Spending Review

HC Deb 18 July 2000 vol 354 cc219-44 3.31 pm

The Chancellor of the Exchequer (Mr. Gordon Brown)

With permission, Madam Speaker, I should like to make a statement.

The public spending allocations for 2001–04 that I am announcing today are possible because, having eliminated the £28 billion deficit that we inherited and having reduced the national debt, the state of our public finances is strong. In the economic cycles of the past 30 years, the current budget deficits averaged £109 billion. The national debt doubled and by 1997 had risen to 44 per cent. of national income. Stop-go in the economy meant stop-go in the public finances.

Our first task was to create stability and sustainable public finances and, having set clear fiscal rules over the economic cycle, a current budget in balance, borrowing only to invest within prudent and cautious limits. Today, we have not only low inflation and stable growth but year-on-year current budget surpluses and debt falling below 40 per cent. of national income—indeed, debt being repaid this year and next. It is this sustained and sustainable improvement in public finances that makes possible a sustained and sustainable improvement in our public services.

Our second task was to encourage the work ethic and secure rising employment. Today, with the assistance of the new deal, unemployment is at its lowest for 20 years, and almost 28 million people—more people than ever before—are in work in our country. Now, building on that foundation of stability and strengthened economic fundamentals, we can move to the next stage in creating a better future: to make good the damage done by the legacy of decades of underinvestment across our public services, and to realise long-term national goals that we have set for a decade. They are to close the productivity gap with our competitors, to deliver and sustain full employment, to secure higher education for a majority of our young people, to halve and then abolish child poverty and to build strong public services as we create a Britain where there is security and opportunity not just for some people but for everyone.

The first conclusion of this year's spending review is that prudent, targeted, long-term investment is not only a social good but, in a changing and often insecure world, an economic necessity. It is only by investing in education, science and the future of our children that we can equip ourselves for future economic success and ensure opportunity for all. It is only by investing in health, transport, the environment and law and order that we can ensure a more productive economy and security for all.

Just as stability and economic strength make possible new investment, so too new investment will reinforce stability and create longer-term economic strength. So, while we will raise current expenditure only in line with our neutral view of trend growth by 2½ per cent. a year, we propose to tackle the long-term neglect of investment in our country with a step change in capital investment for education, science, health, policing and transport and infrastructure.

As I announced in the Budget, net capital investment will more than double, rising from £7 billion this year to £18 billion by 2004, within a ceiling for public investment of 1.8 per cent. of national income as we renew our public services.

The second conclusion of our spending review is that it is by tying new resources to reform and to results and by locking in incentives, penalties, inspection and information that we ensure that new investment goes to the front-line services: in secondary as well as primary schools, new targets for literacy, numeracy and IT; in hospitals, new systems of inspection; in law and order, reforms of criminal justice; in defence, the next stage of the strategic defence review; in local government, new public service agreements; and in transport, the new partnership between public and private sector. At every stage, money will be tied to output and to performance.

Let me give the full details of the financial background. In the Budget, I confirmed that the current surpluses from 2000 would be £14 billion, £16 billion, £13 billion, £8 billion and £8 billion in the succeeding years. I also confirmed that net borrowing would be minus £6.5 billion, minus £5 billion, plus £3 billion, plus £11 billion and plus £13 billion—lower borrowing in every year than in any year of the previous Parliament. I said that, as a share of national income, debt will be 35, 34, 33, 33 and 33 per cent. Thus, even with our programme of public investment, we meet both our fiscal rules, and we do so even on the most cautious case and even on the most cautious view of trend growth at 2.25 per cent.

In accordance with the code of fiscal stability, I will publish the second set of fiscal forecasts of the year in the autumn, but I can already report to the House that, since the Budget, the fiscal position has further strengthened. For the year ending March 2000, the current surplus is healthier than originally forecast at the time of the Budget. [Interruption.] The Opposition are not used to these announcements. The current surplus is not £17.1 billion, but £20.4 billion. Debt as a share of GDP has been reduced from 37.1 to 36.8 per cent.

Indeed, I will use a further underspend of £2.5 billion in annually managed expenditure to repay more debt. Two billion pounds in departmental expenditure can be carried forward. However, on grounds of prudence, I have decided to allow a carry forward of only £1.5 billion and to allow spending of only half of that this year and half next year, and to allocate the remaining sum to repay more debt.

It is only because we have put the public finances on a sustainable footing that I can raise spending today. That same discipline allows me to inform the House that, this year, we have repaid £6.2 billion more debt than the £11.9 billion originally planned—in total, a debit repayment this year of £18.1 billion. That is the largest repayment of debt in any year since the war.

We have not, and will not, relax that discipline. So I have three policy announcements to underspin—[Laughted]—underpin the strength of our public finances. Further limited sales of spectrum will take place by the end of 2001. We will not repeat the mistakes of the North sea oil windfall. We will not repeat the mistakes of the privatisation sales, where receipts were immediately used up in current spending. I can confirm that all the capital proceeds will, as with the £22 billion from the first sale of spectrum, go to further reducing the burden of debt.

As debt is reduced, so too are debt interest payments. The first spectrum sale alone will save the bill for debt interest by a further £1 billion a year by 2003–04. As I will confirm later this afternoon, that money will go, year after year, directly to improve our public services.

Secondly, Departments and authorities will make asset and property sales of £4 billion a year over the next three years. That makes £4 billion a year released by realising unproductive assets that we do not need to fund service improvements that we do need. Because money is tied to modernisation, the new public service agreements signed with Departments, and now signed for the first time with local government, will specify not only agreed outcomes, but precise timetables for making necessary reforms.

I can tell the House that as a result of the fall in the share of administration costs in total government spending, new money makes possible a substantial shift in spending to front-line services to recruit more nurses, doctors, teachers, classroom assistants and police—more staff for our front-line services. With the success of the new deal, the bills for social and economic failure are £3½ billion lower, enabling us to transfer £3½ billion every year from paying unemployment benefits to funding public services.

With that improvement comes a radical shift in the composition of public spending in our country. Our promise was to reduce the costs of failure—the bills for unemployment and debt interest—in order to reallocate money to key public services. In the two decades from 1979 to 1997, rising debt interest and unemployment and social security accounted for 42 per cent. of all extra public spending. That meant that 42p in every additional pound was not available to the key public services.

In the coming three years, unemployment, social security and debt interest payments will account not for 42 per cent., but for only 17 per cent. of extra public spending—even as we direct more money to child benefit and the minimum income guarantee. That leaves 80 per cent. of new money for health, education, transport, policing and other public services. The extra resources are available to us not at the expense of prudence, but because of our prudence.

Within our fiscal rules and within the envelope that I set in the Budget, and have strictly adhered to, I can announce that spending on public services—what is called the departmental expenditure limit—is able to rise from £195 billion this year and from our previously planned £203 billion next year to £212.1 billion, then £229 billion, then £246 billion in 2003–04. By 2004, an extra £43 billion a year will be allocated to front-line services in our country. Sustained improvements in public services are now made possible because, with stability and strengthened economic fundamentals, lower debt interest and lower unemployment, we have sustained improvements in our public finances.

I turn now to the departmental allocations. In recent years, in addition to their conventional responsibilities, Britain's defence forces have taken on a new and valued role in international peacekeeping and in conflict prevention, promoting human rights and peace throughout the world, including in Sierra Leone and Kosovo. To complete the restructuring agreed in the strategic defence review, and to fund new equipment and increase the mobility of our front-line forces, defence spending, which has fallen in real terms every year since the end of the cold war, will now increase in real terms. The allocations are £23.6 billion next year, rising to £25 billion in cash in 2003–04.

