financed for only one year. It is a one-year increase. Will it disappear next year? If it will, that is fair enough, because no money has been set aside for it. However, if the Chancellor is giving the impression that it will be extended this year, no money has been set aside and there is some dodgy financing going on there, too.
We were not reminded that the most significant change that will occur in the tax system as of
The Chancellor accidentally said that he was cutting corporation tax from 38 per cent. to 28 per cent., when the actual cut is from 30 per cent. to 28 per cent. I think that that was just a slip of the tongue; I make no complaint about it, as we all make such mistakes and I am guilty of them from time to time. What the Chancellor did not mention, however, was that the corporation tax rate for small companies is going up as of the beginning of this financial year. That matters to millions of small companies, which are, above all, the job and wealth creators of the future—and hopefully the big companies of the future. They are enraged by that prospective increase and the fact that it is being made at these particularly uncertain times in the economy.
The Chancellor was remarkably opaque about what he is doing with non-doms—non-domiciled residents who work here, but do not necessarily pay tax on overseas income. They pay tax on their income in this country and it would have been interesting to hear from the Chancellor exactly how much tax they pay on the incomes they generate in this country. It appeared to me that the Chancellor was backing off in his proposals and reverting more to those made by my hon. Friend Mr. Osborne, the shadow Chancellor, to pay a flat £25,000. Of course, the Chancellor charges more—unsurprisingly, as Labour always charges more—but once the non-doms have paid, no further inquiries are made about their foreign revenues.
In fact, when the Chancellor said that he was going beyond that and was not only going to charge the non-doms that sum, but start chasing their overseas income and investments as well, he produced an absolute uproar among the non-dom community resident in this country.
A friend of mine, who is not a non-dom in this country and is not even resident here, has a business in central Europe. He lives in Zurich. He told me that he was delighted by what the Chancellor proposed because the outflow of non-doms from this country to Switzerland—to the fashionable suburb of Zurich where such people live—has been such as to treble the value of his house since the announcement was made. The idea that this is just a brouhaha is not the case; people are physically upping sticks and moving, and we are losing not just the £25,000 or £30,000 that they might pay, but the hundreds of thousands in tax revenues that they are paying on their incomes in this country, generated in this country, and, of course, the prospect of moneys being returned from abroad to this country—not to mention the contribution they make to arts and charities.
Will the right hon. Gentleman clear something up for me? Was not a £30,000 tax for non-doms initially a Conservative proposal?
I am sorry that the young lady—I mean hon. young Lady—has not been listening. I said that I hoped that the Chancellor was reverting more to the proposal that my hon. Friend the shadow Chancellor made for a flat licence costing £25,000 a year. The idea was that if a non-dom paid that, no further inquiries would be made into foreign income. The Chancellor then went much further by saying that in addition to paying the flat fee, investigations would be made into foreign trusts and related financial matters. As I was saying, the non-doms were not prepared to tolerate that, hence the outflow from this country.
The Chancellor seems to be moving from that position, but it is very hard to tell even from the press release—it is simply impossible to tell from his speech—whether he has done a complete U-turn. I very much hope that he has and that he has adopted the shadow Chancellor's more sensible proposal, as a result of which some of those who have moved to Zurich may think again. The press release says that the Chancellor is not going to charge for people's children. It has always struck me as an extraordinary idea that one should have to pay £30,000 a child, although £35,000 is still going to be payable for a wife. How that applies in a system of independent taxation, I do not know.
It must be admitted that although the formulation has changed, it is clear that the Conservatives were proposing to raise a far larger sum through their taxation of non-doms than will be raised by the present system. Did that trebling of house prices in Zurich begin at the Conservative party conference, when the Conservatives first announced their intention to hit their friends, or did it begin when the Government followed suit?
I think it began the day the Chancellor started announcing proposals to investigate overseas earnings and bring them into the United Kingdom tax regime, on top of charging £30,000 per member of a household. I am pretty sure that concerns will be lowered if he has indeed performed a complete U-turn.
The one thing that we do know about the Chancellor's proposals is that he has committed the next Parliament not to change them. But, as Mr. Mitchell will know, one cannot commit a future Parliament to anything. One can commit one's party for a future Parliament, but one cannot rely on its being in government. I certainly hope that we cannot rely on the Chancellor's party remaining in Government. I think he should at least have made it clear that he was speaking only for his own party. I am sure that my party will do all in its power to alleviate the problems that he has created, but the next Parliament cannot be bound by anything that he has announced today.
The central issue underlying the Budget was how prepared we are in this country for a potential slowdown in the British and world economies. It is not the job of Members of Parliament to forecast the future. When it was my job and I was a forecaster, I enunciated Lilley's rule, which was "Never make a forecast except about the very distant future or the immediate past". That is the safe thing to do, because one cannot be found out, but one can claim to have forecast what has just happened.
I do, however, remember the distant past. One of the advantages of having reached my stage in life but having, before arriving in the House, had a career in the real world is that I observed what happened in the 1960s and 1970s, and I have a sense of déjà vu. Then as now, America was fighting an unpopular war. Then as now, it was financing its unpopular war without raising taxes. Then as now, that produced a huge deficit in the American Budget. Then as now, that Budget deficit produced a corresponding deficit in the balance of payments and a big outflow of dollars across the world, which was absorbed in the foreign exchange reserves—then those of Germany and Japan, now those of China and other countries.
For quite a long while—the best part of a decade—that outflow of dollars across the world produced an unparalleled period of prosperity and strong growth combined with low inflation. We seemed to have the best of all possible worlds, much as we have had for the last decade or more in the western world. But, then as now, the outflow of dollars began to drive up commodity and oil prices. We are in roughly that position at the moment. We know what happened next then: for a while the rising commodity prices seemed to be absorbed by, for instance, the squeezing of margins of companies and a burst of productivity increases, but after a while that could not be maintained. Rising commodity prices showed up in rising prices of goods and services, and inflation began to accelerate. When Governments tried to slow that inflation by putting on the brakes, they were landed with stagnation with no reduction in inflation. Stagflation was the phenomenon of the future.
The only question that we need ask is "Why should it be different this time?" Why should history not repeat itself now? But our history does not always repeat itself.
I am obliged to the right hon. Gentleman, who will have an active memory of those times. I was still at school but have read since that, yes, the UK had stagflation, but stagflation was not universal. There were economies that survived and prospered but, unfortunately, not the UK's. Is not the position the other way around this time? The UK is in a position to survive, but other economies are not.
That was very much the question that I intended to address and I am grateful to the hon. Gentleman for prompting me. It is the important question; not merely, "Will it be the same this time?" It may not. Marx said:
"History repeats itself, first as tragedy, second as farce."
Maybe it will be farcical this time, maybe not. If it is to repeat itself, how well placed are we to cope with something similar? The lessons of the period when the hon. Gentleman was at school and I started at university, before working first as an economic consultant and then in the City, was that countries that had run a very tight ship experienced far fewer problems during the latter and more painful unravelling of events than those that had run large budget deficits and a less tight ship. The sad truth is that we now have the highest budget deficit of any major country, with the exception, as my right hon. Friend the Leader of the Opposition pointed out, of Bangladesh, Pakistan and Hungary.
Egypt, Pakistan and Hungary. My apologies to Bangladesh. It is sad that one must apologise to Bangladesh for being compared with the UK; there were times when it would have rather welcomed such a comparison.
Running a tight ship is important. We have not done so and the prudent period of the early stage of the Government—when they committed themselves to following the spending plans they inherited from their Conservative predecessors—gradually eroded. At precisely the time they ought to have been starting to be more cautious, they became less cautious. They ought to have been repairing the roof while the sun was shining; instead, they were squandering the money coming into the Exchequer.
The second feature that helped countries in those difficult times was that they had strong foreign exchange reserves. The Prime Minister squandered our gold reserves; had he known history, he would have realised that gold is one of the things that increases in value most during these cycles. The losses that he incurred by his decision to sell off the gold reserves exceed the losses of any of the Jerome Kerviels or Nick Leesons of the past, making him the biggest rogue trader of all time. The fact that our reserves are not as healthy, to the tune of many billions of dollars, is a sadness.
Countries that had lower tax burdens did better in those circumstances than countries with high tax burdens. It is sad, too, that we have moved from having one of the lowest tax burdens in Europe to having one of the highest. We have overtaken Germany, not just because our burden has been going up but because other countries, prudently and sensibly in the good times, have been cutting their tax burden; we have not.
The fourth feature that helped countries weather the storms was flexible labour and other markets. I am happy to say that we did liberalise our labour markets and reform our trade unions during the 1980s and 1990s. The Government inherited that and have retained a good part of it, which puts us in a better situation than we might otherwise be in. But they have been adding burdens to businesses and companies, regulating and collectivising, which means that we will be a bit less flexible than we might have been and a bit less well placed to deal with the possible dangers of coming years.
We should also ask why the credit crunch is occurring: why are we facing the current difficulties in international banking and credit markets? It has been suggested that the crunch has been caused by a lemming-like move by banks and other financial institutions to invest in high-risk and imprudent investments. However, banks and financial institutions—some of them, at least—have always been prone to being imprudent. Some have always made bad investments, but those bad investments do not normally provoke a credit crunch. So what is different this time? It is a moot point whether imprudent investments, which have undoubtedly been made, have caused the crunch or whether the crunch revealed the imprudence. I drew an analogy in a recent debate: when the tide goes out, we see who was swimming naked, but the fact that some people forgot to wear their bathing trunks did not cause the tide to go out. Likewise, when the tide of credit ebbs, we discover who was making imprudent investments, but those imprudent investments might not have been what caused the credit crunch.
The usual criticism of banks is that they will not take risks. I constantly meet businessmen who say, "I've got a terrific idea and project, but the trouble with the banks is that they will not take a risk." As the banks are usually criticised for preferring safe investments to risky ones, why have they apparently moved towards investing in riskier assets in recent years? I suggest the answer is that interest rates have compelled or encouraged them to do so. We have been through a period of low interest rates in real terms. That is to do with the supply of savings relative to the available investment opportunities. The supply of savings comes above all from China, but it transfers itself across the world economy, and in order to bring about a balance between borrowing and lending and saving and investing, interest rates had to be held lower. That meant that people had to invest a large sum of money in lower yielding assets because there were not enough higher yielding assets—in less secure assets because there were not enough highly secure assets. They did so because that was all that was open to them—not because they suddenly became transfixed with the idea of taking high risks for low yields, but because there were not any high yields for low risks. If they had not done so, we would not have had a balance between supply and demand in savings and investment, and we would then have been in the classic situation of a Keynesian credit slump.
Suddenly, the banks are now holding off from investing. Instead of everyone praising them, saying, "Oh, good, they are being prudent; how wonderful," the central banks of the world are saying, "For God's sake, resume lending. We will flood the banking markets of the world with money—cheap, easy, readily available, often secured against rather dodgy assets—because we want you to start lending again."
The problem has been aggravated by the fact that the banks thought they had security by lending against collateral. They took as collateral solid bricks and mortar: property. The banks and financial institutions of the world—including Northern Rock—invest in mortgages secured against physical assets. The trouble is that the value of physical assets is a financial issue, not a matter of physical bricks and mortar. For a while it all seemed wonderful. They took property as collateral. That encouraged more investment in property. That drove up the price of property. That seemed to validate their decision to take property as collateral. It was all hunky-dory until there was a feeling that the money created by that lending was flowing into other markets and inflation was beginning to rise. The central banks across the world began to raise interest rates again to choke off the prospect of inflation. Their doing so initially choked off inflation in the housing market in America—it is beginning to do the same in the UK. Suddenly, the collateral was worth a lot less; there have been sharp falls in property prices in America. The property bubble burst, and that had a synchronised effect. It was not the random effect whereby someone dealing with different businesses in different markets will find that some experience problems while others do well. Because the banking system as a whole was relying on property as its collateral, the banking system as a whole found itself in difficulty.
The whole world financial system is hugely brittle; we are sitting on a knife edge. The financial institutions—the monetary authorities, led by the Federal Reserve and with our own central bank joining in—are trying to flood the system with money to start people lending and borrowing in order to prop up the value of collateral. They are dealing with a difficult problem and there is no guarantee that they will succeed—I think Keynes described it as like pushing on a string—but I hope that with enough cheap money they will. The difficulty lies in whether they can restart things without going to the other extreme and triggering greater inflation next time round.
Order. I think that the hon. Gentleman has done enough to inform the House on that point. It is certainly not a point of order for the Chair.
Well, not only is the world financial system brittle and on a knife edge, but so is the future of my hon. Friend Bob Spink.
All this House can do is recognise that those monetary authorities have a delicate task in trying to get us back to a position of balance between the risk of deflation and the risk of inflation renewing. We must recognise that the solution will not be found simply in piling regulation upon regulation on to the financial system. The problem was not caused by regulatory inadequacy, although there have been such inadequacies. It was not even caused primarily by a spontaneous eruption of imprudence, although there was imprudence. It was caused by a basic problem in the financial system, which built up over quite a long period and will require the greatest delicacy and wisdom to resolve. The Budget was presented in that context, but I fear that it did not prepare this country adequately for the difficulties that may be ahead of us.
Conservative Members have spoken about the burden of taxation—that is how they regard it—but I regard taxation as the price that society pays for civilisation. Taxation is the Government's key instrument for delivering social justice. Taxation is not only certain in life, but necessary. It is needed to bring about the equality upon which any cohesive society must be based. On that view, equality does not undermine liberty—it undergirds it. I therefore look to the Budget to use fiscal policy to redistribute wealth and create social cohesion. The Chancellor's proposals to take a further 250,000 children out of poverty do that, and I welcome them. I also welcome the rise in the winter fuel allowances for the elderly for the same reason.
The background to this Budget is clearly in the United States of America. Some 63,000 jobs were lost there in January alone, and the word "recession" is now being spoken quite openly in American boardrooms. The Federal Reserve has already cut interest rates by 1.75 per cent since last summer, and on Friday it pumped $200 billion of liquidity into the financial markets.
The US sub-prime market was based on such liquidity, and I echo the sentiments of Mr. Lilley and Mrs. Lait on that point. It was based on liquidity within and between lending institutions. When that liquidity dried up, it was no longer possible to bring in more debt at the bottom of the pyramid, and the turning point in the market was reached. But liquidity is not an answer on its own. It is capable only of masking a bad business model for a time, not of curing it. The sub-prime market was a bad business model, for the reasons that hon. Members have outlined. It was aimed at people who should never have been drawn into such a level of debt.
