Motion made, and Question proposed,
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; but 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 varying any rate at which that tax is at any time chargeable; or
- (d) for any relief, other than a relief which—
- (i) so far as it is applicable to goods, applies to goods of every description, and
- (ii) so far as it is applicable to services, applies to services of every description.—[Mr. Gordon Brown.]
§ Mr. William Hague (Richmond, Yorks)
As ever, I congratulate the Chancellor on his delivery of his speech. Last year I seem to remember that I compared him to meeting a man in a pub who says, "Lend me a fiver and I will buy you a drink." This year, the Chancellor actually did borrow a fiver to buy his breakfast this morning in the Treasury, and that makes a serious point—much of the money that people pay in taxes disappears into the Chancellor's pockets without being used for any practical benefit for anyone else. I have no doubt that we will see more of that happening after today's Budget.
The Chancellor's Budgets have tended to follow something of a pattern, in which he gives his account of the Budget which—to put it charitably—is often incomplete, as we have discovered on previous occasions. All his hon. Friends behind him then play the role of the useful idiot, cheering in the naive belief that they have got the full picture. Then it turns out, a few hours or days later, that the full picture is rather different.
This year, we have seen elements of the Red Book in the past few minutes, and they show many things to which the Chancellor did not allude in his speech. For instance, he did not give many figures on the tax burden in the speech that he just delivered. [Interruption.] Well, he said it was falling last time and that turned out not to be the case, as the Prime Minister's press secretary has now revealed. There is no point the Chancellor now claiming that the tax burden is falling.
From the figures in the Red Book, it turns out that the savings ratio has been revised downwards again, and that after being 5.75 per cent. this year, it will be 5.5 per cent. in the next year. That is much less than forecast in the pre-Budget report. Of course, that is one of the reasons why interest rates are higher than they would otherwise be, why the pound is higher than it would otherwise be and why the balance of payments deficit is higher than it would otherwise be. The Red Book shows, but the Chancellor failed to inform the House, that that deficit is set to grow from £15.5 billion to £28.25 billion over the next three years. There was a time when such figures would have featured in the Chancellor's speech when he 875 gave the Budget to the House, but they do not feature in the speeches of this Chancellor, who gives a selective account of the Budget to the House and to the nation.
It was interesting, too, that when the Chancellor gave the forecast figures for growth over the next two years and referred to business investment growing by 7.75 per cent. this year, he then did not read out the figures for next year. That is because the growth falls from 7.75 per cent. to 2.5 per cent. next year. Why was he curiously unable to read out that figure, having read out the comparable figure for the next year on every other parameter on which he chose to comment? That shows productivity growth slowing down and business investment flattening out and declining as a share of gross domestic product, after six years of growth. One thing we know for sure is that the account of the totality of the measures that we have heard is incomplete, and the most cursory, momentary analysis of the booklets that are produced with the Budget show that to be the case.
The Chancellor stood up to address the House as a tax-raising Chancellor, and he sat down as a tax-raising Chancellor. He sat down as the stealth Chancellor who taxes more and delivers less. Nothing he said in his speech will stop the £4.5 billion of new taxes set to hit people next month, which have already been announced in previous Budgets—or at least in the documents that accompanied them. That is a £4.5 billion total of new stealth taxes heading people's way in a few weeks' time. Of course, those come on top of a lot of previous tax announcements. Any reductions announced today pale into insignificance beside the huge increases that are already in place or in the pipeline. The Chancellor is like a mugger who grabs someone's money and then wants that person to thank him for providing the bus fare to get him home. At the same time as he has done that, hospital waiting lists have risen, police numbers have fallen, class sizes have increased, asylum controls have collapsed and the transport system is at a standstill.
As usual, the Budget included one or two reannouncements, such as the 1p reduction in the rate of income tax. The Chancellor enjoyed reannouncing that. But what about reannouncing the abolition of the married couples allowance, which will cost people £200 a year from next month? What about reannouncing the abolition of tax relief on mortgages, which will cost families £225 a year from next month? What about reannouncing that millions of single-earner married couples with a mortgage will be paying more income tax next year even with the cut in the basic rate? What about reannouncing the imposition of national insurance on benefits in kind such as health insurance? What about reannouncing all the other new taxes that people are now paying as a result of the right hon. Gentleman's activities—for example, the pensions tax, increased savings tax, fuel duty increases, taxes on charities, rises in stamp duty, the abolition of tax relief on health insurance for pensioners, higher taxes on smokers and drinkers, increases in gaming duty and increased taxes of many other sorts? Where were they? Why did not they feature in the right hon. Gentleman's speech?
The Chancellor talks, seemingly with great authority, about e-commerce, the internet, promoting enterprise and competing in the internet age. However, his new stealth tax on self-employed contractors is destroying all that. 876 That tax did not appear in this Budget or in the previous one. It is known as IR35 because it appeared only as Inland Revenue press release No. 35. It is a £475 million tax on our future that is driving many high-tech businesses abroad.
I received a letter the other day from a person with such a business, who wrote—[Interruption.] I will send the Chancellor the letter. He wrote that he was in the process of closing down the company because IR35 had damaged his business to the extent that it was not worth continuing any more. It is—[Interruption.] The right hon. Gentleman is not listening because he does not like to listen to the truth about what his policies do to people. He should listen to people who are in business because he has not worked in a business for one day in his life.
The business man who wrote to me said:My financial adviser told me that something like 70 of his existing … clients are either leaving the UK or seeking other ways of making a living.The right hon. Gentleman is the first person since Lord Healey to create a brain drain in this country. He talks about e-commerce and the internet but he taxes businesses in those areas and drives them out of Britain. He talks also about charities, and of course I welcome his decision to increase tax breaks for charities. As ever with the right hon. Gentleman, we shall need carefully to examine the detail.
It speaks volumes about the Chancellor and the Government that even charities have found that while he gives with one hand he has taken more away with the other. In the light of the tax increases on charities, dividend tax credit changes and other tax rises, the chief executive of Barnardos has said:We applaud Mr. Brown's commitment to a "new age of giving", but feel that many corporate and individual donors would be surprised to learn just how much of their contributions are being clawed back by the Government.For everyone else it is a new age of giving, but for the Chancellor—taking together his Budget and its impact on charities—it is an age of taking, and taking again.