The rise in the Foreign Office budget from £1.2 billion next year to £1.32 billion in 2003–04 will not only finance the proper representation and promotion of Britain abroad. My right hon. Friend the Foreign Secretary will also announce today that the British Council will receive extra funds, and the budget for the BBC World Service will rise substantially from £174 million this year to £180 million next year and £210 million by the end of the period in order to achieve our new target of 153 million World Service listeners by 2002.

Because we take seriously our international responsibilities to the environment, the Government are also announcing today a special £85 million fund to assist with the nuclear clean-up at Chernobyl.

The international community's clearest duty and greatest challenge is to halve world poverty by 2015 and to make primary education universal for every child. Our international aid budget will therefore rise from £2.8 billion this year to £3.1 billion next year, then £3.3 billion and £3.6 billion by 2004—a real-terms rise of 6.2 per cent. a year, in contrast to the falling share of national income devoted to overseas aid from 1979 to 1997, now a rising share of national income today and in the future, as we honour in full our commitment to debt relief, which is our obligation to the poorest countries of the world.

I turn to our second set of decisions—new investment to build stronger communities. The Home Office budget will rise from £8.2 billion this year to £9.6 billion next year, to £10.3 billion the year after and £10.6 billion in 2003–04, an annual rise in real terms averaging 6.4 per cent. a year. And tomorrow the Home Secretary will set out both his targets and how this allocation will be spent.

To implement fully the Good Friday agreement, an extra £316 million over three years will help fund the modernisation of policing and criminal justice in Northern Ireland, and in this way help underpin peace and future prosperity.

Every community in the land is weakened by the evil of drugs. In return for challenging new targets to cut drug-related reoffending by 50 per cent. over the decade and to treat twice as many addicts through the new National Treatment Agency, the new anti-drugs budget will be set at £870 million in 2002 and rise to £931 million and £996 million by 2004, an average annual real growth rate of 10 per cent.

Strengthening our local communities involves a new partnership with local government based on increased investment and new targets. The three-year settlement for local government—an annual real-terms rise of 3 per cent. over and above inflation—will be set out in full by the Minister for Local Government and the Regions, and Ministers in Scotland, Wales and Northern Ireland will make related announcements.

Local and national Government need to work ever more closely in a new partnership for reform and for improvement, particularly in our poorest areas. For decades, our whole country has been scarred by deep and persistent deprivation and underachievement in high-unemployment communities. While much previous spending has been directed to dealing with the consequences of economic and social failure, it is time now to invest in tackling the causes—poor school results, poorer standards of public health and low levels of economic activity.

Today, our poorest council estates suffer unemployment four times and burglary rates three times the national average, and mortality rates are 30 per cent. higher. These unjustifiable and divisive inequalities cannot any longer be tolerated. Both Government and communities must raise their sights, with a new target to raise up the poorest areas and thereby narrow the gap between these areas and the rest of the country.

So we will not only extend the new deal for communities but strengthen the institutions—from our schools to our health centres—on which these communities depend. In return for local service agreements that require new minimum standards in school attainment, public health, law and order and job creation, a new neighbourhood renewal fund will provide, by 2004, new resources worth £400 million.

In this spending round, housing—and our objective of decent affordable housing for all—will receive the priority it deserves and the resources it needs: an additional £1.6 billion of new investment by 2004, a real-terms rise averaging in this round 12 per cent. a year.

Across the social sector, we will ensure that half a million more houses will be modernised or repaired. This is part of a 10-year plan to eliminate all substandard housing; and, as we implement key recommendations of the Rogers report, reclaimed brownfield sites will account for 60 per cent. of new housing, creating thousands of new construction jobs.

Investment in the future must mean also investment in a cleaner environment. To meet our climate change commitments, the Minister for the Environment will announce how new resources will promote emissions trading and energy efficiency in Britain's homes. Further announcements will be made on the use of renewable energy and recycling by local authorities.

In rural communities, the new rural transport fund has extended the rural network, with 2,000 new or improved bus services. The rural transport fund will now be increased from an annual allocation of £60 million to £95 million; and there will be an announcement later of new finance available for maintaining the post office network in both rural and urban areas.

As farming restructures, deals with BSE and meets challenging targets to move from the old farm production subsidies to the new environmental improvement payments, the agricultural budget—including the Intervention Board—will increase from £1 billion this year to £1.35 billion by 2004, an average annual real-terms increase of 6 per cent. The Food Standards Agency will see its budget for its important work rise from £87 million this year to £111 million by 2004.

Extending access, particularly for our young people, to the arts and to sport will strengthen every community. With a 4.3 per cent. annual real-terms rise in the budget of the Department for Culture, Media and Sport, there will be significant improvement in funding for the arts. My right hon. Friend the Secretary of State for Culture, Media and Sport will give details of new funding to encourage children to use our libraries, museums and arts and to encourage sports, especially in schools and throughout our communities.

Strengthening communities of course involves strengthening our social services and our health service. The NHS plan will be announced next week. There will also be a major package of investment in services for elderly people, including the Government's response to the royal commission on long-term care. My right hon. Friend the Secretary of State for Health will announce the detail of this and other allocations from the health and social services budget next week.

I can also confirm that, in the autumn, the Government will publish our proposed plans for a new pensioner credit, with a view to further announcements on a Budget timetable.

The strong civic society that we seek is built not by rights alone, but by rights and responsibilities. So we will match our Budget tax reliefs to encourage the giving of money with new measures today to encourage the giving of time. Extra resources of £60 million pounds by 2003–04 will have the clear aim of encouraging 1 million more of our citizens to be volunteers in community service.

I turn now to the investment that we must make in our economic future. Britain has great strengths. It is the best place in Europe to do business, with world-class companies in science and technology, but to build for the future we must put in place the long-term investment that is the precondition of a strong economy and of bridging the productivity gap with our competitors. We must avoid the short-termism of the past.

Working with business, the role of Government in the modern world is not to subsidise loss makers or to attempt to pick winners. The new role of Government is to invest in science and innovation, to promote competition and small business development, to encourage balanced regional development, to meet the pressing needs of transport and infrastructure and, most of all, to invest in those great drivers of prosperity—education and skills.

I deal first with investment in science. With our investment in a £1 billion public-private partnership with the Wellcome Trust to re-equip university science, and extra resources to support pioneering medical research that will be announced later, we will raise the science budget by 5.4 per cent. a year in real terms.

To ensure that invention in Britain leads to manufacturing in Britain and jobs in Britain, my right hon. Friend the Secretary of State for Trade and Industry will also announce new resources for a university challenge fund that commercialises inventions, and for university-based regional enterprise centres.

Britain's small businesses are the backbone of local economies. To offer the new services that businesses have themselves requested, the budget of the new Small Business Service will rise substantially, from just under £200 million this year to £277 million by 2004. That will include a national internet service offering comprehensive business advice and a consultancy service for start-ups. It will be worth up to £2,000 for start-ups in high-unemployment areas. As a result, the numbers of small businesses that employ people, which have already risen from 1.2 million in 1997 to 1.3 million now—a rise of 10 per cent. under this Government—can expand in every area of the country.

The newest and most decisive challenge in the new century, demanding higher levels of investment, is to master and lead in the new information technologies. To make Britain best for electronic trading and to bridge the growing digital divide, we have agreed a three-year programme of rapidly rising investment in our communities and a new fund, which my right hon. Friend the Prime Minister will announce, to ensure that by 2005 Britain will have all Government services offered online.

Investment in innovation, infrastructure and skills is essential in every region if there are to be high levels of productivity in Britain and full employment throughout our country. To secure that balanced regional development, regional development agencies will receive additional resources, and their budgets will be increased by £500 million a year by 2003–04.