My right hon. Friend John McFall, the Chairman of the Treasury Committee, discussed Northern Rock and the FSA's role as regulator. I wish to make some broader remarks about regulators and credit rating agencies and draw some lessons for other sectors of the economy, such as the utilities sector.
UK utility regulators have trusted in credit ratings. Their use of ratings was always a misuse, but now it flies in the face of increasing evidence that they can be dangerously wrong. Northern Rock, of course, is a prime example of that. Regulators have allowed increasing debt at a time when the impact of global warming is causing severe financial shocks to utility companies. The regulators' reliance on credit ratings now looks dangerous and out of date. The UK's economic regulators have a legal duty to secure licence holders' ability to finance their activities. That duty has been viewed as a need to check, inter alia, that companies are not over-leveraged, which regulators have achieved by requiring a combination of investment-grade credit ratings and a secure ring fence around the regulated legal entities.
Two major problems with that approach have emerged: the first is with the credibility of credit ratings and the second is with the stability that the ring fence can create. Rating agencies have made a series of systematic errors in many of the world's major industry groupings. The list of those affected in this decade alone is staggering: in power and energy, it included the independent power producer sector from 2001 to 2004; in telecoms and media, it has included major telecoms companies such as WorldCom. It has also included financial institutions such as Northern Rock, and of course property, with the US sub-prime sector.
"there are currently expectations of low credit risk."
Note the use of the word "currently". The rating agencies clearly use a probabilistic approach and state that ratings are not immutable, whereas the leveraged financing structures allowed by regulators may stand for 25 years. The credit rating downgrade of some monoline insurers who guarantee junior debt in many securitisations highlights the degree of systematic change possible, even in a relatively short time frame.
There has been a strong and coherent argument supporting leveraged financing structures in utilities: high leverage focuses management attention on delivering tight budgets and reduces the cost of capital, thereby allowing lower tariffs. The corollary to that is that it may also reduce flexibility, and we need to heed that warning. Decision making by utilities dealing with the crisis should not involve seeking permission from creditors to spend money. Given typical restrictions in leveraged finance agreements, circumstances in which that is exactly what would be required are perfectly plausible.
Last summer saw widespread and devastating floods across many parts of the UK affecting all types of infrastructure, including utilities. Fortunately, the utilities affected, such as Severn Trent Water and Central Networks in the midlands and CE Electric in the north-east, are owned by well capitalised holding companies. Severn Trent Water alone reported costs of between £25 million and £35 million to respond to the floods. It is increasingly important that utility companies are able to withstand a financial shock. Global warming is causing freak weather, and the financial flexibility required by utilities has to be increased if they are to be able to respond immediately and effectively to the type of incidents that we have seen in this country.
Regulators have powers to impose cash lock-ups on licensed utilities and to apply for a special administration if a company cannot finance its activities, but both courses of action are problematic. A cash lock-up can be imposed, but if a company has no cash at the time it will still not have immediate access to funds, and special administration is not straightforward. An administrator's duties in some areas conflict with those of a regulator: an administrator is appointed by a court and has a duty to a company's creditors, whereas regulators have duties regarding customers, such as the economic delivery of services and, of course, the security of supply.
Our regulators all have access to significant investment banking and capital markets expertise. The increasingly prevalent model of leveraged finance—both Norweb and Southern Water were subjects of leveraged acquisition at the end of last year—covers a range of water, electricity and gas companies. There is now sufficient evidence that credit ratings are not a suitable method for regulators to discharge their duty to ensure that companies can finance their licensed activities to justify a move to a more bespoke approach. High debt levels have helped to keep tariffs low, but low tariffs are not more important than keeping the lights on and the water flowing. I hope that we will apply the lessons learned from the events in the sub-prime market and our experience of Northern Rock to a wider range of service sectors in this country. If we do not, similar problems could arise in future.
In 1993, the first Labour suggestion that non-doms should be taxed on their worldwide income was made. At the time, I ran a company of general average adjusters in the City, and I well remember the concern that that suggestion caused in the shipping world and the financial services sector. I took a delegation to meet my good friend Paul Boateng, now our high commissioner in South Africa but at that time our shadow Minister with responsibility for banking and finance, to point out that the potential loss to the economy was greater than the potential gain. I am glad to say that he and the shadow Chancellor drew back from the suggestion.
Looking at the figures now, it is clear to me that estimates vary—well celebrated fag packets have been used in the calculations. There are figures suggesting that between £4.5 billion and £7.5 billion is contributed to the country in revenue by non-doms. Estimates of further spending into the UK economy range as high as £16 billion.
One of the principles of taxation was expounded by John Rawls in 1973 in his great work "A Theory of Justice"—the maximin principle: one does not do anything without ensuring that it will improve the lot of those who are worst off in society. The point of taxing non-doms must be that more revenue will be gained than will be lost from the off-putting effect of the revenue-raising measure. It has not been shown that that will happen as a result of the moves made in the pre-Budget review. I am extremely pleased that the Chancellor appears to have backed off from a number of suggestions that would have been quite wrong and improper, and that would have violated the maximin principle. They would have actually caused a net loss to the Treasury overall.
I welcome the fact that income and gains in offshore trusts will be taxed only when they are remitted to the UK, even if they come from UK assets, and the fact that children will not pay the £30,000 charge. It would be better if the £30,000 charge were per family, rather than per adult in a family. The £30,000 charge should be creditable against foreign tax. That is significant when it comes to dealing with workers from American companies in the UK, and with regard to the risk of double taxation.
There has been talk today of a flight of non-doms. It is important to recognise that owing to turbulence in financial markets, what has been going on in the sub-prime market in the US, and the situation as regards liquidity, debt markets across the globe are contracting, as are credit markets. All those in the City working for big American or overseas banks face a contraction, too. There is already a flight—an exodus—and it is due not to anything that the Chancellor proposed in the pre-Budget report, or anything that he is proposing now, but to that contraction in the market, which is the result of what has been going on in the sub-prime and other sectors in the United States.
I welcome the change to the position regarding art works brought into the UK for public display or repair and restoration; they will face no new taxation. I also welcome the fact that people with unremitted offshore incomes and gains of under £2,000 are exempt from the charge and the changes to personal allowances.
The biggest problem with opening the Pandora's box of reassessing the position of non-doms is that non-doms bring revenues and expertise to the country, and form the epicentre—the honey-pot—of the shipping world, the legal world and the financial world in the UK. We do not want to lose all that that brings into the City of London, and the revenues that flow from that, which are used for the benefit of the rest of the country.
Treasury officials' valuations of how much a measure relating to non-doms would bring in are between £500 million and £800 million. That is nonsense, and it has to be seen as nonsense. The introduction of such a measure was rejected by Margaret Thatcher, by Labour in opposition, and, at first, by Labour in government. Why has Pandora's box now been opened? It is because the Opposition came up with a proposal for a simple £25,000 levy on non-doms, and officials in the Treasury thought, "That gives us cover to see whether a Labour Chancellor will go for such a measure." The real problem is uncertainty. To raise the issue is to open Pandora's box. People need certainty in their tax planning. International businesses need certainty and clarity in that regard. In view of the position of the two parties, people will not be clear whether they should locate in London and continue to bring their expertise and finances here.
I agree with my hon. Friend that the issue is delicate, but I caution him, because it is a delicate matter for a Labour MP to stand before the House and effectively say, "Let's stand up for the rich, and let's have one law for the rich and another for the poor."
No, it is not a delicate matter; it would be a foolish thing for anyone to do. It is not a matter of standing up for the rich against the poor. That is the point that I am making, and it is why I particularly stressed the maximin principle that John Rawls established. That is why I said that for a poxy £500 million to £800 million we should not risk our economy losing a potential £3.5 billion, £4.5 billion or £7.5 billion. I want to ensure that we get this right, so that that money is spent protecting the poor and so that we have the resources to increase the fuel duty allowance and to take 250,000 children out of poverty.
My fear is that the uncertainty will put people off. It was a bad measure, and it was a bad measure when the Conservatives suggested it. The criticism from the Conservative Benches was quite rich, given that the Conservatives launched the policy. It is a terrible thing when we cannot trust the official Opposition to get their sums right in the first place so that we can steal their policy.
I have welcomed taxation as an instrument of social justice. However, it can be used not only to redistribute wealth but to change behaviour. I am pleased to welcome the measures announced today to increase revenues from plane duty by 10 per cent. in the second year and to exclude from road tax in the first year cars with emissions lower than 130 g per kilometre. Those measures seem genuinely designed to change behaviour and to encourage people to pollute less.
That is important, because such fiscal measures, if not designed to change behaviour, tend to operate against the first objective of taxation, which I believe is social justice, because they allow the rich to go on polluting, but they stop the poor from engaging in the same behaviour. Because of that, the fiscal neutrality such as that urged by Mr. Evans is not always a salient point and is not necessarily just. If additional revenues are raised from rich polluters, they can be redistributed to poorer citizens who have been forced to change their behaviour. That undermines the point that he made earlier.
Tax on motor cars is banded according to how badly they pollute the atmosphere, so why cannot aviation tax similarly reward airlines that use cleaner aircraft? Why are all aircraft to be taxed at the same level, without reference to how clean or dirty they are?
The hon. Gentleman makes a fair point. It is his own point, not one that I have considered, so I cannot enlighten him.
The delayed fuel duty rise of 0.5 per cent. over inflation is not necessarily a green measure and is not seriously designed to change behaviour. It is more a compromise between inflationary pressures and the need to raise additional revenue. We should consider more innovative environmental fiscal policies. The UK Government should take a lead in stimulating markets for environmental services that are not the subject of mandatory regulation. We should use the tax system to create financial incentives for businesses to invest in projects and purchase environmental service credits and offsets for environmental services, such as maintaining biodiversity, which are currently wholly voluntary. Subject to an annual limit, businesses subject to UK corporation tax could be granted a credit against tax for such investments or offsets, and the tax credits would be freely transferable between such taxpayers. Such an approach can provide a bridge between wholly voluntary CSR—corporate social responsibility—investments and the developed market for environmental services.
At the Rio summit in 1992, three treaties were launched, one of which we always talk about—the Kyoto treaty or protocol. The other two were the biodiversity convention and the wetlands convention. The key difference among them is that only the Kyoto protocol provided for mandatory limits on environmental damage. That aspect of the protocol laid the foundation for the trading of emissions credits and offsets which is now attracting considerable investment; the market is set for continued growth. However, the global carbon market is now centred in London and is becoming a significant addition to the financial services sector.
Global warming is, however, only one of several critical environmental problems that must be addressed in the near term if the world's growing population—particularly the rural poor of the developing world—is not to suffer significant degradation of the ecosystems on which it depends. The other two Rio conventions recognised that, and the loss of biodiversity and freshwater resources has accelerated steeply since those conventions were promulgated. Their key weakness is the lack of mandatory provisions that create, in economic terms, scarcity of those vital resources. They therefore lack the means of price discovery that now characterises limits on greenhouse gas emissions.
There have been experiments in creating markets for such ecosystem services in the US, such as wetlands banking; in Australia, where there have been desalination credits; and in Costa Rica in respect of biodiversity. However, all are essentially domestic in focus and impact. No international system of ecosystem payments currently exists. It is common ground that biodiversity and fresh water are increasingly scarce, but that no price mechanism exists for fully valuing them, with the result that they are wasted.
I urge the Government to pioneer a system that encourages business in developed countries to invest where investment is most needed in the developing world. Such a system could be established relatively simply through the UK tax system. Tax credits are a well established mechanism for encouraging socially responsible investment. One key difference would be that the impact would be felt primarily outside the UK, in jurisdictions that met appropriate standards of governance and accountability for ecosystem investment. That would be consistent with many of the Government's environment and development policies, which are now primarily structured as aid programmes.
Stimulating such investment from the private sector could not only leverage Government aid programmes but, if properly structured, stimulate a marketplace for environmental services investment—for credits and offsets—that would significantly increase the resources brought to bear on those problems. It would also bring in private sector and market disciplines.
Given that ecosystem projects are long term and typically require significant up-front costs, it will be important that businesses be entitled to transfer excess credits that cannot be applied under annual limits to the use of the credits and to bank them against future tax liabilities. Those characteristics will provide confidence that the full value of the investment could be realised by the funding business and allow each business to use the credits as an integral part of its financial and tax planning.
A market in such credits could then emerge to a limited extent. The goal, however, would be the stimulation of a market, comparable to the carbon market, in ecosystem service payments themselves. That would be done by requiring that to qualify for the tax credit, the investment would have to be structured to create fungible securities denominated in standardised terms and international currencies. Those new securities such as carbon credits could be registered and issued by participating countries that met standards specified in secondary legislation—standards for verification, monitoring and so on have been developing for some years both in national systems, such as that in Costa Rica, and across the voluntary sector. Augmented by standards of administration and transparency, the securities could provide sufficient integrity to underpin a new marketplace of considerable size and effect.
I have been following the hon. Gentleman's argument with great care and I agree with much of it. Is he aware that the blanket bog of Caithness and Sutherland represents one of the most important carbon sinks in the world? Will he assure me that any scheme of which he is thinking would not be prejudicial to our domestic banks of carbon and would not merely be for overseas?
I welcome the hon. Gentleman's ingenuity in weaving his constituency so seamlessly into the debate. Of course, he is absolutely right: the carbon sequestered in peat bogs in this country alone is worth more than all that the forests of France and Germany have sequestered in wood. It is an absolutely essential resource, and the hon. Gentleman is right to make the point, even though he does so extremely shamelessly for the benefit of his own constituents.
There is now a natural opportunity to extend the UK's leadership in carbon trading to trading in other environmental services while attracting new and larger-scale investments than voluntary efforts can afford and providing significant additional resources from the private sector to help to achieve goals that are being pursued almost exclusively through the public and not-for-profit sectors. The growth of the carbon market after mandatory requirements were imposed after years of very limited voluntary effort by business demonstrates the necessity and effectiveness of genuine financial incentives in underpinning market mechanisms. In the absence of international treaties with mandatory limits on the use of other ecosystem services, our tax system could provide an alternative basis for the development of market mechanisms comparable to those of the carbon market.
I want briefly to touch on the raising of the duties on alcohol, which relates to a problem that has been widely trailed in the press in recent weeks. No raising of the duty will meet the taxation objectives that I have set out. It will mean that rich people can go on drinking as much alcohol as they like and poorer people may think a little bit more about whether to buy it. That in itself is not the issue. It would be much more powerful were we to introduce the sort of controls that were introduced in the pharmaceutical sector a few years ago when, because of the deaths of people consuming bottles of paracetamol, we said that there could be no two-for-one or BOGOF—buy one, get one free—offers. That now needs to be imposed in the alcohol sector. We cannot expect big supermarket chains not to try to package alcohol at reduced prices. However, insisting that it can be sold only at a recommended retail price, as we have in the pharmaceutical sector, would be a far surer way of achieving the desired change in people's behaviour than simply increasing duty as a revenue-raising measure.