Last year, the Chancellor announced the abolition of the married couples allowance. He announced that it would be replaced by the children's tax credit, and he made further announcements about that today. Yet the replacement arrives a year after what it is replacing has gone. The Chancellor has done nothing to address that problem. We now have a new definition of the gap year: it is a gap year for parents and children. Even the Deputy Prime Minister would not be very happy with a train operating company that phased out the 9.15 to Waterloo a year before it phased in the replacement bus service. However, that is now the Chancellor's method.
The Chancellor is taxing more and delivering less. That is why taxes are increasing, and no amount of weasel words, Government spin and stealth taxes can disguise the truth that the tax burden is rising and will continue to rise. The Organisation for Economic Co-operation and Development now describes it as the fastest-rising tax burden in the industrial world. The Institute for Fiscal Studies has stated thatthere is no question but that UK taxes are rising … there is no way Labour can get the tax burden back down to the level it was at the beginning of this Parliament.Even the Fabian Society has said that the 877Government may like to emphasise its headline tax cuts, but in fact the overall burden of taxation has risen since it came to power.The Chancellor said, just after I started my speech, that the tax burden is falling. However, he has been saying that for the past three years, and we know that it is not true. No amount of fiddling the official figures can hide the fact that the overall tax burden is much higher than when the Government came to power.
The Chancellor claimed today to be cutting taxes and increasing spending on public services. That will come as news to the Prime Minister, who said for months that it was impossible to do both at the same time. He has therefore torpedoed the argument that the Prime Minister often uses in the Chamber—but perhaps he was only getting revenge for what the Prime Minister and his press secretary did to him a few days ago.
Whenever the Chancellor was in trouble previously, he claimed—as he did a few moments ago—to be cutting taxes. However, the Prime Minister's press secretary last week blurted out the truth. Thanks to the decision to hold Lobby briefings on the record, I have a transcript from last Tuesday. The press secretary began by saying,Please don't ask me complicated questions about tax.In that, he takes a lead from his boss, the Prime Minister. When figures were put to him showing that the tax burden was rising, he came clean, and his actual words are worth listening to. He said:Yeah … those are the figures as set out in their last the PBR—either Budget or, whatever, red book, the projections, Tory projections had they been—yeah—I dunno—whatever.That is how the Prime Minister's press secretary conceded that the tax burden was rising. It is no consolation that the real Deputy Prime Minister is no more eloquent than the official one. That is what he actually came out with.
Let us examine some of the other proposals in the Budget. The Chancellor made a lot of announcements about public spending on health and education. To prevent the Government distorting the Opposition's position in the future, I state that the Opposition unambiguously welcome the new money for hospitals and schools—new money that the Conservative Government were always able to find.
§ Mr. Deputy Speaker
Order. I shall deal with this. There is no need for the right hon. Gentleman to persist on his feet, as it is quite clear that the Leader of the Opposition is not giving way. Indeed, it is not customary to do so at this stage of the debate.
§ Mr. Hague
I should be happy to change the custom, if the Chancellor would give way during his Budget statement in future. We could then correct him as he goes along, instead of having to correct him afterwards, as happens now. That would be the basis on which I would give way in return.
However, we have all learned from bitter experience not to take the Chancellor's Budget soundbites at face value. We shall examine very carefully all the announcements about public services that he has made today. We know all about the Chancellor's triple 878 accounting, according to which two plus two equals 12 for three years. When one looks at the figures, the £21 billion extra health spending promised in previous announcements turns out to be £3 billion a year for three years.
The Chancellor's announcements occasionally grab the headlines on Budget night, but they often leave a sour taste in the mouths of doctors, nurses and patients, whose expectations are raised and then dashed and who see waiting lists getting longer and longer. Last week, the chief executive of the respected King's Fund said on the "Panorama" programme:
I think it's very misleading … it is the wrong way of actually presenting these figures. I've never seen it done before, and I have to say it is not just the NHS, it's in education and other spending areas where they've done the same thing.The Chancellor's other favourite trick is the constant reannouncement of Government spending. We shall have to look carefully for that in the speech that he just made. We remember the new money for IT in schools, and the Chancellor spoke about that again today. However, money for IT in schools was originally announced by the Chancellor in 1997. It was reannounced by the Secretary of State for Education and Employment in October 1997, by the Prime Minister in November 1998, and again by the Secretary of State for Education and Employment in April 1999. There were 16 announcements of the same money, with the same gullible people falling for it every time. [Interruption.] There is no point in Labour Members making a din when being informed that they were taken for a ride on 15 separate occasions. That is how the Government tend to do these things.
After all that, the Government have not delivered on their promises. 1999 was meant to be the year of delivery. Then a Blair aide was reported in The Independent on Sunday as saying:Did we say 1999 was the year of delivery? It was always going to be next year when things really started to happen.What does the Prime Minister do when faced with that reality? He orders up a round of speeches to show that the Government are delivering. But no amount of talking will achieve that when police numbers have fallen, the waiting lists to get on the waiting lists are longer and class sizes have actually increased.
The Chancellor said that he would meet some of those problems with his increase in tobacco duty, ring-fencing it for use in the health service. [Interruption.] I have some questions to ask—occasionally we have questions that the Chancellor ought to answer. Can he confirm that despite increasing tax rates, tobacco duty revenue actually fell between 1998–99 and 1999–00? That is due, at least in part, to the increase in the amount of tobacco smuggled into the country, avoiding the payment of tax at all. The right hon. Gentleman does not seem to have read the report of the Government's smuggling tsar—they now have a smuggling tsar because so much smuggling takes place—which concluded that increased duty was a major contributory factor to increased smuggling.
The Chancellor's hypothecated money for the health service may be another announcement of extra money that does not arrive. If it is additional to planned health service spending, we are entitled to ask what happens when it varies or when the amount is lower than expected. If it is not additional, what is he going on about? It is a sad comment on his failure to deliver that he has to rely on 879 the hypothecation of taxes to try to persuade people that the money is going somewhere useful, which he has failed to persuade them of in the past.
The right hon. Gentleman had more to say about his tax credit programme—a programme so complicated that I think he hopes nobody else will understand it. His repeated announcements always impress Labour Members of Parliament, but as we have seen in recent elections, they have not impressed Labour voters very much, who, it turns out, are not as stupid as their Members of Parliament. Labour voters have listened to all this stuff about reviewing the proposed integration of his integrated proposals, seen through it and cut to the bottom line. The bottom line, very frequently, is that his complexity and confusion costs them and it costs business. The right hon. Gentleman will not explain it to the House, so let me.