There will not only be new funds but new flexibilities, so that local people can promote local priorities and meet local needs they have identified. In the north-west, there is the regional plan to promote innovation and research; in the north-east, increasing entrepreneurship; in Yorkshire and Humberside, funds for small business development; in the east midlands, information and communications technology; in the west midlands, modern manufacturing; and in the south-east and south-west, as in Scotland, Wales and Northern Ireland, the promotion of clusters of growth. In every region there is new support for skills, for employment and for schools and colleges to promote enterprise open to all.

The overall settlement for Scotland provides for an increase of £3.4 billion a year by 2003–04, which is an annual real-terms rise of 4.4 per cent. A separate announcement will be made by the Scottish Executive.

For objective 1 areas in the United Kingdom—in Wales, Cornwall, Merseyside and South Yorkshire—and for objective 2 and 3 areas, I am today announcing a new approach that will raise their levels of investment. Within our departmental allocations that we are making today, the Government will ensure funding for the European share of objective 1, 2 and 3 projects. For European Union structural funds, that is estimated to total £4.2 billion over three years, including an estimated total of £600 million for new objective 1 programmes in English regions.

The settlement also increases funding for Wales by a total of 5.4 per cent. a year in real terms, and allows for match funding. It includes a special allocation to ensure funding of the European share of Wales's objective 1 needs—an allocation to Wales of £80 million, £90 million and £102 million over the next three years. I am also transferring management of the European social fund allocations of £149 million for Wales over the next three years to the Welsh Assembly.

It is because of the importance to all regions of modern transport and infrastructure that we will now make a step change in investment in public transport. In the Budget, we removed the automatic fuel escalator, and extra money was allocated to roads and public transport this year. Now we are able to raise spending on roads and public transport by significant extra sums to meet the needs of business and the public, from £4.9 billion this year to £6 billion next year, then to £7.4 billion and £9.1 billion in 2003–04, which is a real-terms rise of 20 per cent. a year to 2004. Details of the targets to improve bus and rail services and to cut road congestion, and of the allocation of funds, will be set out in the 10-year plan to be published by the Deputy Prime Minister on Thursday this week.

The modern economy can succeed only when it uses all the talent of all its people. Any potential squandered is a resource denied to this country's future. In this review, we allocate new funds to advance our goal of full employment. For 70,000 employers, nearly 500,000 young people and for Britain, which has seen long-term youth unemployment fall by 70 per cent., the new deal has been succeeding and is a central building block for our policy of full employment. Long-term youth unemployment, which rose to 500,000 in the 1980s, is 50,000 today.

The windfall levy raised more than £5 billion, with £1.6 billion allocated to investment in our schools, and £3.5 billion to employment creation. Because the new deal has been even more successful than forecast, with more people getting back to work more quickly, there is an underspend that enables us to fund the new deal well into the next Parliament, and to transform what started as the new deal for the young unemployed into a permanent deal for all long-term unemployed.

Having helped 500,000 on the new deal, we now set plans to help the next 500,000. Next year and until 2003, I expect £1.7 billion to be available from the windfall levy to do more to coach the hard-to-employ young unemployed and systematically to create new opportunities for our long-term unemployed, nearly 1 million single parents and thousands of disabled men and women who want to work.

To bring both child care and employment within the reach of more parents, child care investment will rise from £66 million this year to £200 million by 2003–4, as we deliver, as we promised, our national child care strategy.

Because of our success in cutting unemployment, social security spending, which grew by 4 per cent. a year in the previous Parliament, is growing by 1½ per cent. a year this year and over the next three years, and the budget for unemployment-related benefits is falling.

To make further social security savings by tackling fraud and error, we are announcing new investment in staff and technology. Having cut errors in income support claims by half, we now plan to cut fraud and error in the jobseeker's allowance and in income support payments, first by 25 per cent. by 2004, and then by 50 per cent. Some, including the Leader of the Opposition, have proposed savings of £1 billion from social security fraud in the next Parliament. Our proposals achieve savings in excess of £1 billion.

I turn now to investment to ensure that all children have the best start in life. Today's children will be tomorrow's doctors, scientists, engineers and nurses—our future work force in every area. By investing in children, we are investing in our country's future. We have invested £7 billion a year more in families during this Parliament, raising child benefit by 35 per cent. and guaranteeing a minimum family income under the working families tax credit; and from next April, the new children's credit will be worth £442 a year to the typical family.

It is now time to take further steps. The war against child poverty requires not only additional cash but the support and encouragement of all forces of care and compassion in every community. It can be won only by the combined efforts of parents and the private, voluntary, charitable and public sectors working together. In a unique initiative, after consultation with charities and voluntary organisations, we will create a national children's fund with a budget over three years totalling £450 million, to help children and young people at risk.

The children's fund will work with national children's charities and local community organisations, secular and faith based, and will support those dedicated staff and committed volunteers who offer one-to-one help to young people and to parents at risk, and £70 million will be allocated to a network of local and regional children's funds.

I turn to investment in education. With the funds that my right hon. Friend the Secretary of State for Education and Employment allocated from the first spending review, he has made major reforms in education, ensuring nursery education for every four-year-old; cutting class sizes for five to seven-year-olds; raising literacy and numeracy standards for 11-year-olds by 6 and 10 percentage points; and reforming and expanding higher and further education.

Education qualifications are, in the modern world, the surest route to opportunity and security for all. All children should be ready to learn when they reach school. From the first spending review came sure start, which is now lifting 50,000 children and their parents out of poverty.

In the second review, and tied to targets for improving child development and parental responsibility, we will by 2004, with a budget of £500 million, expand the number of children helped in our country to 345,000. With nursery places already increasing from 200,000 in 1997 to 400,000 in 2002, my right hon. Friend the Secretary of State for Education and Employment will announce funds for the next stage in our expansion of nursery education.

Having improved standards in our primary schools, the next task is to raise standards as decisively in the secondary schools, so the expansion of resources that my right hon. Friend will announce for all schools is designed to back up reform and to bring radical improvement in the comprehensive system to ensure that opportunity for all means the highest standards of education for all.

My right hon. Friend will consult on and fund a new target for our secondary schools: by 2007, not today's 60 per cent., but 85 per cent. of 14-year-olds must meet literacy, numeracy and computer standards. To raise Britain's appallingly low staying-on rate at school, we are setting aside £150 million a year for education maintenance allowances worth up to £40 a week. Our new and challenging target is: by 2004, 80,000 more 16 to 18-year-olds in education and nearly 60 per cent. of young people having left school or college with A-levels or their equivalent by age 21.

Under the new deal for schools, 17,000 of our schools will have had some improvement, modernisation or renovation by 2002, and every one of our schools—32,000 of them—will be linked to the internet by that date. Our objective by 2004 is 500,000 more computers in our schools. By 2010, we want the majority of young people to be going on to higher education. My right hon. Friend is allocating £100 million extra to higher education in 2001–02, a 4.6 per cent. real terms increase in total. The review provides further finance that will raise the numbers in part-time and full-time higher and further education towards that goal of 50 per cent.

State pupils secure two thirds of the top A-level qualifications, but only half the places in some of our leading universities. To bridge that gap, the Secretary of State for Education and Employment is today setting a new objective to improve access. The Higher Education Funding Council for England will provide financial help for universities submitting plans for year-on-year improvements in the widening of access.

Two million adults have a reading age of seven or lower. Adult illiteracy is not just a failure of our society, but—as business leaders around the country have told me—an economic inefficiency that the country cannot tolerate. In the coming weeks, the Secretary of State will announce the provision of new resources to tackle those barriers to opportunity and earnings.

The best education for all, from early learning to lifelong learning, is not only a time-honoured social ideal but, in today's world, an absolute economic necessity. That is why we have decided to make increased investment in education the priority of this year's review, and to back sustained long-term reform with a sustained increase in resources.

In the Budget I was able to allocate new resources to the national health service, amounting to a rise of 6.1 per cent. a year in real terms over the four years to 2004. I was also able to allocate an additional £1 billion to United Kingdom education for this year. Today, in return for the new targets for improved standards, we can allocate further resources for UK education for the next three years.