Research indicates that most people who suffer from the problem of alcohol abuse and binge drinking will have acquired their alcohol from the very low-cost supermarkets. The average urban or village pub cannot buy alcohol from its wholesalers for the prices that Tesco and others are selling it at. It will hit them hard, but Tesco will just carry on serenely, will it not?
My hon. Friend repeats in another form exactly the point that I am making. The special offers and the undercutting of prices from the recommended retail price are enabling young people in particular to go out and get themselves drunk at little cost instead of simply buying alcohol to have a drink. We cannot effect the necessary change in behaviour merely by raising the duty on alcohol—we must tackle the source, which is the undercutting of prices.
The 58 per cent. rise in schools spending that the Chancellor alluded to is well illustrated in my constituency, where as a result of that investment extraordinary improvements have gone on over the past decade, particularly in the secondary schools. I would single out Wembley high technology college, where the percentage of students achieving five A* to C grade GCSEs has improved from 42 per cent. to, in this last year, 83 per cent. That is precisely a result of the investment that has gone in, and it must continue to do so.
I am conscious that other hon. Members wish to speak, and that I have spoken for a long time. I conclude by saying simply that the Chancellor's Budget was accused of being boring, but at least it was stable, sensible and prudent. By contrast, the Leader of the Opposition managed to speak for nine minutes and 28 seconds, by my reckoning, without putting forward a single Conservative policy. The Chancellor's fare today may have been no more exciting than a bowl of soup, but the Leader of the Opposition's soup was made of chicken, the chicken was starving and it was only the shadow of a chicken.
I have no idea what the final remark of Barry Gardiner meant. I promise to speak for less time than he did, or at least it will appear to be less.
This was a sub-prime Budget from a Chancellor who had no room to manoeuvre. Like his predecessor, he managed to boast about growth in the UK economy—the usual boasts—but he did not seem to understand that OECD average growth outshone the UK for at least half of the 10 years up to 2007. He failed to mention, just as his predecessor normally did, that the small dynamic economies—Ireland in particular—have had larger growth every single year since Labour came to power. He ignored, as his predecessor did—I thought that his predecessor had written his speech—the quarterly downturns in the Scottish economy, and the many low and flat growth quarters on this Government's watch. As a result of the historical policies outlined today, economic growth in Scotland has been lower than the UK average every year since 2001. Scotland has had, on average, a growth rate 30 per cent. lower than the UK's for the past 25 years.
The growth gap is not just measured in lost GDP opportunity, but in jobs, particularly manufacturing jobs. Since 1997, 1 million manufacturing jobs have been lost in the UK, with 100,000 in Scotland, 34,000 of which have been lost since 2002. As an example, 1,100 manufacturing jobs were lost in Dundee in the past year alone. Were the Government to do what is necessary to make Scotland more competitive, we could increase Scotland's GDP by an extra £19 billion over the next 10 years, and match the recent growth rate of the 15 small EU states.
I said that the consequence of the Government's handling of the economy was not simply measured in lost GDP opportunity but in the loss of manufacturing jobs. The loss of those jobs is partly the cause of, and partly the result of, an £87 billion deficit in trade and goods, which Dr. Strang mentioned earlier. That deficit was £77 billion in 2006. There was a total balance of trade deficit of £70 billion, which was £55.2 billion in 2006. Those are extraordinary figures, but those deficits have a further impact: a direct, quantifiable suppression of GDP growth. The impact on GDP growth was valued at £4 billion, and there has been an impact on such growth every year since. UK GDP has grown by £30 billion less than it would have had trade been in balance—about £1,000 per household.
We saw in the Red Book today that receipts are down £1.2 billion from the pre-Budget report, but there was an increased tax yield from the North sea, which was based on an average price of $83.60 a barrel of oil—an increase on the $68 a barrel estimate in the pre-Budget report. The average for the last quarter was $94 a barrel, and in four of the last five working days, we have seen record closing prices for North sea oil. I am pleased to see that the Red Book is forecasting £56 billion in revenues for the next six years, as opposed to the £38 billion in the last six-year forecast. I hope that the Government will not try to deny that this year.
Nowhere in the Budget are there plans to invest the windfall in a trust or fund for future generations, such as that in Norway. Its oil fund—its national pension fund—is worth approximately 2,000 billion kroner. It is forecast to increase to about 2,800 billion kroner in a couple of years—that is equivalent to £250 billion, which is around 20 per cent. of UK GDP. Investing in such a fund is such a sensible idea that the Minister for Energy said
"the idea as in Norway of building up a national fund is actually quite...attractive".
It is a pity that the proposal is not in the Budget. Even using some of the windfall from the high oil revenues to moderate the high price of fuel at the pump would help.
Instead, we have fuel duty proposals that can be summarised as a deferral of the 2p rate just now, an increase of 1.84p a litre next year, followed by a ½p per litre increase above the index from 2010. That will ratchet up the percentage of the price at the pump in duty and VAT, of which the Government already receive more than 60 per cent. I hope that I can come back to that with amendments in Committee or on the Floor of the House as the Finance Bill progresses through the Commons.
The key element lacking in the Budget is any incentive for growth. It contains next to nothing to give comfort to business. The economy is so tight, with the Government's borrowing rules destroyed if the off-balance-sheet PFI liabilities are included, let alone the way in which the Northern Rock unsecured liabilities might be calculated and reported, that the Government, far from taking the necessary steps to stimulate economic activity, competitiveness and growth, are scrabbling around for every penny from the taxpayer and from business to plug the holes in the books.
The Red Book illustrates my point. Last year's pre-Budget report included an estimated net debt of £37.6 billion. Next year, the figure will be £43 billion. The pre-Budget report anticipated a cumulative deficit of £541 billion, and next year we face a deficit of £581 billion. Last June, the total of outstanding PFI liability was £179 billion on £53 billion-worth of capital projects; that figure has now reached £189 billion. Approximately two thirds of that is off balance sheet. Such debts are extraordinary.
The Scottish National party Government in Scotland have removed or reduced business rates for 150,000 small companies. The UK Government should have followed suit for larger businesses and cut corporation tax significantly, allowing Scottish business to keep more of the £6 billion in corporation tax that the top 250 companies alone paid in the past financial year. The Government should, at the very least, have listened to the Scottish Chambers of Commerce and scrapped plans to raise the small companies rate, but of course they did not. Instead, they have taken their lead from the policy decisions of the previous Budget and the pre-Budget report, which the CBI estimates will take £5 billion out of business and straight into the black hole that is the UK economy.
I have not added up all the numbers yet, but it looks as though the Budget will take more than £2 billion more from business in the next three years. That is cash. Given that borrowing is tight because of the credit crunch about which we have all heard, that cash could have delivered shareholder value or encouraged new investment. It might have allowed businesses to invest, acquire, recruit and grow. Businesses could have used the cash to market, upskill or retool, to absorb the swingeing increases in energy, transport and raw material costs or, indeed, to pay better wages. The workers are rightly saying, "Look at real inflation—we need a bit of help here."
Instead, the Chancellor has done another smash-and-grab raid, taking £2 billion extra from business and around £200 million from Scotland. I hope that the Financial Secretary will explain one specific point when she replies to the debate—perhaps she can intervene now and tell me. The table on page 111 of the Red Book includes a heading, "North sea oil and gas: abuse of management expenses rules". That is forecast to take £500 million in yield in the next three years. I would have thought that, if there was an abuse in one sector to the tune of £500 million over three years, the Chancellor might have mentioned it in the Budget statement. One would have thought that something of that magnitude was worthy of note. Or is it simply another way of getting cash out of the North sea after a previous promise not to touch the fiscal regime relating to it? Likewise, the Chancellor could have made a difference with proper investment in research and development, which is historically low, at about 1.8 per cent. in the UK and less than 1 per cent. in Scotland, compared with about 2.5 per cent. for our competitors.
Those measures could have made a difference. Instead, the Government seem to be stuck on spin and obfuscation, building on what was said in last year's Budget, by estimating "intangible investment", rather than counting what was actually spent. I refer hon. Members who are interested to paragraph B.71 on page 163, where they will find that that is exactly the approach that the Government are taking. They are no longer counting the investment spent; rather, they are estimating what it might have been, based on other parameters.
The Budget speech was littered with references to social policy. Many of the social policies we agree with. Binge drinking and the violence that follows it were not referred to, but actions were taken in relation to the duty on alcohol that one might imagine would be designed to tackle the problem. It therefore seems quite extraordinary that the Government are putting 55p on a bottle of whisky, but only 3p on a litre of strong cider. Where was the attack on alcopops, which are designed to appeal to an immature palate? Where was the proper and fair taxation of cider, which is massively undertaxed, even up to 7.5 per cent.?
I very much agree with the hon. Gentleman about alcopops. He will know that my party brought forward a policy paper only last week on that. However, could he tell the House by how much duty on whisky has increased in the past 10 years? He will find that that particular alcoholic beverage has done fairly well.
It has done extremely well—so well, in fact, that it is generating £2.5 billion in revenue, contributing massively to the UK economy. The key thing is not the revenue for the UK economy that whisky generates from sales here, however. If the market and the industry are to grow, how can the Scotch whisky industry go to foreign regimes and say, "Stop taxing us unfairly and disproportionately", if those regimes can say to the whisky companies, "Why should we, if your own Government is discriminating against you in their handling of the duty regime in the UK?"
I thank the hon. Gentleman for giving way—I have the press release from the Scotch whisky industry here. I am listening to him carefully, because he faces something of a dilemma. The Secretary for Finance in the Scottish Parliament has written to the Chancellor saying, "Don't increase the duty on whisky", yet the Secretary for Justice in the Scottish Parliament, who has been on the road to Damascus, is demanding that the price of alcohol should increase significantly, to battle the antisocial behaviour caused by those who drink in excess.
I suspect that the young men and women who binge drink and cause disturbances on our streets in the south and south-west of Scotland and in Dundee—in fact, in every constituency in the country—are highly unlikely to do so after a few nips of 15-year-old Balvenie. We need to take on the real problem—alcopops, super-strength lager that is cheaper than bottled water, and cider, which has been undertaxed for some time—not take on an industry that generates a huge amount for the UK economy in a way that will make its export drive much more difficult.
I hope to make a contribution in this debate later, but let me say now that price is not the sole issue. The price of alcohol in some Scandinavian countries, such as Sweden and Finland, is way in excess of the price in this country, but those countries have significant problems with alcoholism. Alcohol is much cheaper in southern Europe, yet we do not see the same problems, so we are talking about more than a price issue.
I agree entirely. Much of this involves cultural and educational issues. However, the evidence that I have seen from the UK Government and the Scottish Government suggests that price sensitivity is important in encouraging young people not to drink. Young people might have less money than grown-ups who like to have a glass of whisky. Pricing and price sensitivity are important for tackling these issues, but I believe that the Budget has tackled them in the wrong way. The Government have got it back to front by putting up the duty on a litre of cider by 3p and putting 55p on a bottle of whisky.
The Government's inability to invest and to ensure competitiveness is not the only problem. The double whammy of Government policy and the upward pressure on inflation driven by the rise in energy and road fuel costs—another matter that the Government have ignored over many years—will have a detrimental effect on consumers, who are paying higher prices for domestic energy, and for the distribution cost of all types of goods, which is passed on to them.
Fuel costs are now so high that—for contractual reasons in some cases—they cannot all be passed on from the hauliers to those purchasing the goods. The increases—and the spiking, in particular—cannot all be passed on, and this is causing huge difficulties in the haulage industry. I speak to many hauliers in my constituency and elsewhere, and they tell me that they are struggling to make ends meet.
This problem has been thrown into sharp relief in Northern Ireland because of the high levels of duty that are imposed by the Exchequer here in the United Kingdom, compared with the much lower rates imposed in the Irish Republic. That makes it very difficult for the haulage firms along the border between Northern Ireland and the Irish Republic to survive.
A specific issue exists when a land border exists between one duty regime and another. The hon. Gentleman knows his constituency and the Province far better than I do, but I believe that he is making a valid point. It was no surprise, when I last pressed amendments on similar matters to a vote here, that they were supported by the Northern Irish parties, by Plaid Cymru and by my own party. They also received sympathy—although no supporting votes—from members of other parties whose constituencies were remote from the economic centres, and whose hauliers were probably telling them precisely what mine are telling me.
Fuel price inflation now stands at 19.5 per cent., and food price inflation is now 6.5 per cent. According to the Alliance Trust, that has forced up real inflation for the over-75s—and, indeed, the under-30s—to 25 per cent. higher than the official published figures. Although we see average inflation figures for different groups in society, the marginal rates are always different. At a time of rising prices, I would have thought that the Government would do what they could for the very oldest and the very youngest.
It is interesting to note the measures that the Government have announced today. I support their determination to lift children out of poverty. I know that the Scottish Government are actively involved in measures to do exactly the same thing. However, the UK Government announced today that child benefit for the first child would rise to £20 in two years. That might have had a slightly different gloss if they had announced a 70p rise for the first child and a 45p rise for subsequent children. Those figures would not have had quite the same hit as the £20 figure that the Chancellor announced earlier.
The commitment to pensioners is for an increase of 2.5 per cent. or the rate of inflation, whichever is the highest. The basic pension rise will therefore be about 2.5 per cent., and there is to be an extra £50 on the winter fuel allowance. However, given the fact that the real rate of inflation for pensioners will outstrip the increase in their basic pension, I wonder how quickly the extra £1 a week will be eaten into, and just how many extra minutes the electric fire will be on before people realise that that bit of generosity is worth very little indeed.
It is worth comparing this UK Budget—with all the fiscal levers that the Chancellor has at his disposal— with the actions being taken in Scotland, particularly in relation to business. We know that businesses are concerned about their cost base, and about rising prices for road fuel, energy and raw materials. We also know that they are struggling due to competitiveness and a shortage of skilled staff, and that they are worried about the tax burden and the complexity of the tax system, and the failure properly to invest in the transport network.
We have heard several times how complimentary the hon. Gentleman can be about the SNP Administration in Scotland. The east midlands of England has a population approaching 4.5 million, which is not dissimilar to that of Scotland, and a very similar social and economic profile to Scotland, yet the Barnett formula awards Scotland an extra £1,200 a head, which is £6 billion. If England and its regions had access to that sort of funding, we too could do things of the sort that the hon. Gentleman cites as improvements in Scotland.