By replacing family credit with the working families tax credit, the Chancellor has ensured that a quarter of a million families face marginal rates of tax and benefit withdrawal of more than 60 per cent.—more than 60p in the pound. By extending the means testing of the working families tax credit, he has produced a benefit so poorly targeted that it can be claimed by upper rate taxpayers. By replacing married couples allowance with children's tax credit, he has made sure that no families pay tax at his much-trumpeted 10p lower tax rate. His entire system not only refuses to recognise marriage but is systematically biased against one-earner couples who are not entitled to child care credit.
The Chancellor's claims about tax credits, just like his claims about the new deal, ring very hollow. His own figures show that fewer lone parents found work through the pilot new deal for lone parents than in the comparison areas where the new deal was not put into practice. No wonder the heartlands are rather unimpressed by this. It is only some people in here who live in a fantasy world in which anything that the Chancellor announces happens.
Some Labour Members believe that all the things that the Chancellor talks about on Budget day get delivered to the voters, but the voters know best. It is left to Ministers to live in this fantasy world in which everything is delivered, the dome is a great success, everyone wants to join the euro, everyone wants to get rid of section 28, and no doubt they saw Elvis in the supermarket last night. If the Chancellor said that he had seen Elvis in the supermarket, no doubt some of his right hon. and hon. Friends would run out and issue a press release saying that they had seen him too. That is how gullible Labour Back-Bench Members are about his Budgets. [HON. MEMBERS: "One of them is leaving."] She is one of the less gullible; we should never taunt the hon. Member for Hackney, North and Stoke Newington (Ms Abbott).
The Chancellor talked about the eurobond market. He has been told many times that forcing it to exchange information with foreign tax authorities would be extremely damaging to that huge market in the City of London. He has rightly rejected that option previously; why has he agreed to it now?
The Chancellor announced new schemes for businesses, and claimed to be delivering a Budget for enterprise. Few claims deserve to be heard with more scepticism: every time he delivers a so-called Budget for enterprise, he increases the burdens on business, as he has done hugely 880 in past Budgets. Last year, he said that he was providing tax cuts for businesses in his Budget. But the Association of British Chambers of Commerce estimates that that Budget contained £3.2 billion in tax increases for the remainder of this Parliament. Last year, the Prime Minister had the brass neck to say that business taxes had come down under Labour. The Confederation of British Industry president responded:
The Government has introduced a series of well camouflaged taxes which have put the tax burden firmly onto business. Changes by the Chancellor will push up business taxation by almost £5 billion a year for the first five years of the Labour Government.When people hear what the Chancellor says about business, they will remember the £30 billion in extra taxes already imposed, the 3,000 new regulations imposed in 1,000 days and previous Budget day distortions and broken promises. They will probably not be inclined to believe a word about Budgets for enterprise.
The Chancellor has announced—at least, he has referred to; he did not think that the House merited having the detail described—his reforms of his energy tax, the climate change levy. It is ironic that the Chancellor's great reform is directed at a tax he himself announced only a year ago. He has had to reform his own tax because it contained what he was pleased to call, in his pre-Budget statement, "practical constraints". In plain English, it does not work. There was never any chance of its working.
The tax as originally conceived attacked many parts of manufacturing industry, exported jobs and probably exported pollution. I pointed that out to the Chancellor—this is why he should listen to my responses—only a few minutes after he had delivered last year's Budget. Within a few weeks, Labour Members of Parliament had pointed it out to him after they had begun to hear from their constituents. Eventually, the news reached the Treasury, and now we have the great reform in 2000 of something announced in 1999.
The great reform package fails to address the essential problems, and in many respects it makes them worse. Introducing a tax that requires exemptions for renewable sources of energy and discounts for energy-intensive industries has made that aspect of our tax system yet another example of common sense utterly defeated by Brownian complexity. What makes all that I am saying so sad is that the Chancellor has fallen into complexity. He is trying to retain a stealth tax that is fundamentally unsound. That is the story of the delivery of so much of what he has put before the House today.
The Chancellor talked about pensioners, but he forgot to remind us of some points. People retiring after 6 April 2000 will lose married couples allowance and age-related allowance, which were worth a total of £500 off their tax bills. He may say that the Government are keeping those allowances for those over 65, but anyone who reaches 65 after April will not receive it.
Retired couples are being attacked by the right hon. Gentleman's changes, but they are supposed to be grateful to him for offering them a variety of additional payments worth a fraction of what they will lose. They are supposed to be grateful for being offered a study of how things will be improved in future. The Chancellor has had months to think about all that. He has had months to try to deal with the problem of the increased taxes that he imposed on pension funds: Tesco employees are finding out all about that because they are having to pay an extra 1.5 per cent. in pension contributions now that his greatest tax increase of 1997 is catching up with people.
881 The Chancellor boasts of tax cuts, but although he has given with one hand, he has taken away much more with the other over the past four years. The Chancellor's speech contained plenty of figures; he gave out figures, but he did not want us to figure out their meaning. One figure was conspicuous by its absence: how much more tax people will be paying next year under a Labour Government.
If the Chancellor will not tell people the truth about that, I shall. The increase in the tax burden under the Labour Government, shown in his own Red Book, is the equivalent of an 8p rise in the basic rate of income tax—that is after taking account of everything that he has announced today. For every extra pound that he is letting people keep in their pay packets, he is stealing nine times as much from their back pockets. That is what it means in practice.
The Chancellor has done what all Labour Chancellors do: he has increased taxes. The only difference is that he is much stealthier about it. Under him, taxes are up 9p in the pound and down 1p. After three Labour Budgets that is the bottom line; that is the figure that matters. It means that the overall tax burden will have gone up by £20 billion during his Chancellorship thus far.
This is the Budget of a Government who tax more and deliver less. The Chancellor gave a rosy account of the economy, but he forgot about the difficulties currently faced by many manufacturing businesses and about the present crisis in agriculture. He has done nothing about that.