Under the last Government, UK education spending rose by an average of only 1.5 per cent. a year in real terms. Over the next three years, it will rise by 5.4 per cent. in real terms. Spending will rise from last year's £40.6 billion and this year's £45.8 billion to £49.5 billion, £53.4 billion, then £57.7 billion. The money that I have announced in the Budget and today will deliver, over the four years from now until 2004, an average annual increase of 6.6 per cent. in real terms—an annual rate of growth far in excess of the 1.5 per cent. achieved from 1979 to 1997.

I have one further and final announcement to make. In March, the Secretary of State for Education and Employment made special payments direct to head teachers for books and equipment. They ranged from £3,000 to £9,000 for primary schools, and from £30,000 to £50,000 for secondary schools. A total of £290 million went direct to head teachers, to be spent by schools for use in the classroom.

The Government have decided to continue that innovation, but next April the Secretary of State will allocate to our head teachers not £290 million but £540 million. As a result, head teachers in every one of our smaller primary schools will next year receive not £3,000, but a payment of £6,000. The larger primary schools will receive not £9,000, but £20,000. For the smaller secondary schools there will now be payments of £50,000, rising, for the larger secondary schools, to £70,000. Those payments will now be made not just for one year, but for every year until 2004.

We have made our choice: improved investment in health, education, transport and social services, and in our communities. It is now for those who oppose our spending plans to state clearly where their cuts would fall. This Government have been prudent for a purpose. Our choice is stability, employment and sustained long-term investment, now and into the next Parliament, to create a Britain of security and opportunity for all.

I commend this statement to the House.

Mr. Michael Portillo (Kensington and Chelsea)

As usual, I draw attention to my entry in the Register of Members' Interests. [HON. MEMBERS: "Ah!"] At least I am honest about it.

I believe that: The level of public spending is no longer the best measure of the effectiveness of government.—[Laughter.] I was quoting from the Labour party manifesto. [Interruption.] Labour Members roar. It is in there. That is the basis, that is the commitment, on which the Chancellor of the Exchequer fought the last election campaign. Was the Chancellor being insincere with us then, or is he kidding us all now? Either way, who can believe a word that he says now?

Does the Chancellor recall promising, two years ago, £40 billion to transform health and education and to tackle crime? If Labour Members believe that the £40 billion that he has announced today will save their seats, they should remember that the previous £40 billion did not improve public services. This £40 billion will not improve public services, because Labour's spending is not working. Today the Chancellor announced lots more targets. The history of the Government is that they have dumped the targets that they cannot meet.

Another gem in the Labour manifesto was its commitment that the Labour Government would be wise spenders, not big spenders. Now, that is all turned around. Now they are going to be big spenders, not wise spenders, because we are all paying for their failure to reform welfare. We are all paying for their distortion of the clinical priorities in the national health service—distorted by a Government obsessed with spin. We are paying for their failed policies of interference in education. Here is the Chancellor today offering titbits directly to schools. Why does he not give the vast majority of the money directly to schools, as we propose to do? We are still paying for the dome. Is it any wonder that the Labour Government—[Interruption.] Oh yes we are. Is it any wonder that the Labour Government tax more and deliver less?

Does the Chancellor remember that the last time he spoke to us, he said: if we don't spend the money well, people will suffer. Well, people have suffered. Their taxes have gone up, but public services have got no better. Hospital waiting lists are up. Class sizes are bigger. [Interruption.]

Madam Speaker

Order. I would be obliged if the House would come to order. The House was not always in good order for the Chancellor, but it was for most of the time. I expect the same for the Opposition spokesman.

Mr. Portillo

Hospital waiting lists are up. Class sizes are bigger. Today the Government have released the most appalling figures for violent crime. How can they spend so much, and spend it so badly?

Today the Chancellor tells us that spending will be tied to output. If that is the case, what has he been doing in the past? There is never any danger of this Chancellor "underspinning", as he said today. Having broken all his promises before, does he really think that the solution is to make promises again?

The Labour party fought four general elections on a policy of tax and spend. Those are the four general elections that it lost. The only time that Labour won an election was when it committed itself—or appeared to commit itself—to Tory prudence.

Let me remind the House why the Chancellor has so much money in his election war chest today. [Interruption.] Labour Members do not want to hear about that. Is it not because he has taken £5 billion a year out of people's pension funds? This is a Chancellor of the Exchequer who, for his own glorification, is prepared to spend today at the cost of impoverishing generations of pensioners tomorrow.

Does not the Chancellor have the money today only because he has relentlessly increased taxes? Petrol has now reached £4 a gallon, and council tax has increased four times faster than inflation. Tax relief for mortgages has gone, and tax relief for marriage has gone. The additional age relief for pensioners has gone, too. Does not the Chancellor realise that, for families and pensioners, the tax increases that he has imposed are reality today, and that all the fine words that we have heard from him are merely promises for tomorrow?

Did the Chancellor really think that people would not notice that they were being taxed? Did he really think that he could put an extra £670 of tax on average working families in this country and they would not notice? For many families, that is the difference between living comfortably, and life on the edge. It is the difference between getting on and getting into debt—[Interruption.] That is the real world. How out of touch can the Prime Minister and the Chancellor of the Exchequer be?

Is it not true that those who can least afford it have been taxed and taxed until the pips squeak, with taxes on alcohol, taxes on cigarettes and taxes on petrol—the most regressive taxes of all? [Interruption.] Labour Back Benchers know what has happened, and they know that a Labour Chancellor who taxes the poor is no socialist hero. I believe that hard-working families and pensioners should pay less tax than they do now, because Governments—[Interruption.]

Madam Speaker

Order. Many of the people of this country will be watching us, and many will certainly be listening. Tomorrow, I shall get many telephone calls and letters about the extremely poor behaviour in this Chamber.

Mr. Portillo

I believe that hard-working families and pensioners in this country should pay less tax, because Governments often waste their money. I do not believe that it is morally superior for the Government to take money away from parents—money that they might have spent on their children, or on putting a better meal on the table.

A Conservative Government will cut taxes for those people, because families need lower taxes and businesses need lower taxes. When Governments all over the world are cutting taxes, how else is Britain going to compete?

Despite the revisions that the Chancellor announced today, can he confirm that he still assumes that national income will increase by 2¼ per cent. a year, yet commits himself to increase overall national spending by 3.3 per cent. a year? Would any family in the land plan to go on increasing their spending, year after year, by more than the increases in their income?

Is not the Chancellor's plan just a spending splurge? He will increase spending by almost l½ per cent. of national income, which is the equivalent of £600 of extra tax for every taxpayer. Is it not true that the budget surplus can be spent only once, and that when we have spent that surplus, we are back on the road to higher taxes?

What happens if the future is not quite as rosy as the Chancellor thinks it will be? Is he committed to all the numbers that he has just given us, whatever may happen to the economy four years from now?

We shall study the Chancellor's remarks very carefully. Although he claimed to be "underspinning" today, he will have to admit that every previous statement he has made included double and triple counting, and many hidden surprises. Now, the Prime Minister's notorious leaked memo has displayed the cynicism deep at the heart of this Government. When people trust them so little, who knows what we shall find in the small print?

We shall find out what constitutes genuine investment in our future, and what, on the other hand, risks being wasted by a Government who are now spending £11,700 every second. I trust that we shall find many things to be welcomed, just as we welcomed the extra money for the health service that the Chancellor announced in the Budget statement.

The Chancellor has taken time to prepare his plans, and we shall take time to prepare ours. However, our framework is more prudent than his. We can and we should increase spending in real terms on the things that really matter to people, but we should do that at a sustainable rate. Steady increases above inflation and within the growth in the economy can be combined with tax cuts for hard-working families and for pensioners. Are these not now the dividing lines?