There are two points. First, because Scotland has been in surplus for the past 30 years, every single penny spent on public services in Scotland has been raised from taxes paid in Scotland. Secondly, if Scotland's funding was to be cut to the English average, it would provide England with £150 more per head but would cut a quarter of Scotland's expenditure. If Labour policy is now to sack a quarter of the doctors, a quarter of the teachers and a quarter of the nurses and to cut back a quarter of all expenditure, I will be delighted to make that argument on the doorsteps. Sometimes, the hyperbole about the Barnett formula takes Labour Members into areas where they perhaps might not want to go.
As someone with Scottish roots, I would hardly advocate that approach. As far as long-term financial strategy is concerned, we should be raising the regional support that is distributed to the east midlands, the south-west and so on to the levels of generosity and largesse that Joel Barnett inadvertently allocated to Scotland three and more decades ago.
I am well aware of the regional imbalance in spending in England. I welcome the hon. Gentleman's demand for more money for his region, but because every penny spent in Scotland has been raised in Scotland, he should not expect Scotland to subsidise the east midlands.
In the next three years, the Budget will take some £2 billion extra from business and about £200 million from business in Scotland, but notwithstanding the fact that he is taking the cash, the Chancellor has done nothing fundamental to address many of the concerns of businesses in Scotland and throughout the UK. He has failed to reverse the damaging impact of capital gains tax and has failed even to freeze the increase in the small companies corporation tax rate.
We have heard a lot about CGT, but we have not heard in any detail what impact it will have. When businesses are trying to raise cash from a private investor or a business angel—call them what you will—if that person expects the same cash return with the changes as they would have had with the taper relief in place, there will be far less money available, perhaps, for a proprietor-manager. They might say that it is not worth a jot. If they were only going to get the same cash but were going to have to pay the tax that they would not have paid under taper relief, the private investor might say, "I'll put my money elsewhere." The tax will take £700 million in yield, according to the Government. I suspect that the damage to business through lost opportunity and lost investment will be significantly higher than that £700 million.
May I seek clarification? Is it the policy of the hon. Gentleman's party to maintain taper relief and that if it were in full government in Scotland the scheme that it would have would be the taper relief regime that is being abolished?
We would not have done what the Government have done, because it is damaging to business. At the same time, as the hon. Gentleman knows, because of the way in which the regime was implemented the impact on second homes—particularly in rural areas, where there is a housing shortage—might be reversed and might be particularly bad. We would not have gone down that route.
I have described the problems faced by businesses. I have described the actions that the Government have taken. I was contrasting and comparing what the Scottish Government have done in business terms with what the UK Government have done in the Budget and what they have not done. The Scottish Government have removed the cost burden for lots of small businesses with the removal of business rates for 150,000 small companies, but there was no comparable change to corporation tax through the UK for larger businesses.
We in Scotland are addressing the skills issues by training 20,000 new teachers and setting a target of 50,000 national apprenticeships—way beyond the targets set in England. We have removed complexity by properly focusing the business support network. We have taken a long-term view of how we match, first, the UK and then the growth rates of small companies through the appointment of the Council of Economic Advisers.
After many, many years, we have finally understood and are fixing the congestion problems that cost Scottish business some £70 million a year, through the M74 completion project. We have even introduced an equivalent road tariff scheme to the Western Isles—an issue that I recall campaigning on in 1983. We wanted this Government and our Government in Scotland to go much further in cutting corporation tax and really building competitiveness. After seeing the sub-prime Budget performance today, the sooner the Scottish Parliament has corporation tax powers, the better.
I am grateful for the opportunity to follow Stewart Hosie. It has been interesting to follow the debate from the beginning and see how many points have been made.
The hon. Member for Dundee, East spoke about the trade deficit. He was very keen on that subject and raised a point similar to that made by my hon. Friend Mr. Purchase about the balance of payments deficit, as we used to call it. Let me explain one of the reasons why we have such a deficit. The last time I was in Scotland, in October last year, I bought a Christmas tree in Jedburgh. On the bottom of the tree it said "Made in China". There is the essence of the trade deficit. We are into high-technology goods and the world sends us its low-technology goods, so we have a trade deficit. It is counterbalanced, of course, by a surplus on services across the exchanges.
The hon. Member for Dundee, East said that there was no social policy in the Budget, but as the Chancellor made clear, the Budget is about a having a fair society, so that element is part and parcel of the Budget strategy. The hon. Gentleman also raised the question of a trust for revenues from the North sea. I have heard that story at least once a year for 30 years, and the Treasury has always made the point that the revenues coming from North sea oil go into Treasury funds and come out the other side by way of investments and all the rest of it.
The hon. Gentleman also mentioned the Barnett formula, which was also mentioned by my hon. Friend David Taylor, who will be pleased to know that Lord Barnett was with us today. He was upstairs, if I may say so—but I am not allowed to say that, so I did not say it; I withdraw it. None the less, Lord Barnett did follow our proceedings very carefully today, and I am sure that he will have been touched to know that his Barnett formula is alive and well, and with us still.
I congratulate the hon. Member for Dundee, East on his assimilation of the Red Book at such short notice. He also mentioned the private finance initiative. He will understand that it is now many years since the public sector could, on its own, handle the kind of investments that it needs. For example, when a hospital was built in my Middlesbrough constituency in 1997, it was the first PFI project. It was built with public and private money. That is the nature of the world we live in. I believe that about £59 billion is invested in our infrastructure through PFI, and there is no going back on that.
While I do not think that any of us would question the use of PFI, the point that needs to be made is that when PFI schemes and the borrowing for Northern Rock are included, the levels of debt are actually much higher than are shown in the Red Book. That—rather than an attack on PFI schemes generally—is the important point that is being made.
I understand the hon. Gentleman's point, but PFI schemes have always been off balance sheet. That was their great strength and benefit—an element we took from the German economy—and it was welcomed for many years. Now, all of a sudden, PFI schemes are not welcome—certainly not on the Opposition Benches, as Conservative Members like to throw at us the allegation that Northern Rock is a £100 billion off-balance-sheet contingency. If we look at it in the round, however, it is in the best interests of the nation. That is why we have PFI, and the type of public investment that gets me my Middlesbrough hospital.
The hon. Member for Dundee, East also mentioned corporation tax rates. It seems a long time since I listened to the Chancellor, but I believe I heard him say that the major corporation tax rate was being reduced.
The corporation tax reduction was announced last year, and it will come into force, but it was accompanied by the comparable loss of a number allowances—including industrial buildings allowances, which cover hotels and the tourism sector—for which it did not compensate by any manner of means. There was a net take from business of around £5 billion. Yes, the headline corporation tax rate fell, but the small companies rate went, and the allowances were destroyed.
I shall deal with the subject of small companies in a moment.
In his speech, the hon. Gentleman made a good point about inflation, which corresponded with a point made earlier by Mr. Jack, who observed that it might be worth having a good look at the composition of inflation. The hon. Gentleman also mentioned business, and he has just mentioned it again in his intervention. The Chancellor spoke at some length about business, particularly small businesses. He spoke of opening competitive markets, and competitive corporation tax in a stable tax regime. The Government therefore fully understand what is involved in trying to help small and medium-sized enterprises. My right hon. Friend also said that he wanted to simplify their tax calculations and strengthen the concept of small firms' loan guarantees.
The rate of corporation tax for small companies is to rise by a penny this year and a penny next year. Is this not the wrong time to be imposing extra taxes on small companies?
That is an important point, which the hon. Gentleman may wish to make to the Financial Secretary when she sums up the debate. I was simply pointing out to the hon. Member for Dundee, East that the major corporation tax had been reduced in the Budget.
I am sorry that my hon. Friend Barry Gardiner has left the Chamber. He made an interesting, erudite speech, although it was on the long side—longer than that of the Leader of the Opposition, to which he kindly referred. I am sure that many of the points he made will read very well in Hansard, and will be taken up by people in various Departments, who will examine them and see what they can make of them. He made some interesting points about the non-doms and the Pandora's box that might be opened. Back in 1974, tax changes in the United States gave rise to the Eurobond market in London, and I think that one should be careful when making what may appear to be small adjustments that will in fact have major consequences. That was one of the points that my hon. Friend made.
Mr. Lilley has been present for most of the debate, and I am sorry that he is not here now. I shall not pursue the point about Chinese restaurants—I do not want any memories of China to feature in the debate—but he also spoke of Budgets past, and made a number of comparisons. He talked about Northern Rock, which is a fixation with the Conservatives. As my right hon. Friend John McFall pointed out earlier, no guarantee has been called in, no investor has lost any money and no mortgage has been affected—
And the business has been kept intact for the future. As for what Mr. Field has just said from a sedentary position, it reinforces Labour Members' impression that the Conservatives would like the whole thing to crash—that they would like it all to go wrong. Of course, the impression that they wish to give may well not be the impression that they have themselves.
The right hon. Member for Hitchin and Harpenden also made the interesting, and true, observation that a Parliament cannot bind its successors. The Chancellor was not trying to bind a successor Parliament; he was simply saying that Labour would win the next general election, and that we would therefore have control of all the measures involved.
What the right hon. Gentleman had in common with my hon. Friend the Member for Brent, North was the fact that he spoke for at least half an hour. He produced an erudite exposition of how life was in the 1960s and 1970s. He seemed to think that there was a relationship between the wars in Iraq and Afghanistan and the war in Vietnam. I must say that I do not see that, and I thought his exposition on the so-called sub-prime mortgage and its contagious effect was somewhat erroneous as well.
The right hon. Gentleman drew an analogy with being found to be without a swimming suit when the tide goes out. He might have given credit to Warren Buffett for that simile; it was not original. He also spoke of the gold reserves that the Chancellor sold some years ago, making much of the loss of value without taking account of the value of the investments that we made with the money from the sale. Were he to look at the return on the investments we made, he would see that the sale at that time was opportune.
My hon. Friend Mr. Purchase made a fine and important speech on manufacturing. In our country there is an overemphasis on the housing market and less emphasis on our manufacturing industry. My hon. Friend will remember that when we were in opposition we asked for a Cabinet Minister for Trade and we wanted the emphasis to be on the industrial side of our economy. The Government have gone to some lengths to do that, but we have seen the service sector increase as a percentage of our economy to the detriment of manufacturing. Therefore, when there is some dysfunction in the financial markets, it spreads out into the whole of the country. If we were still creating goods and selling them abroad, it would bring fine value to our economy.
I am glad to see Mrs. Lait back in her place. She has followed the debate with great assiduity, if I may say so. She made some very important points and called the Budget, somewhat uncharitably, "boring". I was not here at the time, but that reminded me of the Budgets of Benjamin Disraeli, who would have two little carafes in front of him with clear liquid in them. No one knew whether it was gin in one and water in the other, but as the debate proceeded, they found out pretty quickly. Gladstone spoke for three hours in his Budgets, whereas today the Chancellor spoke for only an hour. Winston Churchill, who was Chancellor for five years, used to have a carafe in front of him filled with part whisky, part water. Perhaps those earlier Budgets were less boring.
The hon. Member for Beckenham made some important points about risk. If she reads the fine report of the Treasury Committee on all aspects of the credit crisis, she will find some fine definitions of risk. She said that we were on the cusp of a deep financial crisis, and referred to the financial difficulties of 1974. Those financial difficulties came about because of the decisions made by Anthony Barber on
The hon. Gentleman's memory and mine clearly are at odds. My memory of what happened in 1974 is closer to the analysis made by my right hon. Friend Mr. Lilley. At that time I was trying to do some building works in a flat in Edinburgh, when the whole plaster allocation for Edinburgh was four tonnes for a year. At the same time, the whole of the wood supply for Scotland for a year went up in flames on a wharf in Glasgow. I would suggest to the hon. Gentleman that the 1974 collapse had considerably more to do with the shortage of commodities than with a Budget the previous year. The problem was far too deep.
All I could understand from what the hon. Lady said was that apparently the roof fell in at that time.
The right hon. Member for Fylde made some interesting points about inflation, and the high interest rates in this country. My answer is that if he wants lower interest rates we should join the euro; the interest rate for the eurozone is much lower. He talked about the cost of commodities in what is a global marketplace. That is one of the reasons why we are experiencing price inflation. The Leader of the Opposition said that it was running at 7 per cent. The price of wheat has gone up, and there is a shortage of wheat in the world.
We are living in a world marketplace—a global economy—so that is affecting our country, and creating price inflation here. Commodity prices are going up. The prices of gas and oil are increasing. That is having an impact on inflation. That is why it is to the Chancellor's credit that he put low inflation, growth and stability at the centre of today's Budget. Instructing the Bank of England to keep inflation at 2 per cent.—not 2.5 per cent.—shows that the Government have a firm determination to keep inflation down, to keep our growth rate steady if possible, and to maintain stability in our economy.
Interestingly, the right hon. Member for Fylde also mentioned Merrill Lynch. Because of the nature of the global marketplace, Merrill Lynch is being sued by Adelaide city council over bonds it sold to the council which included some sub-prime mortgage elements. He also mentioned BCCI—the Bank of Credit and Commerce International—but I will not go down the historical road, as you have told me not to, Mr. Deputy Speaker. However, the fact is that all the current perturbations in the financial markets are being dealt with by a pool of banks, which did not exist back then.
I accept that we have strayed somewhat from the subject of the Budget over the past three hours, and I intend now to return to some of its specific points. The former Chancellor—now the Prime Minister—has been criticised for his last Budget. All I remember about it is that he said that we would remove the 10 per cent. rate of income tax, which we will now do; instead of specifically targeting support on pensioners, families and low-income workers, we will move to a simpler two-rate system. Pensioners have been mentioned—for example, by the hon. Member for Dundee, East. We are raising the personal allowances for pensioners by £1,180, taking the allowance for anyone over 65 to about £9,810 by 2011, and with a further increase to £10,000 for anyone over 75. That seems to me a reasonable record for the former Chancellor to have had as he moved on to become Prime Minister.
Early in the debate, much was said about our child poverty programme—for example, by my right hon. Friends the Members for West Dunbartonshire (John McFall) and for Oxford, East (Mr. Smith) and by the hon. Member for Dundee, East. The Budget will increase child benefit to £20 a week from April 2009. We will disregard child benefit in calculating income for housing and council tax benefit purposes from October 2009, and we will increase the child element of the child tax credit by £50 a year above indexation from April 2009. That is not a bad beginning for an attack on child poverty.