After four Budgets, it is clear from all that he has done and all that he has failed to do that the stealth Chancellor is failing to meet the needs of the country. We needed Budgets that stimulated enterprises, rather than taking more money away from them; that made this country a low-tax magnet for investment, rather than driving out high-tech entrepreneurs; that reduced regulation, rather than adding massively to it. We needed Budgets that reformed welfare, but they have not done so. Instead, welfare costs have soared, the benefits system has been reduced to a tangled mess, and there has been a complete failure to deliver better public services.
We needed Budgets that prepared us for an internet age; instead, they promote a brain drain. We needed Budgets that helped communities and kept families together; instead, there have been increased taxes on charities and the abolition of the last recognition of marriage in the tax and benefit system. We needed Budgets that tax less and deliver more; we need a Chancellor and a Government who do that. Instead, once again, the Government are taxing more and delivering less.
§ Mr. Charles Kennedy (Ross, Skye and Inverness, West)
[Interruption.] I thank Conservative Members for the warmth of their welcome—it is much appreciated. Although I offer the Chancellor the customary congratulations, it is clear that his prudence has a purpose—spending for a second term.
The whole country will welcome the additional investment in the national health service. We have certainly been calling for that, although the other Opposition party has not. However, in putting those additional resources into the NHS, the Chancellor has given way on two of the arguments that he and the Prime Minister used consistently against the Liberal Democrats.
882 First, we argued that such sums could and should be put into the NHS. That was described as financially irresponsible but it is now the mantra. Secondly, in the controversy over objective 1 match funding that affects Cornwall, Yorkshire and Merseyside, the Chancellor constantly argued that one cannot pre-empt the comprehensive spending review to give a commitment on such funding—until this afternoon, in relation to the NHS. Therefore, it is worth pointing out that the Government make great play in so many ways of their rectitude but, when political expediency and public pressure are brought into play, they are willing to bend. None the less, we are glad that they have responded to public and political pressure on the NHS. We only regret that they did not do it after the general election but sought to constrain its finances in the first half of this Parliament. It would not then have been so necessary for the Government to produce the package that has been announced this afternoon, after too many operations have been cancelled and too many patients have died in the intervening period.
Another point about the balance of the Budget and the headline figures is that about four times the amount of resources are being spent on tax cuts of one kind or another as are being invested in education generally. That tells us a lot about the Government's priorities. Indeed, the Chancellor drew appreciative gasps from Labour Members when he detailed what the headline figures for education expenditure would mean when broken down for schools. However, he is devoting only about £1 billion extra to education spending and if he had forgone the tax cut worth nearly £3 billion, the figures that were cited—and that Labour Members calculated in terms of their effect on their own constituencies—would have been trebled. That is the fact of the matter for educational spending.
There will be genuine anger in the country about the Budget's greatest defect. It adds insult to injury for pensioners. What did the Chancellor actually say? He recycled a number of minor points—minor in terms of the totality of pensioner income—because many of them are already in the public domain. For example, he referred to television licences. There have been one or two welcome moves on income support capability and the winter allowance will go up to £150. That is marvellous; the measure will mean just one quid a week extra for pensioners. However, let us be fair to the Government, because £1 a week is significantly more generous than the 75p that pensioners were previously given.
That is the great missing morality at the centre of the Budget, because what detailed announcements were there for pensioners in what the Chancellor said today? He said that he would have a consultation. Will that be a consultation like the royal commission on care of the elderly, which considered, reported and was effectively shelved? By the time this consultation reports—never mind whether the Government choose to move on its recommendations—how many more pensioners will have died as a result of not getting access to the hospital care, the operations or heating that they need? The brutal truth is that simply to announce consultation for pensioners rather than direct income support action now means that, for many, action will be literally too late.
The environment is another issue that has not received great attention from the Chancellor. He promised us another consultation on brownfield taxes, but surely the time has come for the country to bite the bullet on 883 environmental protection. When he referred to vehicle excise duty, he slipped through, in passing, remarks about the acceptability of trucks of more than 40 tonnes, and that goes against what the Labour party said some time ago before the last general election. On environmental priorities, the Government are failing badly and the Budget proves that that is so.
One must not be too churlish. Employee share ownership has long been advocated by the Liberal party and by the Liberal Democrats. We shall certainly welcome anything that extends its scope, although we shall of course want to consider the detail. When in his statement the Chancellor announced that he was freezing spirit duty and getting rid of the air taxes that affect the islands and highlands, I began to think that we were making progress in our joint Cabinet committee and that it was beginning to deliver results at last, even if not as yet on proportional representation.
In a week that has seen the massive problems with Rover, the country will be amazed that the Budget did not touch on the priorities of the wider economic context: the strength of the pound and the failure to give a lead on British entry to the euro. That is hitting manufacturing—Longbridge, obviously, in particular—and surely the Government must accept their share of the responsibility, however the management of BMW may have acted recently.
The uncertainty created by the fence-sitting on the euro is deterring inward investment and pushing up the value of the pound. That, coupled with high interest rates, which are twice those of our European competitors, constitutes a double whammy. It is worth recording that since last November, the trade deficit has doubled, rising from £10 billion to £20 billion. It is a remarkable Budget that makes no reference to any of those facts.
The other area that was not touched on, which has suffered so significantly as a result of that combination of circumstances, is agriculture. I am beginning to think that the Chancellor must have believed the Prime Minister when he went to the south-west a few weeks ago and told an incredulous local population that life in rural Britain was really going rather well. That is not the case. The farming industry is in deep recession, and it is an absolute disgrace that the Chancellor, with vast sums at his disposal, is unable to announce today that he will access the agri-compensatory funds available from Europe; and Liberal Democrat Members will continue to campaign on that issue.
This is in many ways an ingenious Budget, set against a benign economic scenario, but for pensioners, farmers, those who care about the environment and educationists it will be a deep disappointment. This Budget is delivered with more than an eye on a general election and on the Chancellor's own political future beyond that, but however long that time scale of political calculation is, for too many, particularly the elderly and the most vulnerable in our community, this Budget will have come just too late.
§ 5.2 pm
§ Mr. Barry Jones (Alyn and Deeside)
I am glad to support the Budget, which is clever, cautious and compassionate. I am glad to follow the right hon. Member 884 for Ross, Skye and Inverness, West (Mr. Kennedy), the leader of the Liberal Democrats, and the right hon. Member for Richmond, Yorks (Mr. Hague), the Leader of Her Majesty's Opposition, who both made a good fist of their speeches following a tour de force by the Chancellor.