We will fight the next election as the low-tax party. Labour has been exposed as the high-tax party. What Britain needs is not a splurge of taxpayer's money from a Government whom people do not trust, but a sustainable policy for the long term. Labour Governments always end up with tax and spend. A Conservative Government would tax less and spend better. A Conservative Government would show common sense and prudence.

Mr. Gordon Brown

I take it that the right hon. Gentleman is against our spending plans. I think that the most relieved man in the House this afternoon is the Leader of the Opposition—except for the fact that he has had landed on him the policies of the shadow Chancellor.

This afternoon we have heard an extraordinary statement from the shadow Chancellor, because he has refused to match any of our spending commitments. He has refused to match the £11 billion extra that we are spending on education, so in every constituency in the country Opposition Members will have to answer to parents, teachers and others about the Tory education spending cuts guarantee.

The right hon. Gentleman has refused to match the £8 billion extra for public and private improvements in transport, so Conservative Members will have to answer for their transport cuts guarantee to all the road users, all the car owners and all the people who depend on public transport. The shadow Chancellor has even refused to match my right hon. Friend the Home Secretary's spending on combating crime, so they will have to answer for a guarantee of spending cuts on law and order, as well.

When the shadow Chancellor went round the television studios at the weekend and said that our spending was unsustainable and, as he repeated today, that it was a "splurge", that Labour was a party that could not be afforded, and that the rate of spending in this country should be 2 per cent. not 3.3 per cent., he was actually saying that public spending should be cut by £16 billion by year four. He cannot escape from that, try as he might. Throughout the country he will have to say which school, which hospital, how many teachers and how many nurses would be affected by his proposals. When Conservative Members go back to their constituencies this weekend, they will have to give the answers.

There is another point. In 1992 the shadow Chancellor imposed 22 tax rises. He is now threatening £16 billion in cuts. I am happy to have our record compared with his when he was at the Treasury. He talks about taxation, but the biggest tax rises took place when he was there. There were 22 tax rises, including VAT on fuel, the rise in national insurance, the airports tax, and the reductions in mortgage tax relief and the married couples allowance. He is not the answer to the Conservatives' problems on tax; he is their problem on tax.

The shadow Chancellor says that he will be prudent. We have reduced the national debt. When he was Chief Secretary the national debt rose by £80 billion. It rose by the fastest rate in years, as the Conservatives doubled the national debt. The right hon. Gentleman says that he does not want to borrow, but when he was at the Treasury borrowing rose from £20 billion to £50 billion—and we have had to sort out the difficulties. We take no lectures from the Conservative shadow Chancellor given that he was responsible not only for tax rises but for borrowing at record levels and doubling the national debt.

There is another reason why we will not take lectures from the right hon. Gentleman this afternoon. In the 1980s the Conservative Government of whom he was a member refused to invest in our country—in education and infrastructure—and blew the privatisation of North sea oil revenues, which led us to the underinvestment and the problems that emerged with boom and bust in the early 1990s. The Conservative party cannot now tell us that it has a solution to the problems of this country, while the Labour Government are having to deal with their legacy of underinvestment to sort out those problems.

Only a few weeks ago, the shadow Chancellor's tax guarantee—it was a guarantee, then—was the issue of the moment, and he was trying to prove that resources were available. Instead of saying that the economy was running into ruin, that it was unsustainable and that things were getting out of control, he said on the Jimmy Young show: The economy is doing well. There is absolutely no denying that, and I am not going to go around saying that the economy is not going well. In another speech, he praised us for an "absolutely reliable anti-inflation strategy". How is it that immediately after the Budget, with exactly the same figures for the framework for public spending, he could praise us for our anti-inflation strategy and say that the economy was doing well—but today he comes to the House to predict doom and gloom?

As we have seen in the seven days since its spending announcement, the Conservative party has resorted to its old ways. It is not prepared to finance education. It is not prepared to finance health as it should be financed. It is not prepared to finance our social services. When the shadow Chancellor left the House of Commons, he said that the Conservative party was identified as uncaring, harsh and not concerned about unemployment, poverty or social conditions—yet it is a return to that Thatcherite policy that he is presuming today.

The shadow Chancellor lost the last election with 22 tax rises. He will lose the next election with £16 billion of public spending cuts.

Mr. Giles Radice (North Durham)

The Treasury Committee will want to question my right hon. Friend on his statement, as he knows, but is it not the case that his announcement of significant but affordable public spending increases is a vindication of the Government's economic policies? Does it not show that the Government's restraint in the first two years in office, the new monetary framework and the steady economic growth have led to a virtuous circle of low inflation, low public debt, and now the increased public spending in vital areas such as education and health that we have heard announced this afternoon?

Mr. Brown

I am grateful to my right hon. Friend. He is the distinguished Chairman of the Treasury Committee, and he says that the economy has been put on a strong foundation. The figures show that 42 per cent. of additional expenditure under the Conservatives went on social security and debt interest, but that only 17 per cent. will go on those things under the new spending plans. That is a recognition not only that the public finances are in order, but that we are using them to best effect. I shall give the House the benefit of further information. Under the regime of the former Chief Secretary to the Treasury, who is now the shadow Chancellor, it was not 42 per cent. but 55 per cent. that went on social security and debt interest. More than half the expenditure went on social security and debt interest. Today, most expenditure goes on health, social services, education, transport, tackling crime and building a better Britain.

Mr. Matthew Taylor (Truro and St. Austell)

Millions of people will have had one question in their minds as the Chancellor sat down: what about the pensioners? With £43 billion to spend, the Chancellor's Budget in March, with its 75p a week for pensioners, looked miserly; now, with a £2.5 billion surplus in the social security budget, his zero increase for pensioners looks positively mean.

As for the rest of the statement, no one will accuse the Chancellor of underspinning. The shadow Chancellor may be underperforming, but the Chancellor is not underspinning. However, the question that the Chancellor must answer is whether his statement today was effectively an admission that what has happened in the past three years was unnecessary, that Liberal Democrats were right to say that the Government were building an election war chest, and that—contrary to what the shadow Chancellor said—what we suffered from was the problem of having had a Conservative budget in the early years of this Parliament, and the costs that it imposed on pensioners, pupils, patients, the police and public services as a whole. This is bust-boom economics; this is exactly the treatment of public services that Liberal Democrats have predicted for the past two years, because it was there for all to read.

The irony of the shadow Chancellor's position is that this Budget will only bring Government spending, as a proportion of national wealth, back to the level they inherited from the previous Conservative Government, having cut it in the early years by following Conservative Budgets. That is not what people voted for, and it was a wasted opportunity. The statement makes that absolutely clear. We have bust-boom treatment of the public services.

The Conservatives now offer £20 billion of cuts while the Liberal Democrats welcome increased investment in public services, even if it is late. However, will the Chancellor guarantee it? In the previous comprehensive spending review, he gave figures that we now know were not true. For example, he said that there would be a 5.1 per cent. increase in spending for education. We know now that last year, schools received only a 2.5 per cent. increase. The spin is all there, but where will the delivery be? It is not there for pensioners. Will it be there for the police? Is the Chancellor able to tell us whether there will be more police on the beat at the end of this process than there were when he came into office?

Will the right hon. Gentleman get rid of tuition fees? Is he able to guarantee lower class sizes for all children, and not only for those up to the age of seven? Or will the position continue to worsen, as it has so far since Labour took office? Can the Government even guarantee that tuition fees are not set to rise to help pay for their higher education policy?

The 18 years of Conservative government were a disaster for public services. However, the early years of the Labour Government left Conservative policies in office. The bust-boom approach is not a sensible way of handling public service investment. It never was, and the Government's cynicism showed through in every sentence that the Chancellor read out. No wonder the Prime Minister's memo did not mention the Chancellor. There never was any chance that the Chancellor would underspin. He follows the same agenda of trying to win elections at the cost of public service.