The essence of the Budget is stability, growth and low inflation. I am glad that the hon. Member for Beckenham is present, because she talked about the current crisis. The financial turbulence is linked with rising commodity prices. She also mentioned the financial move of the pool of £10 billion being made available through the Bank of England and the $200 billion coming from the United States, and she wondered whether it was printed money. It is not printed money; it is a circulation of money. That is a difficult concept to explain, but it is not about money being printed.
When the Bank of England got its act together on
Order. The current average length of Back-Bench speeches is 22 to 23 minutes. We have until 7 o'clock. If all Members who are patiently waiting to speak today wish to achieve that ambition, from now on speeches should be a little shorter.
I shall certainly be brief and seek to direct my remarks to the Budget, Mr. Deputy Speaker.
I was not able to speak yesterday or in previous debates on the EU treaty, so I thought I would start with the Budget proposals on European expenditure. Such things often escape our attention when they should not. It is worth pointing out that in these straitened economic times and in a Budget where, as the Leader of the Opposition pointed out, the Chancellor has little room for manoeuvre, table C9 in the Red Book sets out clearly the steady increase in the net transfers of money from the British taxpayer to EC institutions. Such transfers will have risen from £4.7 billion in 2006-07 to £6.7 billion in 2010-11. The increases are even higher if one takes as one's figures the net contributions to the EC budget, which are given in a footnote to that table. All hon. Members have seen us give yet more powers to the European Union—or seek to do so—through the Lisbon treaty, so it is important that we are aware of the consequences for our constituents, some of which are shown in the Red Book.
This is the first day of these debates, and I am sure that my right hon. and hon. Friends will have an opportunity to examine the real substance of the Budget in much more detail. The Chancellor's statement gave almost nothing away. The Budgets of the previous Chancellor, who is now Prime Minister, were always a kind of snowstorm—figures and statistics were showered over the Chamber leaving us all snow-blind and none the wiser. This Chancellor took a completely different approach, making his remarks for 53 minutes or so without providing any detail. It leaves us trawling through the books and statistics to find some indication of the facts and of the implications of economic policy
Let us examine what the Government are doing in taxation; the current receipts are set out in table C6 of the Red Book. It appears that some pretty significant increases in taxation are being made: income tax gross of tax credits will increase over two years from £147.8 billion in 2006-07 to some £160.2 billion in 2008-09—an 8 per cent. rise or thereabouts; VAT receipts will increase by £6.4 billion; capital gains tax receipts will increase by £1.2 billion; business rates will increase by £2.7 billion; and council tax receipts will increase by £2.7 billion.
Total current receipts will rise over that two-year period from just under £520 billion to £575 billion, an increase of about 10 per cent. One could say that receipts will increase by roughly 5 per cent. each year. If one accepts the Government's projections of growth at about 2 per cent., and if we accept that inflation will be about 2 per cent., that leaves us with an increase of about 1 per cent. each year attributable to fiscal drag and the general increase in the tax burden. As people have more time to study these things they will perhaps arrive at a clearer and more detailed picture, but those basic facts about the Budget were simply avoided by the Chancellor. For that reason, we were given no real indication of the overall effect of the Budget.
I want to touch briefly on one or two specific items in the Budget. I had a brief exchange earlier with Barry Gardiner about the air movement tax. As with other taxes, we have to ask ourselves what the purpose of it is and what benefit it is intended to achieve. The principal purpose is obviously to raise revenue, but in this instance the stated objective is also to achieve an environmental benefit. The basic logic is that there will be greater benefit if we incentivise airlines to fly their aircraft full, by charging for aircraft movement rather than individual passengers. However, I am concerned that there appears to be no recognition of the degree to which different types of aircraft generate different amounts of pollution. If we are honest about wanting to incentivise better environmental performance, we should try to reflect that consideration.
Before the air movement tax is introduced, we also need to know what the Government propose to do to mitigate the potential effect on the air freight industry, about which I had an exchange at the latest Treasury questions with the Exchequer Secretary, who is in her place. She accepted the need to look into that and see what can be done. Air freight is a mobile and competitive industry, and there will be no environmental benefit at all if we simply divert air freight from UK airports to those in the near continent, from where it is transhipped by road to the UK.
We must also consider carefully the impact of the new tax on the establishment of new routes from regional airports. Obviously, I am particularly concerned about routes from Manchester airport. The tax on aircraft movements could disincentivise the establishment of new routes, particularly long-haul routes, which would damage the regional economy.
Stewart Hosie, mentioned road fuel duty. It is welcome that the increase has been deferred, but the purpose of the Government's policy is still not clear. There is a massive disparity between road fuel duty rates in the UK and in some other countries. Sammy Wilson mentioned concerns in Ulster about the position across the border, with the Republic of Ireland charging about half the rate of fuel duty that we charge in the UK, which creates significant problems.
There are also serious problems for road hauliers in England. We see many foreign hauliers on our motorways, operating from all sorts of places around the EU, including Lithuania, where I think the duty is 16.5p a litre, compared with 50.9p in the UK. Again, we must ask what is being achieved by that huge disparity. Are we simply diverting investment and trade to our competitors in other EU countries, or are we achieving anything environmentally or for the UK? We must consider that carefully.
There are to be changes to capital gains tax. Much as I welcome the principle of simplifying the tax, the Chancellor has mishandled the matter woefully in recent months. We need to see details of how the reliefs in the new tax regime will operate. It is unfortunate that the Financial Secretary is not in her place, because I wanted to establish whether I have achieved a minor victory on behalf of a constituent who sold his IT business before the pre-Budget report in exchange for a small shareholding of 1.5 per cent. in a much bigger company, but is locked in and prevented from disposing of it until after the start of the new tax year. I am sure that many people are in comparable positions, so it would be interesting to hear more about the transitional provisions that are referred to in paragraph 6 on page 118 of the Budget notes. I hope that, as is stated, the transitional relief will address such concerns by applying to
"circumstances where gains that have been deferred from disposals made on or before
I hope to hear confirmation from the Treasury that that is a response to the concerns that I raised.
In this Budget, it is difficult to establish what the genuine big picture is. In his statement, the Chancellor used the words "stability" and "stable" 23 times, yet most of the indicators suggest that the last thing we have at the moment is genuine stability. We are faced with the global difficulties caused by the credit crunch, which have led to significant drops in business confidence across the country. Against that backdrop, the Chancellor wants us to accept not only that the problem is of course a global one, not caused by British Government policy, but that the appropriate response is to carry on more or less as we have been, with relatively little change and only a modest shift in the balance of tax and expenditure. As my right hon. Friend the Leader of the Opposition said, that is because the Chancellor's room for manoeuvre is absurdly limited. Spending, taxes and borrowing have been driven up to levels that are simply unsustainable.
I want to ensure that there is plenty of time for others to speak— [ Interruption. ] I have considerable support from my hon. Friend Mr. Evans for that, if for nothing else. However, we have to ask what levers of policy are available. The Bank of England is now responsible for monetary policy, of course, but, as people well know, it is held in a vice: the Bank is trying to balance the need to provide some degree of stimulus for the economy against growing concerns about inflationary pressures.
Normally—historically—we would consider the effect and operation of fiscal policy, but the Government seem to have abandoned that as a lever of policy. The United States has responded with a massive fiscal stimulus to its economy. That may not be appropriate here, but what is really telling is that the Government do not have the freedom even to contemplate such an approach. If it is appropriate to create a little slack in the economy by reducing the fiscal burden, such measures are not found in the Budget, which seems to reflect a degree of tightening, and would require fairly dramatic shifts of policy.
A degree of consensus is gathering on what the Government are now doing to restrain public expenditure growth quite firmly. They are trying over a period of years to regain the control and flexibility that they have abandoned. That objective is shared not only by the Conservatives, but increasingly by outside observers, including business organisations such as the Institute of Directors, which has been pressing for a more sustainable long-term approach in which public expenditure growth is much reduced. That is probably the responsible thing to do now. It is a pity that, as far as we can tell from the Budget announced today, we are instead to see an increase in taxation, and there is little prospect of significant change to that approach in the coming years.
It seems a long time since the debate kicked off. The Budget generates considerable brouhaha; there is a circus-comes-to-town aspect to it. Many commentators make suggestions and projections, but time and again most of those who do not agree with the projections in the Budget report turn out to be wrong. That brings to mind the response that Mr. Cameron made to the Budget. At one point, he misled the House to this extent: he said that the—
Perhaps the right hon. Member for Witney misled the House unintentionally in this respect: he said that my right hon. Friend the Chancellor was the worst Chancellor in recent memory. I beg to disagree. The right hon. Member for Witney was special adviser to Norman Lamont; that is the embarrassment that he was trying to cover up with his smokescreen.
The right hon. Gentleman made another criticism with which I strongly disagree, and it is one that Opposition Members have repeated. They say that in the past 10 years the Government have not fixed the roof while the sun shone—that is the phrase that they used. That is just a misconception about what has been going on. I will give one example showing why they are wrong about that.
I remember when the third generation mobile phone licences were up for auction. The previous Chancellor raised about £30 billion from the sale. What did he do with most of that money? He paid off debt and reduced the public debt. That seems the perfect definition of fixing the roof while the sun shines, so the right hon. Member for Witney was absolutely wrong on that point. That action is one of the reasons why more public finances now go to the front line, rather than being spent on paying debt, which is what used to happen. Under the Conservative Administration, the public finances paid off failure.
The hon. Gentleman would be guilty of inadvertently misleading the House, too, if he did not point out that general Government net borrowing is now forecast to be 3.2 per cent. of gross domestic product for the year 2008-09, which exceeds the 3 per cent. Maastricht limit for the very first time. It is in that context that my right hon. Friend Mr. Cameron made the case that while the sun was shining the roof was not fixed. We will all see the consequences of that in the years to come.
I do not accept the hon. Gentleman's figure; I understand it to be 2.9 per cent. However, let us not quibble about the figures; let us take a look at where we are with debt. The debt position is low and stable. It is settling down below the 40 per cent. target rate, which is in line with the sustainable investment rule. It seems that we have a strong case on the debt position, contrary to what the right hon. Member for Witney said. Under the Conservative Administration, between 1992 and 1997, while the right hon. Gentleman was assisting—if that is the right word—Norman Lamont, 1,000 businesses were going out of business every week. That position has been reversed.
Mr. Lilley, partly prompted by my intervention, asked the following pertinent question: how can we be sure that the UK economy is in a position to withstand the buffeting of the so-called credit crunch? That is the point that I want to address. Professor Patrick Minford, a commentator not known as a supporter of the Government, stated last week in the financial press that whatever else one can say about the Government's handling of the British economy, they have produced the most stable, robust economy in living memory. That will determine whether we can weather the storms. It must be accepted by the House that we have a robust economy going forward. Yes, the growth forecast has had to be reduced, for reasons that are well known to the House, but the economy will certainly not go into recession, unlike the USA economy, which appears to be moving in that direction.
What else did the Prime Minister, when he was Chancellor, lock into the economy that has been continued in today's Budget? The context for the Budget is a globalised economy. No one has a crystal ball, and the sub-prime problems from the United States could not have been foreseen, but over the past 10 years the Prime Minister tried to build an economy that could withstand the globalisation of manufacturing, financial services and so on, so that when there is a shift in global economic power from traditional areas such as Europe to India and China, our economy can compete on a level playing field.
Another aspect that my right hon. Friend the Prime Minister locked into our economy was the absence of economic patriotism. We should not be little Englanders about the economy. My right hon. Friend the Chancellor made it clear today that there should always be an open market and free trade. I welcome that. Without an open market and free trade in the globalised economy, we would have the sort of spat that President Sarkozy has in France. He wants to introduce reforms into the job market and other aspects of the economy, but there is a debate in France about whether there should be economic patriotism and it causes him problems.
All of us in the House have watched the Democrat primaries in the USA with interest. The two main contenders have got themselves into a mess by talking about the North American Free Trade Agreement between Canada, Mexico and the USA, and whether they can lessen or get rid of it and repatriate jobs to rust belt areas such as Ohio. One of the parties was allegedly saying one thing to one Government and another to the public. My right hon. Friend the Chancellor has made it absolutely clear—and is right to do so—that we will not have such discussions.
My right hon. Friend has also locked into our economy investment in industries that take us into the future. The science base has been supported by a number of Budgets over the years, and the Sainsbury review has been set up to examine and report on it. Capital investment in infrastructure has been one of the areas for which my right hon. Friend the Prime Minister set targets, which my right hon. Friend the Chancellor has continued today. I have seen how the west coast main line, which I use regularly, has improved over the past 10 years.
From a sedentary position, the hon. Gentleman mentioned privatisation. Does he want to intervene?
No, he does not.
I have mentioned investment in infrastructure, but I also want to mention investment in the creative industries—supporting those industries, which will be an engine of economic advance. I should like to be slightly parochial about the issue for a second. There has been a cultural success in my area. Liverpool is the European capital of culture this year, and we can see the transformative effect of that in my sub-region in Merseyside. My right hon. Friend the Prime Minister has sought to make that writ large across the country.
Education services are another issue in respect of the economy. A small example of that is attracting overseas students to our higher education base; that is a significant form of foreign investment in this country. My right hon. Friend has always said that we should invest in talent; that is locked into our approach to the economy and has been made clearer in today's Budget. Our target is to get 50 per cent. of the 18 to 30 age cohort into higher education, although there are divisions on that in the House, which saddens me. We need to equip our young people with a high degree of skill to compete in the global economy. At a different level, the Leitch review has discussed apprenticeships. The Government have made it clear that we are looking to bring in 250,000 more apprenticeships in the coming months and years.
Investment in the environmental field and international development has been touched on today. I should like briefly to say something about the latter issue. Increasingly, India is an economic powerhouse. For many years, thanks to the Department for International Development, it has been our biggest partner in respect of overseas aid, and that is one of the reasons why for many years, the Indian economy—particularly in rural areas—has had access to water, roads and education. In a reciprocal way, we have applied a "good neighbour" principle. When the urban Indian economy comes forward, we will be in a good position to set up trade with what will be a tiger economy.
Finally, although we have a good and sound economy going forward, how can children and families look forward to the future in uncertain times? First, there is job growth—there are 2 million more people in jobs than there were in 1997. There is record employment; more people are now in employment than ever before. That is another reason why we are in a good position to withstand the buffeting. All that contrasts with the £10 billion in cuts suggested by the Conservative party. If we are talking about bringing stability into the situation, we should realise that those cuts would destabilise the economy and put those children and families at risk.