I liked the fact that the Chancellor referred to the work ethic, that he declared that he wants to see the renewal of British civic society, that he wants to reward enterprise, that he has obtained the lowest corporate tax rates and that he wants to boost employee shareholding. I welcome also the maternity grant, the big boost in child benefit and all the measures to attack and end child poverty.
The Chancellor's talk of a shared pursuit of the common good was more than inspiring, and a Budget that aims for that has to be more than good. I appreciated the measures for pensioners and the £4 billion injection for public services. The Chancellor ended by saying that this is a Budget to unite the nation. Surely that must be true.
I welcome the tax cut and the aim to get more people than ever off benefit and into work. I welcome the reinforcing of the schools service and of the national health service. That will build on the success of the minimum wage and the working families tax credit.
I shall try to summarise by saying that this is a popular Budget and a genuine Labour Budget. It will help those in genuine need. I know that it cares for children and invests in the fabric of the welfare state, chiefly our schools and hospitals. It surely reaches out to help the underprivileged.
I have a question to put to Ministers: will the sign-posted new moneys for the schools service mean more teachers at the chalk face? I know that the millions of parents at the school gate want, above all, more teachers in the school. They want the money itemised by the Chancellor translated urgently into extra teachers. I understand that one part of the money will be paid directly to head teachers, and that it will avoid the dead hand—the aldermanic grip—that can sometimes prevent moneys going into schools.
Will the new moneys for the health service cut waiting lists? How soon should they do so? We are endowing the health service with national treasure in the form of billions of pounds. I wonder whether the dragon in the path to progress is the existence of too much bureaucracy in the service. Why is progress in slashing the waiting lists so maddeningly slow? I support the Chancellor's proposal that if he is to pump billions into the service, there must be reform in the organisation of the service.
§ Mr. Jones
No, I will not at this stage. The Leader of the Opposition did not give way, and I want to make a brief speech.
For certain, our children require more teachers. We need more teachers to guarantee the right of every child to achieve his or her potential.
None of our constituents should be sick with worry while waiting and waiting for the consultation and examination that will tell them the significance of their symptoms, which in themselves create fear and anxiety in patients.
885 If we are to put people into productive work, we need to secure our manufacturing industries. I remain anxious about an industry that I know well—the British steel industry. I am anxious after the merger of British Steel and the Dutch company, which overnight formed the new company, Corus. I do not want the closure of any steel plant in our nation. I do not want a programme of redundancies, whether voluntary or compulsory. I do not want dumping—which has taken place—by ruthless, cheating competitor companies from abroad.
In my own country, Wales, we have magnificent steel plants such as Port Talbot, Llanwern and the Shotton works in my constituency. I do not want them to lose jobs. I do not want any steelworks in Britain to be mothballed or closed.
A complicating factor in the continuing struggle of the United Kingdom's steel industry is the strength of the pound. Those are the matters about which the union leaders and their managers on the Shotton steelworks committee tell me. They tell me that the situation is worrying.
I know that a strong United Kingdom manufacturing base requires a powerful, stable seedcorn industry such as steel. There is no wealth in our nation without powerful seedcorn foundation manufacturing industries. I shall look closely at the Budget in the weeks and months ahead to see how it might further assist our manufacturing, as the Chancellor has done before.
I thank the Government, specifically my right hon. Friends the Secretary of State for Trade and Industry and the Secretary of State for Wales. They have delivered for my constituency some £530 million of repayable loan investments for the A3XX airbus project. My constituency will be the project's principal beneficiary, to the tune, at the very least, of 1,400 new jobs, and that is in addition to the existing 4,200-strong Broughton works in my constituency.
The good news is that, thanks to the action of the Treasury, the Department of Trade and Industry and the Welsh Office, that factory now faces a generation of prosperity. Already, ahead of the £530 million, it has had a £123 million repayable launch investment for the A340 aircraft, which is now flying, and has also recently seen an on-site investment of some £230 million. That is a massive injection of about £883 million.
I can only thank Her Majesty's Government for that input, and tell this honourable House that my constituents are more than pleased. Here is a world-beating, world-class, high-tech success story in my constituency on Deeside. The Government have backed us all the way. The Treasury has been the fulcrum, but I cannot praise too highly the work of the Secretary of State for Trade and Industry and the Secretary of State for Wales in the Cabinet Committee system.
I am proud of the campaign for that £530 million, led by the convenor at the Airbus works, John Hamilton, and his senior stewards. They collaborated successfully with, first, the now ex-works director, Mr. Bill Travis, and then with the current works director, Mr. Brian Fleet. That collaboration has been superb. Again, I put on record my thanks to my right hon. Friends.
I now ask the Welsh Assembly to contribute to the A3XX project by giving that mighty aerospace project a £25 million regional grant. I have given the First Secretary a petition of more than 1,000 names which was prepared 886 by the works convenor, John Hamilton, at the Airbus factory. Deeside, and all of north Wales, refused to vote for an Assembly at the time of the ballot. The electorate was questioning and sceptical. This is the first big decision for the Welsh Assembly in its short life, and that big decision just happens to reflect life, industry, the hopes and the future in Alyn and Deeside in north-east Wales.
I cannot overestimate the negative reaction that there would be to a refusal to give the £25 million grant following the £530 million signalled by the Government. Not to have that regional grant from Cardiff would give rise to the belief that the fledgling Assembly was indifferent to the hopes of those in the north of Wales, particularly on Deeside. However, I thank the First Secretary for his courteous and positive response to the petition that I gave him, and the helpful and positive letter that he sent me this very week. I know that in all this the Secretary of State for Wales has been a powerful advocate of my constituents' interests.
Does the Budget contain measures to enable a county authority such as Flintshire—my authority—to tackle the problems of modernising and maintaining our large and ageing post-war council estates?
My councillors, who are Labour and of whom there are many, work hard. They want only the best for their tenants. They want to install central heating, new doors and windows in hundreds of decaying streets. They want to improve and modernise pensioners' accommodation and they want the urgent and generous release of council house sale receipts. I support their objective. I hope that Ministers will be able to say at the end of the debate that the objective will be achieved.