We will scrutinise the figures because we know that on every previous occasion, the Chancellor has sought to mislead. We want to show pensioners that the Government had the money to give them a decent pension and have not delivered. I suggest to Labour Members that when the leave this place, they will experience the anger of pensioners because they are still left with 75p. That will be the greatest single legacy from the Chancellor's statement.

Mr. Brown

At the general election, the Liberal Democrats stood on a manifesto that stated that they would put £500 million more every year into the national health service. Under our plans, we are putting £13 billion more a year into it. The Liberal Democrat manifesto stated that they would put £1.9 billion extra into education. Under the new plans, there will be £10 billion extra a year. The Liberal Democrats said that they would raise the pension only in line with inflation. They also said in their manifesto that they supported a minimum income guarantee.

Now we have the shopping-list approach to economics, which has been adopted, unfortunately, by the Treasury spokesman for the Liberal Democrats. He wants in one part of the country to say that he is doing this, while saying in another part that he is doing that. In other parts of the country, he wants to appease particular groups. He tries to coin a new line about bust-and-boom economics, but that sits uneasily with the fact that we have put public finances in order. The national debt has been reduced and the borrowing that we inherited has been eliminated. Debt as a proportion of national income is falling, and we are now able to have sustained and sustainable improvement in our public sector services for the years ahead. That would not have happened under the Liberal Democrats' policy.

Mr. Alun Michael (Cardiff, South and Penarth)

I welcome the fact that my right hon. Friend's announcements today address Labour issues from the international to the local. In particular, his announcement on the new deal will give opportunities to young people as individuals.

My right hon. Friend will be aware that the announcement has been particularly awaited with interest in Wales. Will he confirm, not least for the right hon. Member for Caernarfon (Mr. Wigley), that his settlement enables the National Assembly for Wales to spend in full the money available to Wales under objective 1 without cutting into education and health spending? Does it also provide the necessary flexibility for the Assembly to deal with matters such as match funding?

Mr. Brown

I am grateful to my right hon. Friend. The settlement does exactly that. I am grateful to him for the work that he has done and I am grateful to all his colleagues who are Welsh Members of Parliament. The Welsh objective 1 settlement ensures that the resources are there to move ahead. The Wales Office expenditure is rising by 5.4 per cent. in real terms, something that could never have happened under Plaid Cymru policies.

Equally, my right hon. Friend is right to say that we have been spending money in Wales on the new deal and the working families tax credit in a way that gets money to the communities that need it most—an allocation of public expenditure that is most important to areas of high unemployment. In total, we are spending £231 million on the new deal and the working families tax credit. Taking into account the Barnett formula, the additional money for objective 1 spending, which my right hon. Friend has urged—as have many others over a period of time—and the £231 million expenditure on the new deal and the working families tax credit, this is not only a good settlement but one that will help Wales to invest in its future and to invest to create a Wales of full employment.

Mr. Kenneth Clarke (Rushcliffe)

Will the Chancellor, who strives for a reputation as a serious policy maker, agree that no one, including himself, can predict accurately now the course of the economic cycle or the growth in the British economy during the next four years? The Chancellor is never knowingly underspun when he is surprised by changes that are favourable compared with his forecast, but will he accept that, if the forecasts go wrong, he does not know the extent to which he might have to raise tax, the extent to which public borrowing will go up, the inflationary pressures that might be caused and the extent to which he might squeeze out private sector investment in business by what he has announced? Is not the explanation for a statement in which I do not think Prudence was mentioned once—[Interruption I am told that she had four sad and parting mentions.

The reason for these U-turns and the bran tub approach of throwing money at every problem is that the right hon. Gentleman's colleagues have become panic stricken that big numbers and big promises two years ago have delivered nothing, so they now hope that big numbers and big promises beyond the next election will deliver them a return to office.

If the Chancellor wants to turn to serious policy making, does he accept that the future that we want and the strength of our public services, as well as our jobs and well being, depend on sustaining growth with low inflation and healthy public finances, which he and I have been lucky enough to enjoy at the Treasury for the best part of seven years now? If he wants to sustain that, he should run a surplus at this stage of the cycle and wait, year by year, to see the course of economic events, and release money sensibly to finance public services when he has the money in his pocket.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I appreciate the right hon. and learned Gentleman's vast experience in this matter, but that was too long a question.

Mr. Brown

The former Chancellor is forgetting that he left behind a legacy of a £28 billion borrowing requirement, debt at 44 per cent. of national income, inflation rising, the economy heading back to stop-go and even the shadow Chancellor after him predicting that there would be a recession. We had to tackle the issues and reduce the debt. So far from us praising him for the legacy that he left us, he should be more humble about what he achieved when he was at the Treasury.

I was wanting to agree with the right hon. and learned Gentleman because he put up a better show than the shadow Chancellor, but I have since heard that this afternoon, he said on television that VAT on fuel should now be raised to its full amount—something which he says will happen soon. Again, we remind ourselves that two of the Ministers who were responsible for that policy have spoken in the House this afternoon. If the right hon. and learned Gentleman wants to reject three-year planning for public spending and to go back to the old annual cycle, he should remember that there were huge losses in that, with end-of-year settlements that did not work properly. Local government, the health service, education and transport need a long-term framework within which to move ahead.

The right hon. and learned Gentleman talked about the economic cycle. We have met, and will meet, our fiscal rules, even on the most cautious case. We have an £8 million surplus in the current side, even in the year when the surplus is lower, and we have reduced national debt from 44 per cent of national income to 33 per cent. Therefore, the investment can be made on a sustainable basis. I would have expected someone who said that his own spending plans were "eye-wateringly tight" when he passed them on to us would want to praise the fact that we are now spending the sums that I would have thought he wanted to spend on education, health, transport and the public services.

Mr. Robert Sheldon (Ashton-under-Lyne)

Is it not clear that my right hon. Friend came to office with a three-year programme to put the public finances in order and then to turn to investment? He said that money would he spent to ensure that output and investment were achieved; this is his third test and his track record so far makes us optimistic.

Mr. Brown

Yes; I am usually talked of in the context of five tests.

The first thing we had to do was to create stability. The second thing we have to do is to get people back to work. The new deal, which the Opposition would abolish, is a programme that is helping thousands of young people and the long-term unemployed back into work. I would have wanted an all-party consensus on moving forward on this issue. Instead, the Opposition are determined to abolish the new deal and to deprive young people of the chances of jobs.

The third thing we have to do is to invest to build a stronger economy and a stronger society. That is exactly what my right hon. Friend has spent much of his political career advocating, particularly in relation to productivity and output in the manufacturing sector of the economy. The funds that we are making available for training, education and science, and the funds for regional development agencies so that we can build up our regions, are one way in which we can build a stronger industrial base for the future, in accord with the ambitions that my right hon. Friend has always furthered, on which I congratulate him.

Mr. David Davis (Haltemprice and Howden)

I should like to follow on from the Chancellor's comments on investment. I think I heard him say that the target for net investment will increase from £7 billion to some £18 billion in the next two years. The House of Commons Library tells us that his target last year was £6 billion, but the outturn was less than half that, at under £3 billion. How will he make the promise turn into delivery?

Mr. Brown

Here is a Conservative accusing me of spending too little, rather than too much. Over 20 years, Departments have not been in the business of moving forward investment plans as quickly as we want. We have also innovated in many areas including, following the last Government, public-private partnerships. I believe that the momentum is now there, particularly in transport, where investment is needed. Public-private partnerships in the London Underground and elsewhere have been developed. Therefore, I believe that we can make progress in these investment plans. Given what the right hon. Gentleman says, I hope that, in contrast to the shadow Chancellor, he will support us in them.