That allegation of £10 billion in cuts is every bit as fatuous as that made by Stewart Hosie. He said that if there were a change in the Barnett formula, there would be cuts in schools, hospitals and policemen. He was shouted down by Labour Members. It is fatuous nonsense to suggest that there would be any cuts whatever.
The hon. Gentleman has made his point, but I do not agree with it. I welcome the Budget.
Barry Gardiner drew me to my feet with his full and erudite exposition of the Ramsar convention. I should state to the House, for good order, my proprietary interest in the bog mentioned. [ Interruption. ] I own it, yes. He also said that I was shameless in raising a constituency interest. I have no shame whatsoever in doing so, and I intend to raise four matters that have an impact on my constituents, as well as a brief point about the Budget as a whole.
The Chancellor of the Exchequer came to his current job with a reputation as a safe pair of hands; time will tell whether they are safe enough to accept the hospital pass that he has received from his predecessor. The critical test of the Budget will relate to financial stability and whether our economy will survive. Mr. Lilley made some interesting points, many of which I agree with. For the second time this week, he told us about the tide and the bathing trunks. I could tell him from personal experience that if the bathing trunks are loose enough and the tide is strong enough, the tide can take the bathing trunks. He said that the way in which the banks have sought to package and sell unsecured debt is not a factor in the problems that we now face. I disagree—I think that their use of extreme financial technology has been a major factor in those problems.
One of the key tools that will see us through is the independence of the Bank of England. I welcome the fact that, for the first time in its history, the Bank is independent at a time when the economy is being tested. Particularly in the light of the studies of lessons learned from the Federal Reserve and the European Central Bank, there is room to look again at whether the Bank should have the sole objective of curtailing inflation, as currently, or a mixed objective combining inflation and employment.
The first of my four points of particular concern to my constituents relates to transport. I was glad that the Chancellor, with his particular knowledge of transport issues, brought that up in his Budget statement. I have no particular problem with the concept of using vehicle excise duty to encourage people into vehicles that are less polluting; in fact, I rather support it. Indeed, my colleagues and I tabled an amendment to that effect this time last year. However, I still have grave concerns about the cost of fuel to people who live in remote and rural areas. Mrs. Lait mentioned a fuel price in her area of 106p or thereabouts. I can take her to a petrol station in my part of the world where it is 126p and rising. That big premium is the main problem. The hon. Member for Brent, North made several points about the principles behind taxation, including the concept of fairness. In seeking to change behaviour, one of the key points about fairness is that there is somewhere for that behavioural change to go. If someone in the far north of Scotland has a car, that is the only way that they will get around. There is never going to be a bus service in the middle of Sutherland. We need a system that is fair. The long-term answer, which the Chancellor brought up in his statement, is road pricing. We should look to make progress on that policy, and I hope that he will. However, we need an interim measure to deal with that premium that exists in remote rural areas.
My second point is one that was brought home to me forcefully by one of my constituents who is a pensioner. Typically, many pensioners have a modest occupational pension to supplement their state pension, and they own a house and a car, but they have a pretty fixed income. They have suffered from inflation in council tax, the price of fuel and other areas, but particularly fuel. My constituent said that when the winter fuel allowance began, it paid for an entire winter's supply of fuel for his house. Prior to today's announcement, it accounted for exactly half; his bills have precisely doubled in that time.
I welcome the £50 and £100 increases to the payments; I note that they are one-off payments, and I hope that that policy will be revisited. But that will not go more than a quarter of the way to redress the balance of the impact on bills since the winter fuel payment was first brought in. We must consider further the issue of fuel poverty, to which a number of hon. Members have referred. The final point that my constituent made to me was that on top of everything, his 10p rate of tax has doubled. He is paying more tax, he has higher bills and he has nowhere to go. We must take account of people who have such problems.
My third point is on renewable energy. I am an ardent and well-known supporter of all forms of energy that have a low-carbon life-cycle and can help to reduce our carbon emissions. One example is the renewable energy that can be supplied from the Pentland firth—scientists who have studied it tell me that it could supply 31 GW. The core barrier is the transmission regime. If the Chancellor would really like to help, then on top of the renewables obligation certificates that are available, perhaps something could be done to make the grid more accessible for renewable energy produced in outlying areas. Having produced renewable energy, it would be helpful if we could get it to market.
My fourth point—I cannot let the Budget go by without commenting on it—concerns, of course, whisky. Here I must declare an interest. Most of my interests are in the register, but one that is not is that I am about to become grand master of the Keepers of the Quaich, which is an organisation designed to celebrate and promote whisky. I have no problem with putting tax on alcohol as a method of raising money, and given the cracks in the Budget, I see why the Chancellor would need to raise money from that source, just as he raises it from vehicles, cigarettes or elsewhere. I have difficulty, however, with the concept of linking the need to raise money with social consequences.
The social consequences of binge drinking are an extremely complex area. Some good organisations, such as Alcohol in Moderation, are working in this area, and I counsel all parties to be careful about pretending that a modest tax hike will have any great social benefit. Other methods could be used, and should be studied.
While the hon. Gentleman is on the subject of the difficulties of increasing taxation, I wonder whether, given his interest in the whisky industry, he has been able to do a back-of-an-envelope calculation on what the impact will be on the smuggling of whisky, spirits and alcohol. That might undercut what the Chancellor is trying to achieve through the duty increase.
As I am trying my level best to give up the weed, I do not have a fag packet on me, so I have been unable to do any calculations, but the hon. Lady makes a valid point, which needs to be taken into account.
I make one piece of special pleading on behalf of the industry. It has been remarkably successful at exporting overseas—indeed, more than 75 per cent. of Scotch is sold overseas. Small distilleries are being brought back into production or newly created. I happen to know about one in Huntly. It would be a shame if that production was put in jeopardy by tax rises that had knock-on consequences in other jurisdictions.
The Budget can be characterised as small areas of pain with large doses of Mogadon. We will have to wait and see whether it will do the job that we, as a nation, need to preserve financial stability, but I sincerely hope that it does.
The Budget takes place in difficult circumstances, given what has gone on in the world. I shall not repeat what has been said and, unusually for me, but because of time constraints and many preceding lengthy speeches, I will take no interventions.
We all know about the turbulence in the world economy, affecting banking, fuel, especially the price of oil, the price of food—for example, the price of wheat has increased by 118 per cent. in the past year—and commodity prices, which have increased hugely, driven especially by demand from countries such as China and India. That is the difficult background to the Budget. The Chancellor has done a good job, in a steady-as-she-goes Budget, in trying to act positively in the face of the challenges of globalisation and economic turbulence in the world.
The Budget was also announced against the backdrop of the Government's other policies to cope with the challenges of globalisation, such as the Leitch review of skills and the Sainsbury review of science to enable us to foster innovation here. The Government have also taken positive steps to protect intellectual property rights in this country, in the European Union under the treaty of Lisbon, and internationally. They have also increased spending on the NHS in recent years. A company such as General Motors is nearly bankrupt through the health payments that it has to make to its retired workers as well as its current work force because the USA does not have a national health system. Spending taxpayers' money on the NHS is, therefore, good for the economy. It is an investment, which helps business. Similarly, the Government have invested in education to increase skills.
I did not notice any measures on research and development in the Budget, and I wonder whether the Government have conducted any research on the effect of the tax breaks that they have introduced in recent years on research and development. I did not notice any measures on manufacturing, which is especially concerning for me, as a west midlands Member of Parliament. My hon. Friend Mr. Purchase spoke about that. I intervened on my right hon. Friend John McFall about insider trading because I believe that the Government need to do much more about that, and make the FSA and the Serious Fraud Office get their act together.
On a parochial matter, before I move on to some sniping, the headquarters of Marston's brewery, one of the major brewers in the country, is based in my constituency. The site of the third largest pub chain in the UK, run by Marston's, is also there. I am therefore disappointed about the differentials on alcohol duties in the Budget. I am especially disappointed that not only has beer duty increased by 4p a pint, but the duty on a litre of still cider has increased by only 3p. Still cider, bought cheaply from off-licences, causes problems with drunkenness in my constituency and, I suspect, many others. It is unfortunate that the Budget has increased the price of beer through excise duties much more than that of cider, which poses a greater problem.
Let me consider the speech of the Liberal Democrat leader, Mr. Clegg. What a vacuous response to the Budget. He presented almost no policies. He proposed a green tax con, which we have discussed previously in the House when considering green taxes that are revenue-neutral. The problem with green taxes is changing behaviour. If the behaviour changes, one cannot have a revenue-neutral tax unless one increases other taxes or ratchets up the green taxes. Neither of those options is desirable.
The right hon. Member for Sheffield, Hallam also tried to steal the amendment that I, not the Liberal Democrats, was the first in the House to bring forward, to increase massively the vehicle excise duty on the most polluting cars. In case the 4x4 fraternity get on to me, I have repeatedly said in the House that nine of the top 10 most polluting vehicles sold in the United Kingdom are not 4x4s, but cars such as Bentleys, Maseratis and Lamborghinis. The first-time duty of £950 on the most polluting vehicles in the Budget is a step forward, but I wish that the Chancellor had gone much further, by doubling that rate and imposing an annual rate, which would change behaviour, because the second-hand value of those vehicles would plummet. That is where we will hit the market.
The right hon. Gentleman seemed to have no understanding of non-dom taxation, which caused great hilarity in the House, and talked about poor non-doms. I am in favour of helping poor non-doms, through the Gangmasters (Licensing) Act 2004 and so on, but that is not the group that we mean when we talk about the taxation of non-domiciles. We are talking about the rich, not the poor non-doms, who will not make so much money that they will have to pay the £30,000 levy or whatever it is. The right hon. Gentleman completely misunderstood that.
Things got worse with the Conservatives. It is like "Groundhog Day" with them. I have sat through seven Budget debates and the Conservative party is like a clock that has stopped: every 24 hours it is right twice. I concede the possibility that the Conservatives might be right this year, with the doom and gloom that we hear from them every year. However, they have not been right for the past 11 years, and the betting is that they will not be right this year. If the Conservatives are right, it will only be because the 12 hours have come round and, with their doom and gloom, the clock is briefly showing the right time again.
As for the Conservative party's spending policies as an alternative to the Budget, Mr. Field asked about the £10.5 billion spending spree. I can give him some figures on that: cutting the corporation tax rate to 27 per cent. will cost £1.75 billion; the transferable marriage tax allowance will cost £3.2 billion; the increase in the working tax credit will cost £3 billion; the increase in the inheritance tax threshold to £1 million will cost £2 billion; and raising the stamp duty threshold for first-time buyers will cost £400 million.
On top of that, we have heard all kinds of wonderful commitments: more funding for the armed forces; more anti-MRSA funding; additional drugs for thousands of stroke patients; high-speed rail pilot schemes; billions of pounds more for the NHS, according to the shadow NHS spokesman, Mr. Lansley; the national school leaver's programme that is so beloved of Mr. Cameron; his demand for a larger Army; and extensions to light rail. All those are worthy, but what did he say about raising taxes in his speech on the Budget? He talked about raising taxes on binge drinking.
Raising taxes on binge drinking might be worth while, but if it works, it will be like green taxes—it will be revenue-neutral, because people will drink less. That was the right hon. Gentleman's only tax-raising measure to pay for the long shopping list that I have read out, which will cost considerably more than £10 billion. Binge drinking taxes alone is not a good way to go. On sharing the proceeds of growth, the right hon. Gentleman talked about cutting capital gains tax, taxes on family businesses and corporation taxes, saving loads of post offices and every maternity hospital in the country, and more spending commitments. That is an even bigger black hole when all he is doing is putting up binge drinking taxes.
So what is the right hon. Gentleman going to do? He is going to borrow loads of money. What is the form for that? The form is the previous Conservative Government, who doubled the national debt. They did not want to put up taxes, but they had to get the money from somewhere, because they did not have the guts to cut the programmes—thank goodness for the working class in the United Kingdom—so they borrowed the money and left us to take over, with a big financial hangover. Despite what the Conservatives say, the Government have paid off quite a lot of that debt. National debt is now far lower as a proportion of GDP than when we took over in 1997. The Conservatives are going nowhere.
The other idea that the right hon. Gentleman put forward was that green taxes should go into a family fund. Again, that is the kind of revenue-neutral nonsense that we heard from the Liberal Democrats. The proposal will not work, because although it is very desirable if people or companies change their behaviour and stop acting in such a polluting way, the tax take will drop. If we had green taxes going into a family fund, as the right hon. Gentleman suggested, that would do nothing and be just another tax rise.
Both Opposition parties have put forward vacuous policies, if policies at all, and wild, unfunded spending commitments. It will not do. At least the Chancellor has put forward a considered package in difficult economic times, which I think will work.
I should like to declare an interest, in that I am the owner of a small retail convenience store in Swansea, and something that I say in the 10 minutes to which I shall restrict myself might relate to that. In the spirit of the greenness that we all talk about these days, I am also thinking about doing a carbon offset on this speech. I shall read it tomorrow, and I shall offset anything that I feel has not added to the day—if the Chancellor will do the same. If he did that we would be quids in, because his was possibly one of the most boring Budget speeches that I have heard in my 16 years as a Member of Parliament. I was waiting for the big idea, and I still am. I know that we are not allowed refreshments in the Chamber, but there is an exception, in that the Chancellor is traditionally allowed a sip of whisky while he makes his Budget speech. If the right hon. Gentleman is still Chancellor at the time of the next Budget, perhaps everyone in the Chamber might be allowed a double espresso to keep them awake. His speech sounded to me much as the shipping forecast would sound to a lettuce picker in Mexico; it was that dire.
I hope that over the course of this week's debates, Treasury Ministers will talk about the inflation rate. The 2 per cent. rate is mentioned time and again, and the Chancellor referred to it today. It is not an inflation rate that I recognise. That is not simply because of petrol prices or agricultural prices going through the roof. It is also to do with council tax, and the Government have even imposed an increase in prescription charges that is greater than 2 per cent. Everyone knows that the real inflation rate is much higher than 2 per cent. Stating that it is not might allow the Chancellor to ensure that public sector salary increases—and pension increases—are kept low, but we all know that it is much higher.
We also heard a lot about things that will happen in 2010, 2012, 2015 or even 2020. Well, most of my mates—although perhaps not all of them—live in 2008, and that is what we want the Budget to be about. We want to know what is happening now, not 20 or 30 years in the future.
My hon. Friend is making his usual robust and impressive contribution. Does he agree that this is a bad news Budget that will increase the tax bill for all the families in my constituency and across Britain? Other countries are cutting taxes, but this Government continue to increase them.