Accepting the specific requests on housing that I have made on behalf of my county authority members is a means of helping the poor, the unhealthy, one-parent families, the unemployed and those without hope. I should like to believe that we can renew the fabric of decaying social housing, and that that has the potential to increase the sum of human happiness. I hope that the detail of the Budget will provide a positive answer. At this stage, I do not know, but it is my duty to speak up for those of my constituents who are trapped on ageing, decaying, post-war council estates.
No. 10 Downing street is tenanted by arguably the most powerful premier in the history of the office. He established the social exclusion unit because he means to change society. For example, he made more than £800 million available to enhance the toughest council estates. I want social justice; it is my priority. The Budget points to social justice, and I believe that the Prime Minister is committed to it.
No. 11 Downing street is tenanted by arguably the most successful Chancellor in the history of Labour Governments; possibly the best Chancellor of modern times. That impression was given this afternoon, when a man, a Chancellor, a Minister in his prime delivered a Budget that he said would unite the nation.
I support full employment. The Chancellor seeks high and stable employment levels. That Attlee-esque phrase encapsulates my hopes for a society where there is work for all and health and security for the retired. For as long as the Prime Minister and the Chancellor collaborate positively, the Government are impregnable and re-electable. The signs for that are more than good.
887 I renew the call for a stronger manufacturing base. Without strong steel and aerospace industries, Britain will not generate sufficient wealth. If Britain allows the so-called underclass—the underprivileged and the dispossessed—to continue to grow, our nation will not be united and cohesive. Our social problems will increase, and we will need many more positive Budgets such as today's. Social justice and high and stable employment remain my priorities. Today, the Government have decided that those objectives are their priorities.
The Budget delivers. Her Majesty's Government have invested well and generously in my constituency of Alyn and Deeside. For the sake of the nation and my community, there is no room for complacency while the dispossessed are measured in many millions. The Budget is a fine one; it is a Budget for social justice, and I commend it.
§ Sir Michael Spicer (West Worcestershire)
I can agree with one remark made by the right hon. Member for Alyn and Deeside (Mr. Jones): this is a Labour Budget. Like all socialist Budgets, it will—despite the rhetoric and the propaganda—ultimately undermine the strong economy which the Government inherited from their predecessors.
On the surface and for the moment, these seem like good times for the economy. On the surface, the Budget seems to reflect those good times. But as the Leader of the Opposition, my right hon. Friend the Member for Richmond, Yorks (Mr. Hague), said in a brilliant speech—in 27 years as a Member of the House, I have rarely heard a riposte to the Budget that was so coherent, so on the ball and so to the point—if we delve a little below the surface and into the Red Book all is not quite what it seems. The productivity, investment and balance of payments figures all show serious deterioration.
The economy is not as soundly based as the Chancellor would have us believe. Let us take the fiscal position—the point on which he would seem to be strongest, but one on which Labour Members were silent. They do not like hearing about his fiscal soundness and his prudence, of which he keeps reminding us. That also is not quite what it seems when he flashes his mirrors. The immediate Budget surplus is clearly present because at this stage in the economic cycle the tax take is exceptionally high, and—they cannot have this one both ways—as we now know, the Government have consistently put up total tax rates since coming to office. They cannot say that there is a surplus and at the same time not accept that there has been a massive increase not only in the rates, but in the tax take.
The Lombard Street research group has recently shown that a disturbing picture emerges when that rate of growth in taxation is compared with the trend growth rate in public expenditure. Since 1998, there has been a relentless rise in the growth of public spending—a trend that accelerated when the Government broke loose from the expenditure programmes that they inherited from the Conservatives. That is confirmed today in annexe A, paragraph A20, of the Red Book, where it is unashamedly stated that even current public expenditure will rise considerably faster than the projected rate of growth in gross national product. The Government say that they will 888 achieve that without breaking their fiscal rules, which they set themselves and which apply effectively to capital expenditure.
Under the new laxer rules for public borrowing undertaken with the private sector—the public-private partnership—the official public expenditure figures probably understate the explosion in public expenditure which is currently under way. No doubt that pleases Labour Members, but they cannot have it both ways: they cannot claim to be prudent and at the same time accept that enormous increase. That is what the right hon. Member for Alyn and Deeside was really saying when he said that this is a Labour Budget. He approves of the enormous growth in public expenditure, which is one of the things that the Government are disguising.
The trend growth rate in public spending is accelerating even faster than the trend rate growth in taxation. All independent observers are reaching that conclusion. It means, first, that the fiscal position is much less secure than the Chancellor made it out to be this afternoon. Secondly, it is undoubtedly one reason why interest rates are high—and why the value of the pound is high, as well. Thirdly, from a business point of view, it means not only that interest rates and the value of the pound are high, but that the burden of the public sector is growing in all its facets. That must be one of the reasons why there is a new deterrent to investment, why trends in productivity are now down, and why a potentially serious balance of payments problem is emerging.
One feature of the growing public sector that was not mentioned in the Budget statement is the vast and expensive growth in regulation and in regulatory bodies, for which there is no economic justification. Authorities such as Ofgem, Ofwat, Oftel, the Financial Services Authority, the Rail Regulator and the Post Office regulator—some of which were established in embryo form by the last Administration to put competitive pressure on the otherwise uncompetitive utilities—have now become the unaccountable means by which the Government impose costly political objectives on industry.
Rather than dealing primarily with competition issues, which would have made sense in terms of some of the objectives mentioned by the Chancellor—he referred to the banking system, for instance—the Post Office regulator now decides the level of privatisation, the Rail Regulator decides transport strategies, Ofwat decides the level of environmental investment, Oftel decides the distribution of telephones and the FSA decides matters relating to social banking. The implication of what was said today was that, in some respects, that would mean something verging on compulsory banking. Ofgem, meanwhile, is concerned with income distribution in the context of fuel poverty, which was also mentioned today.
No wonder, in a recent paper from the Institute of Economic Affairs, Professor Stephen Littlechild, the former electricity regulator, bemoaned the fact that the duty on regulators to promote competition was no longer unqualified. He warned that, among other things, the move could open the floodgates to a wave of appeals against the regulators to the Competition Commission. He also issued a heavy warning that the regulators were setting themselves up as a sort of shadow Cabinet, and were beginning—no doubt guided by the Government— 889 to develop strategies that had nothing to do with the country's economic performance, and everything to do with the increasing burdens on industry.