Dr. Gavin Strang (Edinburgh, East and Musselburgh)

It is to my right hon. Friend's credit, and to the credit of this Labour Government, that the country's finances are in such a healthy state.

Does my right hon. Friend recall that in his last comprehensive spending review, he announced a proposal partially to privatise our air traffic control system and a timetable for the partial privatisation of DERA, the Defence Evaluation and Research Agency? Does he agree that the country's finances are much better than could have been imagined in 1998? Against that background, will the Government reconsider their decision to privatise key strategic assets such as National Air Traffic Services and DERA?

Mr. Brown

This is a proposal to get new investment into air traffic control. It is a proposal to secure massive investment funds which everybody knows are needed for the future of the air traffic control service. It will raise money from the private sector, but involve a public-private partnership. The same goes for DERA where, again, we are getting new funds in so that we can have the necessary investment in equipment and technology for the future.

This is about investment; about building for the future. In the air traffic control business, it is about building alliances right across the continents. I think that when the final plans are eventually implemented, we shall have the investment that we need in air traffic control and in DERA.

Mr. Peter Brooke (Cities of London and Westminster)

Will the Chancellor remind the House of the annual real-terms growth rate over the three years for defence spending?

Mr. Brown

The annual rate is 0.3 per cent. in real terms over the next year. I take it from what the shadow Chancellor said that he cannot even support that.

Mr. Tam Dalyell (Linlithgow)

What was the financial message that Sir Charles Guthrie, Chief of the Defence Staff, took to Downing street some two weeks ago? Is the real-terms increase in defence expenditure really sufficient to meet the long-term demands of our commitments in Kosovo and Bosnia? A fortnight ago, when some Albanians under the protection of British troops were asked how long KFOR and the British Army were expected to remain, some of them said 20 years and others said for ever. Has the Chancellor built in that long-term commitment to the Balkans? We have it now, whether people wanted it or not.

Mr. Brown

We have regular meetings with the Chief of the Defence Staff to talk about defence issues. I believe that this is an important settlement which allows our defence forces to complete the strategic defence review which was started by Lord Robertson and which is now being continued by my right hon. Friend the Secretary of State. It provides funds to buy new equipment and to replenish what has to be replenished after Kosovo. It provides funds to ensure the retention and recruitment of staff and to help our international peacekeeping role. As my hon. Friend knows, in normal terms, Bosnia and Kosovo become claims on the reserve.

Sir Peter Tapsell (Louth and Horncastle)

If the pre-election bonanza that the Chancellor has just announced is to be regarded as economically sound, why has it been necessary for the Bank of England to raise interest rates repeatedly in recent months, causing great distress to British export manufacturing industry and to British agriculture?

Mr. Brown

I always enjoy discussing the economy with the hon. Gentleman because he seems to forget that when the shadow Chancellor was Chief Secretary, interest rates rose to 15 per cent. and remained there for a year. Interest rates are now at 6 per cent., and I remind him that the Bank of England had the Budget announcements, which were the framework within which we made our decisions. It said that the result of the Budget on interest rates seemed unlikely to be large over the next two years. All the framework figures were given to the Bank of England. The framework figures on which the decisions were made in the public spending round were announced in the Budget.

Mrs. Anne Campbell (Cambridge)

I warmly congratulate my right hon. Friend on his statement, in particular the extra resources for education and science funding, which will be warmly welcomed in my constituency. Will my right hon. Friend ensure, perhaps using his considerable influence, that the extra funding for education is distributed in a way that makes the total funding for each pupil more equitable than at present?

Mr. Brown

This is, of course, a matter for my right hon. Friend the Secretary of State for Education and Employment, who has done a superb job in recent years building up our education system. I believe that he will look at such decisions carefully. I praise my hon. Friend for her work to promote the case for science in our country. It is important to ensure that sufficient funds are spent on science and innovation so that we can build the best productive base for the future. It is also important that investment in education and our schoolchildren is made at the necessary level. It is unfortunate that the Conservative party does not even seem to support education spending now.

Mr. Dafydd Wigley (Caernarfon)

Why has the Chancellor not taken this opportunity to pass over to Wales the whole of the European structural funds meant for Wales, over and above the Barnett block limit? Of the £540 million coming from Brussels to Wales for objective 1 funding over the next three years, only £272 million has been passed over and £268 million is being pocketed by the Treasury. In other words, the right hon. Gentleman has conceded the principle but kept the cash. Is not the First Secretary right to say that Labour will pay a heavy price for this at the coming general election?

Mr. Brown

The right hon. Gentleman should be man enough to say that we have done a good job and sorted out the problem of objective 1 funding. Wales has a 5.4 per cent. real terms increase in its budget, which is higher than it ever had under a Conservative Government. It is something that the right hon. Gentleman's party could never have delivered had it been in power in the Welsh Assembly or anywhere else. I notice that in the candidatures for leadership, Plaid Cymru is now descending back to being a wholly separatist party, and the right hon. Gentleman should be embarrassed by that.

The Labour Government are putting into the spending settlement the resources needed for the objective 1 programme to be carried out. It is those resources that enable the European funding and provide the matching funding through the spending settlement we have made. In addition, through the windfall tax on the privatised utilities, more money is being spent on the new deal and the working families tax credit in Wales—something that the right hon. Gentleman's party could never have achieved. The fact is that unemployment is coming down in Wales because of a Labour Government.

Mr. Barry Jones (Alyn and Deeside)

I note the advance towards full employment and I thank my right hon. Friend for that and for his plans for decent social services for all of our people. However, what are his plans in the coming years for assisting manufacturing, not least the steel industry and Shotton steel works in my constituency? Does he recollect the £530 million he has given to British Aerospace for the A3XX project, and does he know that I have so far failed to persuade the First Secretary to give £25 million to secure 1,400 new jobs? Will my right hon. Friend use his famed skills of persuasion in Whitehall—using metaphorically the twisted arm and the steel-capped boot—to persuade the First Secretary to give that money and secure those jobs?

Mr. Brown

My right hon. Friend's congratulations have an edge. On manufacturing industry, it is true that we have helped the British aerospace industry, and that matters to his constituency and others around the country. We will continue to support new projects that can yield jobs, investment and growth for our economy in the future. I acknowledge that the difficulties with the pound have caused problems for many sectors of manufacturing, including the steel sector, but at the same time manufacturing productivity has been rising by 5 per cent. We have put in place more measures today, including, first, a research and development tax credit so that we finance a substantial part of the investment in new technology and innovation by manufacturing firms. Secondly, we have put 100 per cent. capital allowances in place, so that small and medium-sized firms can claim all that against their tax in the first year. Thirdly, we have put in place regional investment and venture capital funds, which will be of assistance in Wales and other parts of the country.

In terms of stimulating new investment in the manufacturing economy, we are doing what we can and will continue to do so. I can tell my right hon. Friend that even manufacturing firms under pressure say to me that the last thing they want—and what we are avoiding with our policies—is a return to Tory boom and bust.

Mr. John Redwood (Wokingham)

Far from the Chancellor offering to many Prudence, with a purpose or without, he has clearly cast her off cruelly. Is he ashamed that he imposed such a massive tax on petrol? Was not that a mugging with a menace that turned out to be totally unnecessary in view of the figures that he has published today?

Mr. Brown

I thought that the right hon. Gentleman was leading the Tory campaign in the House and in the country, but he has started by scoring a massive own goal. Who put the fuel escalator on petrol? It was the Conservative party. Who took it off? It was the Labour Government.