I agree with my hon. Friend; that is exactly what is happening. It has been estimated that the tax take for families will increase by about £110.
We have learned enough from past Budgets to know that we need to read through all the details. I have here all the details that we are supposed to look through to find out exactly what is happening. For future Budgets, if we are going to be green, perhaps we could reduce the amount of garbage that we have to pick up from the Vote Office. We could put most of it on the internet. We need only the small section that shows us the increases and decreases; we could go to the net for all the other changes.
My hon. Friend's point about tax increases is absolutely right. Tax freedom day is the day of the year on which we finally start earning money for ourselves, and it is now
Rob Marris mentioned brewing, and I shall do the same, as I am the vice-chairman of the all-party parliamentary group on beer. Some rubbish has been talked today. John Thurso was absolutely right to say that the increases are being dressed up as measures to tackle binge drinking. When we see where they are targeted, we realise that they will not help to tackle binge drinking at all. There was no mention in the Budget of strong cider or of alcopops. The 4p increase on beer will not do anything to dissuade binge drinkers. I suspect that most of the problem is not caused by beer in any event. Other alcohols are at the root of the problem.
In its representation to the Government before the budget, the British Beer and Pub Association said:
"The current closure rate" of pubs
"is seven times faster than in 2006 and 14 times faster than in 2005."
Last year, 1,409 pubs closed. The pub closure rate is now accelerating towards 30 a week. I am sure that we will all know of pubs in our constituencies—rural or urban—that have closed with no chance of reopening. Pubs are part of the social fabric of our society, particularly in villages where there is only one pub. In one village in my constituency, the pub is closed and we are waiting to see whether it will reopen. There are real problems, and the increase announced today will only accelerate the pub closures in this country. That will mean not only job losses but damage to the fabric of society. Pubs are a place where people meet and talk—they are a great British tradition, for goodness' sake—and we do not want to lose them.
Pubs are, of course, places where people drink communally. Part of the problem with binge drinking is that people can go into supermarkets, pick up cans of strong lager or whatever else and drink not in a licensed and supervised area but in the streets, at home or in other places. If the Government want to tackle the problem of binge drinking, they must do it in a far more targeted way than they have. This measure is everything to do with revenue raising, but it has been dressed up as an attack on binge drinking. The Government are wide of the mark, and will have to think again.
No, I shall not, because I have only four minutes left.
I was with the chief executive of the Taxpayers Alliance, Matthew Elliot, last night. He is a tremendous guy who is doing an awful lot to expose how taxpayers' money is wasted. Part of the problem is that we have seen a huge increase in stealth taxes over the past 10 or 11 years, and this Budget will be no different.
I want a future Government—even this Government, if they are brave enough—to ensure that on every product on which tax is paid, that tax is made visible and transparent so that people know when they buy a pint of beer that 73p of the price goes on taxation, or when they buy a litre of petrol that three quarters of the price is taxation. That would mean that people knew know exactly how much they were paying in stealth taxes. If people knew the level to which they pay taxes, they would think long and hard about how much money is raised from them and their families, and would take more care about how that money was spent.
I have one more plea for a future Budget, which is about youngsters who go to school and have a badged uniform. Such uniforms are exempt from VAT only for sizes up to the age of 13. We know that another problem in this country is obesity and that some youngsters tend to be larger than others. Perhaps the Government could consider the problem of VAT charged to those who are large for their age, particularly as they have raised the school leaving age to 18. The VAT for those who go to institutions with badged uniforms should at least be reduced to 5 per cent. That would cost only £4 million. The Government love to make big announcements that do not cost much money; this is perfect for them, and would help many families throughout the UK afford to buy badged uniforms for the schools that their children go to without being ripped off by VAT.
"Congratulations, Mr. Chancellor, I am pleased to tell you that you have passed your test and can now throw away the L-plates." It was a test taken in very difficult conditions, with storm clouds overhead, inconsiderate drivers ahead and traffic lights changing against the Chancellor all the way. To put it another way, this was a Budget drawn up in the very difficult international circumstances, following the collapse of the housing market in America, of a global credit crunch. We have recently heard that America is now probably in recession, so around the world people are downgrading their estimates for growth in their own countries, hoping that the old saying "When America sneezes, the rest of the world catches a cold" is no longer true. I hope so, too.
This was always going to be a difficult Budget for the Chancellor to be able to use to say something of interest to us. With such limited room for manoeuvre, I was interested to see what his priorities for making change would be. I was pleased to hear at the beginning of his Budget speech that the values guiding his choice of priorities were fairness and opportunity. Those are my values and, I believe, the values of the Labour party. When I made my own Budget representations before today, with those values in mind, I kept my requests to two: would the Chancellor help pensioners in poverty, and children in poverty? I am pleased to see that those priorities emerged today.
The increase in the winter fuel allowance for pensioners will help. I hear what people say about the fact that it was announced as a one-off payment, but if people want to join a campaign to get it incorporated into the winter fuel allowance for future years, I would be glad to be at the head of such a campaign, and to seek further increases in the future. This is a Labour Government, and although it is relatively late to do it, they are going to restore the link between increases in pensions and earnings. Again, if people want to join a campaign for that decision to be taken sooner rather than later, I would be pleased to head it.
When people called, as I did, for something to be done to reduce the number of children in poverty, we did not quite have the same loud voices in support of our calls as the non-doms, in their corner, did. I am pleased that the Chancellor listened to us, however, and took a decision that will lead to still more children being drawn out of poverty. Back in 1997, we inherited a position where more than 3 million children were in poverty, but through the steps taken so far we have drawn 600,000 of them out of poverty—and the steps announced today will reduce the number still further.
The Chancellor was right to focus on helping parents who are in work. Recent research has shown that more than half the children still living in poverty have at least one parent who is in work. It is right to concentrate on raising the national minimum wage, which will happen again in October; it is right to raise the tax credit for children, as the Chancellor announced today; and it will be right next year to raise child benefit by much more than the rate of inflation. I was also pleased to hear that next year, for the first time ever, child benefit will be disregarded in certain circumstances when parents go back to work and claim housing benefit and council tax benefit. All the right decisions have been made there.
I want to say a few words about green taxes. I think that The Guardian said yesterday that this was set to be the greenest Labour Budget yet. I have to say that I think not. Nevertheless, I believe that the Chancellor was right to postpone this year's increase in fuel duty. If one of the reasons for putting that duty up is to try to change motorists' behaviour, encouraging them to use their vehicles less, I would have thought that massive increases in the world price of oil are doing exactly the same job for us. While the price is so high, I think the Chancellor is right to wait.
The Chancellor briefly mentioned the climate change levy, which is going up only in line with inflation this year. The levy has, however, been a staggering success over the 10 years of the Labour Government. By 2010, something like 20 million tonnes of carbon dioxide will have been taken out of the atmosphere because of that levy, and about a third of it through voluntary agreements with intensive energy users. That is a great success. Following on from last year's announcement about having zero-carbon domestic properties by 2016, I hope that today's additional target for building zero- carbon non-domestic properties will make a real difference to future house and property building.
We must not forget that, as the Chancellor reminded us today, the Government provide immense support for making existing homes more energy efficient, helping people to cut the cost of heating their homes. Warm Front and the predecessor of CERT—the carbon emissions reduction target, which used to be the energy efficiency commitment—have already supported work done on more than 2 million homes. CERT alone is estimated as likely to be supporting work on nearly 3 million more homes over the next three years.
The Chancellor reminded us of the historic step that will be taken next year, when alongside the economic Budget will be a carbon budget. For the first time, we will count the tonnes of carbon just as we count the pounds sterling in a Budget statement. The Chancellor also announced that in future we would auction 100 per cent. of the emissions trading scheme allowances for producers of electricity. That will bring in huge amounts of extra income, and I think we should establish the principle that it should be spent on environmental works for the future.
My hon. Friends the Members for Wolverhampton, North-East (Mr. Purchase) and for Wolverhampton, South-West (Rob Marris) both mentioned manufacturing, which performed very strongly last year. Nearly 3 million people are employed in United Kingdom manufacturing, responsible for more than half our exports and accounting for three quarters of the spending on research and development. In its business trend survey, the Engineering Employers Federation describes what is happening in manufacturing as
"the best conditions for manufacturing in ten years with rising levels of output and new orders... expanding employment levels. Investment levels... the strongest since 1995."
In its Budget representation, the EEF calls for measures to encourage enterprise and improve
"access of small and growing businesses to finance."
Both those measures were included in the Chancellor's announcement today.
I hope that in the year ahead we will build on the manufacturing successes of the last 10 years. As manufacturing takes its position centre stage, as house buying and selling slows and as consumer spending becomes more subdued, manufacturing has an opportunity to be at the forefront of our efforts. I think that the current world situation will ensure that it has that opportunity. I wish the Chancellor well in his future career as our Chancellor of the Exchequer, but I also wish UK manufacturing well in its position in the world from now on.
Essentially, this was a paralysis Budget. There was virtually nothing in the Chancellor's speech that had not already been announced several times over. It is clear that the Government are hoping that the ever-darkening economic clouds will pass soon, but that might be wishful thinking.
I want to say a little about the tax on non-domiciles. The watering down of the Chancellor's earlier ill-advised non-dom tax proposal should be welcomed. Retrospective taxation, which seemed to be proposed last autumn, is invariably unjustified, and the intrusive demands for details of overseas earnings and the uncertainty heralded by the Government's draft legislation risked undermining the UK's international competitiveness. I find it somewhat disappointing, however, that the Treasury is now intent on pressing ahead even with this diluted legislation on non-doms. There should have been a proper, wide-ranging consultation to allow greater debate, with any recommendations to be implemented in April 2009 rather than in five weeks' time. The unintended consequences of the Sarbanes-Oxley legislation on New York's dominance of the financial sector demonstrate just how rapidly any city's competitive advantage can be lost through knee-jerk political interference.
Nevertheless, I feel that having seen off the Treasury's set of politically rather than economically motivated proposals, we should return to the wider debate about the desirability of allowing internationally mobile, high-net-worth individuals to avoid making any contribution to domestic tax. Lest we forget, it was the Conservative party's suggestion on non-doms—designed to fund our policy on inheritance tax—that raised the standard for this entire debate last October. The shadow Treasury plan at that juncture was simple and balanced: non-doms would be charged a flat rate of £25,000, and in return would be entitled to the certainty of not being required to declare their income either on or off shore.
Five months on, the prospect of less clement economic weather, especially in the financial services sphere, has led many commentators to question the wisdom of imposing any tariff on non-doms. We should not forget that the great majority of those in the workplace who are non-domiciled are relatively modestly remunerated—a point raised against a background of some hilarity by Rob Marris. However, a flat rate charge for those people amounts to a substantial imposition on their overall earnings, but it is rarely of course from this quarter that any vocal complaint has been forthcoming.
By contrast, in my role as the Member of Parliament for the Square Mile, I have been feverishly lobbied by leading financial services players, doing their best to convince me that anything beyond the status quo would result in a non-dom exodus of the job-creating super-rich from London to the cosmopolitan delights of Geneva or Frankfurt. I simply do not buy that. For a start, the attraction to high-net-worth non-doms and their families of living in London is probably worth paying an annual tariff of rather more than £25,000.
It also seems to me a rather slippery slope that the cheerleaders for the non-dom community would have us go down. Once the argument is accepted that a sector and its participants are so important to this nation that they should be exempt from paying a share towards the communal income taxation pot, where do we stop? At this point it is worth stressing that even high-net-worth non-doms contribute extensively via council tax, VAT, other sales taxes and employment taxes on their array of staff. They make a substantial contribution to the Treasury and their status exempts them primarily from taxation on their overseas earnings.
Strangely enough, the illogicality of the entire political class on this matter has gone largely without comment. If the levying of low—to the point of zero—taxes is so essential to job creation in the City, why is the case for lower, more internationally competitive tax rates for all not being made much more forcefully? The case for reducing taxation should apply across the economy, not just to a gilded few, whose special pleading can sound like disguised blackmail.
The aggregate sums that stand to be raised by an annual charge along the lines currently proposed, working on the assumption that none is persuaded to return home, are negligible. Meanwhile no one disputes that we cannot, and should not, kill the financial services goose that lays such a golden egg for the UK as a whole. However, even as someone who represents the City of London, I think there is a worrying over-dependence on the sector for the nation's economic well-being that makes some action over non-doms desirable.
As an inner-London MP, I have watched the influx of overseas money that has distorted house prices and the cost of middle-class living to the severe detriment of many indigenous Londoners. It is this group who feel that they are more than paying their way in collective taxation, yet at the same time are witnessing a marked diminution in the quality of their life. This unease is not a throwback to the politics of envy. Far from it; here is an aspirational, meritocratic group whose resentment is being stoked up by a perception of unfairness.
The debate on non-doms follows hot on the heels of that on the preferential tax rates enjoyed by those working in private equity. It is essentially a middle-class revolt over the unequal rewards to labour in the globalised economy. To their surprise, many highly educated professionals working outside the gilded corridors of the financial services sphere see themselves losing out as the world becomes more integrated and interdependent. The perception that the benefits of globalisation are not being spread either equitably or fairly is fast taking hold among an articulate group in our society who in the past instinctively would have regarded themselves as winners in the lottery of life.
The financial services sector is increasingly regarded by a sceptical and bemused general public—I do not necessarily agree with the sentiments, but they are the reality of what is happening—as a one-way bet to untold riches. Only last month, we learned that despite the effects of the credit crunch, overall City bonuses this year will top £7 billion. This is leading to enormous resentment not least from the middle classes, where the material expectations, particularly in London and the south-east, are becoming increasingly bleak. Indeed, the biggest concern I hear from middle-aged constituents is how, short of relying upon inheritance, their children can hope to match, let alone surpass, the standard of living they have taken for granted for decades gone by.
The prospect of non-doms being seen publicly to "pay their way" will help assuage many of these concerns without careering towards fully fledged protectionism, which would be totally undesirable. The City might be wise to seek some accommodation with the Government on this issue. But the concern of young workers and their ability to match their parents' standard of living also touches on another serious concern of mine, which I have raised in the past, not least at the last Budget. The dividing lines of 20th-century society—at least in the post-war era—were largely defined by class, but I believe that the first half of this century stands to be shaped by the battle between generations. The debt trail of this Government means that the young people of today, as well as those yet to be born, will foot the bill for both the Government's private finance initiative-funded investments and the unfunded cost of pensions for older people. PFI might well have led to the construction of tremendous new hospitals in many constituencies throughout the country, but that will have to be paid for in the future; it is a case of jam today, and future generations of taxpayers will foot the bill. I worry that those future generations will have to lower their expectations significantly when the time comes for them to retire and benefit in the same way as previous generations from public pensions.