Those burdens are both direct—industry has been asked to pay the costs of the regulators, which amount to hundreds of millions of pounds—and indirect. Imposed on industry are a range of objectives and costs that have nothing to do with providing business, and everything to do with politics—and with taxation in many cases, and income distribution in others.
Far from this being a pro-business or even a pro-consumer Budget, as the Government proclaim, the Government are now systematically undermining business. They are doing that through higher taxation and with it higher public expenditure, and consequently through higher interest rates which in turn lead to a high value of the pound.
Above all, through their ham-fisted intervention, the Government are undermining the strong economy that was left behind by the Conservative Administration. Sometimes, it is directly ham-fisted, as with Rover last week, but it is also covertly ham-fisted: a vast regulatory regime is arising. They have introduced nationalisation by the back door in many cases, equipping the new regulators, incidentally, with draconian enforcement powers—in the case of the FSA, powers effectively to imprison people should they not comply with rules that it is in many instances allowed to set up subjectively.
Therefore, the Budget must be seen in the context of what is going on with the management of the economy. The spin, the flashing minors and the distorted propaganda will in the end be no match for the reality, which, as with all socialist Governments, is anti-business and, ultimately, destructive of the economy.
§ Mr. Michael Clapham (Barnsley, West and Penistone)
The previous speech was rather uncharitable. I shall not be attracted down that path—but, for my locality, the economy has been managed with great effect. I will deal with the point that was implicit in the speech of the hon. Member for West Worcestershire (Sir M. Spicer), namely, that low taxes tend to be a moral imperative.
The Budget builds on previous ones and continues the principle of redistribution, as well as providing stimulation for industrial growth. My locality has been assisted in the past two years. The Budget will be extremely helpful for localities such as Barnsley that are rebuilding their economic and social structure after considerable neglect during the Tory years.
I want to point out the benefits that have accrued to my community. For example, 2,785 households will benefit from the working families tax credit. A total of 15,366 pensioners will benefit from the pension increases and 6,146 pensioners aged over 75 will benefit from free television licences. Youth unemployment in my constituency has fallen by some 67 per cent. in the past year or so. About 11,200 recipients of child benefit will benefit from the increases that have been announced by the Chancellor. In my constituency, 1,307 businesses will benefit from his announcement today on corporation tax.
The Budget contrasts with the ideas of the Conservative party and the ideas that were implicit in the speech of the hon. Member for West Worcestershire. For example, the 890 Conservatives believe that leaving private finance to provide public services would benefit Britain. They do not see that it would create a two-tier Britain. Their view is that British society would be better if sectors such as health were privately financed. That view is totally out of keeping with the majority view among the British public.
§ Mr. Maclean
If that is the way, why is it that every new hospital that is built is a result of the private finance initiative, and the Government boast about and take the credit for private finance in the health service?
§ Mr. Clapham
If the right hon. Gentleman can hold his fire for a moment, I shall come to the moral imperative of private finance. To answer his question directly, the private finance initiative is part of the Government's overall approach to hospital building, which was so neglected by the previous Government that a radical approach was required, pulling in all partners to the hospital building programme.
The Leader of the Opposition implied that low taxes were a moral imperative for any Government. That approach is nonsense. It is totally out of touch with the majority of the public, as the global picture demonstrates. For example, low-tax Russia is a disaster, while high-tax Holland and Denmark are the fastest growing economies in the European Union.
In any society, a progressive tax system is the best way of stimulating the economy and reinforcing the social structure. The British public have shown clearly that they want high-quality public services. They also want fairness in the workplace and that is why they support the minimum wage, the social chapter and parental leave. Eventually, we should press for parental leave to be paid, so that we can match the paid parental leave provided by our European partners.
The public support the tax credit system and the largest ever increase in child benefit that will help to lift families out of poverty. They know full well that that cannot be achieved merely by financing private sources. Services are not free—schools, hospitals and roads have to be paid for out of taxation. Taxation makes it possible for those services to be available to all free of charge.
In my view, progressive taxation—and here I shall answer the point raised by the hon. Member for West Worcestershire—is a contract between citizens who contribute according to their ability and the democratic undertaking by the Government to build a better society for all. The previous Administration, in which the right hon. Member for Penrith and The Border (Mr. Maclean) was a Minister, did not provide a better society for all; they concentrated on the few rather than the many. The present Government are doing the opposite.
The Budget makes further substantial resources available for health and education, and that will be most welcome in Barnsley. Health service reforms are already well under way in the area, but the town has a high rate of heart disease, strokes and cancer. Although the health authority received an increase in its budget of more than 7 per cent. this year, because it started at a very low level, it is still £2 million short. The extra help announced by my right hon. Friend the Chancellor for the health service will be very welcome in Barnsley.
There is already a health action zone in South Yorkshire covering Doncaster and Rotherham. It is pulling together across the region and helping to focus resources on the 891 problems identified in the health improvement plan for the region. The extra help that my right hon. Friend has announced will help the health action zone to focus resources where they are badly needed.
The United Kingdom has more people in employment now than at any time in the past and today's Budget will help to continue the economic dynamism that has created an extra 800,000 jobs since 1997. Referring to the point that the hon. Member for West Worcestershire made about whether the Budget assisted industry, I can tell him that in Barnsley and South Yorkshire the endeavour to regenerate the local economy is going apace. In the Dearne valley area, for example, 6,000 jobs have been created over the past two or three years. It is probable that by 2005 another 4,000 jobs will be created in the area. They will replace jobs lost in the mining industry, which was so cruelly shut down by the Conservative Administration, when very little help was given to the locality. The measures to assist business will therefore be very welcome. They will assist in the work currently being done in the locality by the local authority, and help the locality to recover from the structural blows inflicted in the 1980s and 1990s, when very little assistance was provided.
Britain is now competing in a global economy. If we are to compete successfully, we have to have a well-educated and well-trained labour force. The Chancellor's boost for education today will help regions such as South Yorkshire and particularly localities such as Barnsley.
The educational achievement of pupils in South Yorkshire, for historical reasons, has been lower than the national average. Prior to the previous general election, only 29 per cent. of pupils in Barnsley, compared with the national average of 44 per cent., were achieving five or more A-levels at grades A to C. There was little that the local education authority could do about that as it had been starved of resources. Some of our schools even had bucket monitors.