Mr. Dennis Skinner (Bolsover)

Is the Chancellor aware that some 22 years ago, the previous Labour Government made a statement that resulted in pay freezes and cuts in the budgets for health and education? It was met by some weary, drooping heads on this side of the House. This statement, whichever way you cut it, is a sight better than that one. When I hear my right hon. Friend talk about an extra 3 per cent. above inflation for this Department, an extra 4 per cent. above inflation for that Department and an extra 5 per cent. above inflation for yet another, I can only assume that the pensioners will also get 3, 4 or 5 per cent. above inflation. Will he confirm that?

Mr. Brown

My hon. Friend tries to draw me into something that is a matter for further consultation. Unlike the Conservative party, we will keep the winter fuel allowance and pay that £150. Unlike the Conservative party, we will ensure that the free colour television licences goes to pensioners and the minimum income guarantee rises in line with earnings to take thousands of pensioners out of poverty. For further announcements, I hope that my hon. Friend, who has been patient for 22 years, will continue to be patient for at least a few more days and weeks.

Mr. Michael Jack (Fylde)

Can the Chancellor confirm that today's announcement on spending levels is predicated on the figures in the "Financial Statement and Budget Report" for tax receipts and total Government receipts maintaining their increasing percentage share of GDP? On the question of fraud, as a Chancellor interested in outcomes, will he explain to the House why the Department of Social Security has so far failed to meet any of its fraud targets?

Mr. Brown

The Department of Social Security has just cut the number of inaccurate income support payments by half and has made considerable savings as a result, which is something that, unfortunately, the Government of whom the right hon. Gentleman was a member failed to do when in power. On tax revenues, the right hon. Gentleman should consult the Budget documents; he will find that the tax share of national income, which has been 37.1 per cent, 37 per cent and 36.9 per cent, is 36.7 per cent in 2003–04. The right hon. Gentleman should consult the appropriate table on that matter.

The problem for the Conservative party having dropped its tax guarantee, is that, nobody trusts it at all on the issue of tax. As a result of its failure to spell out its public spending cuts, every public service, from education to health, transport, housing and social services is now seen to be vulnerable. It is the same old Tories.

Mr. Bill Rammell (Harlow)

May I tell the Chancellor about Brays Grove school in my constituency which, having had to wait 10 years under the Tories to refurbish its science labs, has now received £325,000 under the new deal for schools? Does my right hon. Friend agree that, as a result of this afternoon's statement, other schools in my constituency are likely to benefit in future? Is it not that increased investment in our schools which is most at risk from the return of a Conservative Government, as the Opposition are committed to cut those increases? Is not the most dishonest aspect of the politics that the Opposition are putting forward the fact that they are calling for cuts but are never prepared to say where the cuts will be imposed?

Mr. Brown

The shadow Chancellor came to the House this afternoon for the traditional occasion on which he replies to the statement, and says what he agrees with and what he does not agree with. He was unable to tell us that he would protect even the education budget, and he has put his party in a sorry state because, over the next few days, right across the country, Conservatives will have explain to parents and teachers why education is not safe from the £16 billion of Tory cuts.

My hon. Friend is right to raise the repair of schools, as there are 32,000 schools in the country, 16,000 of which will have been repaired or modernised as a result of the new deal for schools. The new deal for schools was made possible by the windfall tax on the privatised utilities, which was opposed tooth and nail by the Conservative party. However, it has yielded better schools for 15,000 communities in our country.

Mr. John Townend (East Yorkshire)

Does the Chancellor accept that he would not have been able to come here today and announce these telephone number increases in expenditure if the Government had kept the pledge that the Prime Minister made before the election—that there would be no overall increase in taxation? The Chancellor is getting £25 billion over a five-year Parliament from pensions, and billions of pounds from petrol and extra tobacco tax. He has attacked married couples with more tax and has also attacked home owners. Does he accept that if, as he proposes, expenditure continues to rise at a faster rate than the growth in the economy, further tax increases are inevitable? Is not this Labour Government reverting to type, as they are taxing, spending and taxing again?

Mr. Brown

Our pledge was to keep the basic rate of tax the same, or to reduce it, which is what we did. We also pledged not to raise the top rate of tax and to cut to 5 per cent. the rate of Conservative-imposed VAT on fuel, which we did. Our pledges on taxation have been kept.

I know that the hon. Gentleman is a permanent tax cutter, and has been saying that in the House for as long as I have known him. He must be very sad that the Conservative party is now dropping its tax guarantee, or is trying to do so. The hon. Gentleman believed in the tax guarantee, but the problem is that the shadow Chancellor did not. The Conservative leader said that there would be a tax guarantee, with no ifs, no buts and no question marks, which the Conservatives would carry out. It was absolutely clear that the tax guarantee would be imposed, which the shadow Chancellor confirmed only a few weeks ago. The Conservatives tried to ditch that seven days ago, which is why nobody believes anything that they say about tax.

Ms Sally Keeble (Northampton, North)

I very much welcome the extra spending on child care, schools, higher education and health care. My right hon. Friend also mentioned the child care tax credit and the working families tax credit. Will he give some global figure of how much extra the Government are investing in public services through the tax credits to support hard-working families? As those families rely to a great extent for their security and stability on knowing the long-term plans, does he agree that people will also want to know in the run-up to the election whether the Conservative party is committed to such spending levels?

Mr. Brown

I agree with my hon. Friend. We are spending £7 billion extra a year on families. We are doing that by raising child benefit by 35 per cent., which I presume the Conservative party now wants to cut; by introducing the working families tax credit, which is benefiting 1 million families, and which we now know the Conservative party wants to abolish; and by introducing the child care tax credit from next year, which I must presume from the Conservative party's silence it would abolish too. I also presume that the Conservative party will not want the extra investment that we are making in child care under the national child care strategy, which is welcome throughout the country.

We have just today set up a children's fund, in which we have linked charities, community groups, Churches and other organisations throughout the country to tackle and to help to solve the problems of children in need. That will be a £250 million fund which I believe charities will welcome and with which community groups will be happy to work. Again, I must presume that the Conservative party's new policy means that it would oppose even that.

Mr. Michael Fallon (Sevenoaks)

Amidst all the hype and spin, will the Chancellor confirm one fact: at the end of his three completed years so far, the tax burden is higher than it was when he started? Secondly, if it is right to give every secondary school £70,000, why not give the schools all the money?

Mr. Brown

The Conservatives' proposals which were issued without great thought—like almost all their policies which have had to be rethought, including the tax guarantee—would fail to promote, for example, special needs. The £1 billion for special needs, and, indeed, school transport, were not even calculated for. After this week's episodes, the Conservative party will have to go back to the drawing board with their proposals in their entirety.

On the tax burden, I have already given the figures: 37.1 per cent., 37 per cent. and 36.9 per cent. and, by 2003–04, according to the published figures, 36.7 per cent. The shadow Chancellor has got yet another fact wrong today.

Mr. Nigel Beard (Bexleyheath and Crayford)

I congratulate my right hon. Friend on his statement, which is indeed a watershed in the history of public services in this country. Given the accumulation of problems over 18 years of neglect of health, education and our transport service, how does he intend to ensure that the money is spent to best effect?

Mr. Brown

I am grateful to my hon. Friend. He rightly says that the matter is not just one of increasing the amount of money. It must be increased, contrary to what the shadow Chancellor says, because there has been long-term underinvestment, which was a feature of 18 years of Conservative government. We must ensure that the money goes to front-line services. That is why, when the health and transport plans and what are called our public service agreements are published, there will be strict output targets, a new regime of penalties and incentives, greater inspection in many areas and a flow of information to the public, which is itself a discipline.

Therefore, we are taking steps to try to improve value for money and quality of service, which particularly people from the poorest areas have been denied for too long as a result of cuts in investment. We are determined to ensure such action. I welcome what my hon. Friend says. This is sustained investment in our country's future and it means that we can look forward, under a Labour Government, to improvement in the social and economic fabric.

Mr. Deputy Speaker

Order. We must move on; there will be further opportunities to return to these matters.