Members on both sides of the House are being neither open nor transparent about this important issue. It is contained in the category of "ongoing borrowing requirements". Rob Marris referred to "Groundhog Day". We entered the House on the same day seven years ago, and public borrowing is another issue to which the term "groundhog day" could be applied. Every Budget I have seen has referred to borrowing going back into the black in about four years—and that is the case today, too. There has always been the idea that we are just a few years away from nirvana when everything will have corrected itself. The trouble is, however, that we have an ever larger borrowing requirement going forward.
We politicians are culpable in many respects. There are twice as many voters over 55 as there are under 35, and those voters are twice as likely to vote as younger voters. It is therefore perhaps unrealistic to expect anyone in the political arena to state certain bald facts on this matter. The reason many people well into pensionable age claim they receive so little from the state is that they have failed to pay anything like enough into the system to warrant their receiving what they now believe they are entitled to. Furthermore, the appetite in recent years has been for greater investment in public services, rather than tax cuts.
In reality, too much of this much-vaunted "investment" in the public sector has not been wholly paid for by the Treasury's current revenue. The Government have in truth been using the mechanism of the private finance initiative—now the public-private partnership—as a form of disguised borrowing with repayment postponed for up to 30 years, removing from the public balance sheet some of the capital costs of Government projects. Admittedly, some £30 billion of the capital value of PFI projects has been included on the current balance sheet, but that leaves more than £120 billion of public sector debt currently unaccounted for. That calculation takes no account, of course, of Northern Rock, much of which is likely to remain under state control well into the next decade.
I fear that this off-balance-sheet financing delays some of the tough decisions that need to be made about the future of public spending, and impedes the debate we must now have about how to manage public services not only in the years ahead, but for decades to come. One of the more depressing prospects in the years ahead is that my 40-something generation will be considered to have lived in the very best of times. We are all consuming what we believe we are entitled to, without much regard to the costs, and we run the risk of serious social unrest in the decades ahead as the evidence of this appalling generational pyramid sales scam becomes evident. It is not right that our young people—and many unborn who will have the benefit of British citizenship—will have to meet the liabilities for our short-sighted, selfish approach. I regret that we have not even begun to address some of these issues in today's safe-pair-of-hands, careful-as-it-goes Budget.
I am grateful to have had the opportunity to say a few words, and I am glad that other Members who have waited a long time to make their contribution to this debate will also be able to do so.
My right hon. Friend the Chancellor should be congratulated on a solid, sensible, workmanlike and utterly unexciting Budget, which was exactly what we wanted from him. We should warmly welcome what he has done for children and for education. Had I been Chancellor—in a parallel, happy land—I would have splashed out more as I am a generous Yorkshireman, not an ungenerous Scot. I would certainly have agreed with the points made by my hon. Friend Rob Marris on the tax on strong cider. That retails for about £1.70 a litre in Grimsby—I should know, because I drink a lot of it—and threpence a bottle on that will make no difference at all.
The highlight and most interesting part of the Budget was its reception by the Opposition parties. The Conservatives, who have demanded tax cuts and opposed youth training expenditure and much of the expenditure on education for years, suddenly started saying that we should have put aside a nest egg to face a difficult future. They started telling us that we should have built a roof, but they did not tell us exactly what kind of roof. The speech made from the Conservative Front Bench was frankly vacuous, rendered better only by the contrast with the speech made by the leader of the Liberal Democrats, which it was even worse.
The Liberal Democrats have the advantage of retrospective infallibility. The essence of their argument was that what Labour had done was wrong, but what we have taken up from the Liberal Democrats was right and good. They have taken up and discarded a range of ideas in their lifetime, so we are bound eventually to stumble on something that they have advocated some years back. Thank heavens Mr. Clegg did not mention the euro and the benefits it would have brought us had we joined.
The hallmark of the speeches by both Front-Bench spokesmen for the Opposition parties was that one can turn abuse into an economic strategy. That is the essence of what was being said. Interestingly, those who have done best out of our Labour Government—the wealthy, the City, finance and the rich—are now the most critical and most demanding of change from our Labour Government.
I thought it was ill advised of my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform to sign the praises—the Mandelson song—of the virtues of wealth and high earnings, because I would certainly complain about obscene wealth. The demand made of wealth is that it fulfils its obligations to society, and it is not doing so on the necessary scale. The TUC booklet "The Missing Billions" tells us that £12.9 billion of personal tax and £11.8 billion of corporate tax is not paid to the Treasury because of avoidance schemes. As a result, the burden of taxation presses more heavily on the rest of society, in particular on the personal taxpayers and the lower range of taxpayers.
Tax is now pressing too far down the scale in this country. It is ridiculous that people on the minimum wage are paying income tax—that is clearly wrong. We should make it one of our concerns to relieve the multitude who labour, as they used to be called—it is the multitude who struggle now—because income tax is pressing too heavily on them. That tax is coupled with the burden of increased food, fuel and utility prices and increased council tax, and those people need some relief from those burdens. We should either raise the limit at which tax comes in or double the personal allowances to give everybody some relief and some money to spend to boost demand.
We could pay for that next year by increasing the taxation on wealth—on earnings of more than £100,000—to 50 per cent. We could splash out more money by doubling the winter fuel allowance. We need to put money into people's pockets to spend and thus boost demand, and we need to direct that money to the less well-off. Above all, we need a cut in interest rates. We have the highest interest rates in the world. Why? It is because we put finance in control of them. When we put the Bank of England in control, it meant that the interests of finance—having dear money and a high and stable exchange rate—became dominant in our national policy. It would have been far more sensible to have had not just a single rubric for the Bank of England, to keep inflation to 2 per cent, but a second rubric, like the US Fed, to maximise employment too. The result is that I must praise what I call Bushnomics—what they are doing in the United States, as opposed to what we are doing here. They have suffered from similar problems: the dollar is overvalued, although it is coming down, and they have a balance of payments deficit, as we do. Ours is slightly smaller, but it is now approaching 5 per cent. of GDP.
In that situation, the markets will bring both the dollar and the pound down. The Americans are welcoming that with benign neglect and letting the dollar fall, as they did in the 1980s and again in the 1990s, with beneficial effects on the exporting sector of the American economy. We should do the same, but the Bank of England will feel obliged to keep interest rates high—it is already saying that—to stop any slide in the pound. The pound has been the main instrument for defeating inflation, by making imports cheap and compelling manufacturing to discipline itself and cut costs to stay competitive, so the result of the high pound policy is that we have lost more than 1 million jobs in manufacturing. We live by manufacturing, but it is now a much smaller part of the economy.
We may contrast that with the situation in Germany, where there have been far fewer labour-shedding cuts than here. German industry has reinvested, re-equipped and absorbed the skilled labour force from the east, and would have put itself in a very powerful position were it not shackled by the overvaluation of the euro. We need a powerful industrial base, and the Americans will get one as the dollar comes down because they have a much more powerful economy. Unfortunately, we have put all our eggs in the basket of finance.
Finance has flourished under this Government, and indeed under the previous Government, but it cannot provide the jobs. What are we to live on when the oil contribution finally fades away? Finance is the dominant part of our economy now, and it is inherently risky. It takes risks for profit; hence the sub-prime crisis, the special purpose vehicles and the liquidity crisis. Those are the risks implicit in having finance as the dominant sector of the economy.
The Labour party and the Labour Government need growth, because how can we improve the lot of the people except by increasing taxes, public spending and borrowing or by economic growth? Economic growth is the better, more straightforward way, but it is now threatened by contractionary tides both from outside and created in our economy. We are much exposed to those tides, which is why we needed a more expansionary Budget. It was disappointing in that respect. We need a touch of Keynes and a touch of Bushnomics.
No, I am sorry; time is pressing.
We need lower interest rates and a more competitive exchange rate. The high pound is still strangling manufacturing, and we cannot have a revival of production unless producing in this country is made profitable through a competitive exchange rate and an increase in demand. We need to build more houses, and to power through the contractionary forces that are rising in the economy. We cannot rely on the current policies, particularly the high interest rates and the Bank of England's uncompetitive exchange rate, to do that.
I join colleagues in congratulating the Chancellor on what I hope is the first of many Budgets from him.
Members on both sides of the House have said that these are difficult times for the global economy, but my right hon. Friend was able to report that the economy is stable and resilient and continues to grow. Importantly, he reported that the Government are meeting their strict fiscal rules for public finances. I appreciate that one of my colleagues from Scotland, my right hon. Friend John McFall, spoke earlier, but I shall give a quick flavour of the impact that today's Budget will have there.
More than 750,000 pensioner households will benefit from the additional one-off payment of £100 to households including someone aged over 80 or from the additional payment of £50 to households including someone over the age of 60.
I am grateful to the hon. Gentleman—perhaps I can call him my hon. Friend, given that all Members of this House are now my hon. Friend. Given that women pensioners are more likely to suffer poverty, and accepting what he said about how welcome the extra payments are, does he regret the fact that the Chancellor has not used the opportunity of this Budget to drive towards greater equality between women and men pensioners?
The hon. Gentleman makes an interesting point. This Government have done much for women pensioners, but we recognise that there is still much more to do. Later in my speech I shall discuss one aspect of that subject which has disturbed me somewhat.
More than 300,000 families will benefit from the increase in the child element of child tax credit by some £50 a year from April next year. I shall focus on one or two highlights of today's Budget statement that are important to a significant number of people in my local area, but first I come back to the point raised by Bob Spink. If what I say is negative, it is something that I need to get out of my system. It arises not from something that was said today, but from what I see as a missed opportunity following last year's Budget statement.
In that statement, the reduction in the basic rate of income tax from 22p to 20p and the abolition of the 10p rate, which come into effect next month, were announced. The news caused deep anxiety, and within days I and several colleagues met my right hon. Friend the then Chancellor, now the Prime Minister, to make him aware of our concerns. I have also discussed the matter with the present Chancellor a couple of times. Although 700,000 pensioners will be removed from the tax bracket next month, many people in areas such as the one that I represent, which regrettably has a low-wage economy, will not see a positive impact. In areas with a low-wage economy, we find households that struggle to get by. It is those low-income households, women pensioners under 65 and people who may have retired because of ill health who, unfortunately, will be paying extra tax after
I am delighted that the Chancellor chose to defer the introduction of a 2p increase in road fuel duty, especially with crude oil prices so volatile. I wrote to my right hon. Friend and discussed the matter with him, and I would like to think that he listened to me, but I suspect that he was listening to other representations as well. The decision will come as a great relief to households in my constituency, but we face a real challenge. Some people, we hear, are talking about the price of a barrel of oil reaching $200 in coming years. It has taken a long and painful time to reach $100 a barrel, but the fact that some people have in recent weeks been speaking freely of $200 a barrel is extremely difficult to swallow. As a nation, and perhaps globally, we have to think about how to face that challenge. Can we get people out of their cars?
When crude oil prices are so volatile, the price differentials that have been mentioned in the Chamber this afternoon and on previous occasions are exploited. We see wide-ranging price differentials. John Thurso mentioned the figure of £1.26 a litre. Parts of Scotland have extremes, but differentials have crept in even in areas where there are not extremes, and we desperately need to look into that.
I fully support the green agenda, but individuals can be moved out of the comfort zone that the private car provides only if suitable public transport is available and affordable. In my area, the local bus network is nowhere near adequate, and it is more expensive than it should be. I wrote to Stagecoach, which is the main provider of public transport in my area, complaining about the increase in bus fares. I am disappointed that no Scottish National party Members are here, but I want to read to the House what was said to me. The letter says:
"I feel that it is important to highlight the fact that this year in particular bus operators in Scotland are subject to higher operating costs than our counterparts in England. This is a direct result of the current Scottish Governments decision not to award the increased level of Bus Service Operators Grant...we may find ourselves in the position that we may have to increase fares by a further amount later in the year."
That is only one of a number of issues that have arisen of late. I know that colleagues paint the rosy picture that Scotland is a land flowing with milk and honey. It is an admirable country to live in, but there are some underhand practices taking place in Scotland under the current Administration in Holyrood.
It has been raised, both on the Floor of the House and in Westminster Hall debates, that £34 million was allocated, as a direct result of the Barnett formula, to supporting disabled children and their families. That was a direct result of the pre-Budget statement made towards the end of last year. We cannot account for that money, and it is my belief and the belief of many of my colleagues that the money has gone towards filling a major black hole in the SNP Scottish Executive budget, which has led to the freezing of council tax. It is an admirable concept to freeze council tax, but should it be done at the expense of disabled children? Should it be done, potentially, at the expense of those in rural areas who desperately need public transport?
The increase in alcohol duty has been mentioned. I intervened on Stewart Hosie to make the point that his party was in a dilemma, as the SNP Cabinet Secretary for Finance and Sustainable Growth had pleaded with the Chancellor not to increase duty on whisky, whereas the Cabinet Secretary for Justice in Scotland had said that there should be significant increases in the price of alcohol to combat antisocial behaviour and binge drinking.
Mr. Evans has left the Chamber, but I have heard it said more than once in the Chamber this afternoon that by increasing duty the Chancellor was tackling the issue of binge drinking and heavy drinking. The Chancellor's comments on the increase in duty came to some 135 words, but not once was binge drinking or heavy drinking mentioned. In fact, he summed up by saying: "It is only because I have taken these decisions on alcohol and on closing tax loopholes that I am able to provide additional support for families and lift more children out of poverty." That, and no other reason, is why there is an increase in the duty on alcohol.
As I suggested earlier, my view is that alcohol and its price is only one aspect of what we as a nation need to do to tackle the unsavoury behaviour that we see on many of our streets, in towns, cities and even villages, and on some housing estates. Let us be perfectly honest: if there is an increase in the price of alcohol, young people will manage to get their hands on additional money to buy it. We should never forget that sometimes they are not going out to buy it or getting others to buy it; they are taking it from home.
There was a wry smile on the faces of some of my hon. Friends when the hon. Member for Caithness, Sutherland and Easter Ross declared that he would at some stage become the grand master of the Keepers of the Quaich. Let me assure the House that that is not some kind of secret organisation, as the title may suggest.
All in all, it has been a good Budget under difficult circumstances. My hon. Friend Mr. Kidney made the point that the Chancellor passed his test today. I hope that this is the first of many Budgets that we will hear from him.
Debate adjourned. —[Liz Blackman.]
Debate to be resumed tomorrow.