Since May 1997, the situation has gradually been reversed, assisted by the commitment of the local education authority and the Barnsley education action zone. The education action zone has played a very important part in increasing achievement in the past year or so. Achievement levels have started to increase.
Last Friday, with my two Barnsley colleagues—my hon. Friends the Members for Barnsley, Central (Mr. Illsley) and for Barnsley, East and Mexborough (Mr. Ennis)—I met the director of the Barnsley education action zone to discuss some of the improvements that have been made and generally to see what was being done at the chalk face. We had to remind ourselves that the education action zone had been created only in September 1998. Although the project was established initially to operate for only three years—funded by a £750,000 grant from the Department for Education and Employment—it has already started to make quite important improvements. It has, for example, produced increased achievement levels in standard assessment tests and in GCSEs.
At the school that I visited on Friday, it was clear that the provision of information technology instruction is having an enormous impact in increasing pupils' 892 commitment to getting stuck in at school and to working hard. That achievement has been made possible by the way in which the education action zone has been able to focus resources on information technology equipment.
The Budget is good for industry and it will certainly be good for Barnsley's regeneration. It is also good for local health and education. The Budget is good for pensioners, and it is good for the British public's quality of life. The Budget will help to make Britain a better place to live.
§ Mr. David Maclean (Penrith and The Border)
I am glad that the hon. Member for Barnsley, West and Penistone (Mr. Clapham) can find something to welcome in the Chancellor's Budget, and that he thinks that it will benefit his constituents.
I am afraid that, in my large rural constituency—the largest rural constituency in England, covering almost 1,500 square miles—in Cumbria, not many people will be cheering in the valleys tonight, as Bill McLaren might have said. They will not be cheering because the Chancellor has done nothing to reduce the crippling roads costs that he has created in the past few Budgets; nothing to save the rural economy, which is dying under this Government; and nothing to redress the burden that he has imposed in the tax system on married couples.
The first thing to say about taxation under this Government is that, today, we were presented with only about one quarter, or perhaps one tenth, of the picture. If today's Budget were the first delivered by this Chancellor, we would probably all leave the Chamber saying, "Not a bad bloke—very good on delivery. It sounded quite a good Budget; not too bad after all." However, we have bitter experience of this Chancellor's Budget statements. We know that what we hear from the Dispatch Box is not the full story—it is nothing like half of it. In his last Budget, the Chancellor did not mention IR35, and then £400 million of extra taxes were imposed on business and small entrepreneurs. We heard not a cheep from the Dispatch Box. That came out a few days later, in an Inland Revenue press release called IR35.
The Chancellor did not have the courage to spell out by how much he raised petrol duty in his last Budget. He said that it was a few pence above the normal rate of inflation. I remember when Chancellors used to say that that meant that duty would go up by 20p a gallon—or by 17p a gallon, as it did following the last Budget. In this Budget, the duty has gone up by 8p a gallon. The Chancellor did not spell that out.
The Chancellor did not spell out the full effects of his Budget, which will dribble out in the next few days. That is why there will be a muted reception for the Budget in the City tonight, and in households across the country. There will be a muted response in Longbridge and at Rover, as well as in manufacturing industry. People are waiting to hear what the real Budget is, when the truth will come out.
On taxation, the truth began to come out last week, when Alastair Campbell admitted, for the first time, what the figures were on taxes. Despite headline tax cuts—such as the reduction in the basic rate of income tax to 22p from April—overall taxes have gone up under this Government.
The Treasury's own figures show a rising tax burden—that is, net taxes and social security contributions as a percentage of gross domestic product. When we count in 893 the working families tax credit, which it is legitimate to do, we see that, in 1996–97, the Treasury was taking from the British public 35.3 per cent. In the current year, it will be 37.3 per cent., rising to 37.7 per cent. The overall tax take from the pockets of our people is rising under the Government. Despite all the flim-flam, dross and bluff from the Chancellor, the overall tax take is increasing.
Until last week, Ministers refused to admit that taxes were rising. We have heard claims that, next year, the tax burden on the typical family will be at its lowest level since 1972, and that the figures show that the tax burden is falling. Last November, the Prime Minister said that the Chancellor did not say that the tax burden was increasing, because it was not—it was going down. That is typical of the assertions that we have had from the Government time and time again—until last week, when the Government finally admitted that the burden of taxation had risen. On Monday 13 March, the Prime Minister's official spokesman, Alastair Campbell, admitted that the tax burden had gone up.
On Wednesday of last week, the Prime Minister was put on the spot by my right hon. Friend the Leader of the Opposition, whose response today was the finest that I have heard in the House in 19 years. My right hon. Friend quoted back to the Prime Minister what the Prime Minister had said before the election. For the avoidance of doubt, let us briefly refresh our memories. Before the election, the Prime Minister said that Labour had no plans to increase tax at all. He said that Labour's proposals did not involve raising taxes. He said that the programme of the Labour party did not imply any tax increases. That seems pretty clear to me, although I am a layman in these matters.
When the Prime Minister was challenged last week by my right hon. Friend, he said that Labour had promised not to raise the basic, standard or higher rates of income tax and that it had kept that promise. We have a new form of weasel words. The Prime Minister, apparently, did not make those pledges before the election—he did not say that his policies involved no increase in taxes at all. The Prime Minister is now trying to claim that what he said, meant to say or should have said was that the Government would not raise the basic, standard or higher rates of income tax.
We were conned. The British people were conned by this Government before the election, which is why my right hon. Friend was right to accuse the Government of telling barefaced lies.
§ Mr. David Chaytor (Bury, North)
I have a simple question for the right hon. Gentleman. During the election campaign, what did he see on the hundreds of large billboards around the country on the subject of the Labour party's position on tax? Did he see what my hon. Friends and I saw—a specific commitment not to raise the standard or the higher rate of income tax? Did he and his colleagues not see that message spelled out clearly on billboards? And it has been delivered.
§ Mr. Maclean
Of course one saw Labour propaganda posters, but I am not talking about them. I am talking about the words of a man who is a Privy Councillor, who was the Leader of the Opposition and who is now the British Prime Minister. Surely we are entitled to pay more attention to the words of the British Prime Minister when 894 he makes three solemn declarations in various interviews. Is the hon. Gentleman saying that we should have ignored what the British Prime Minister said and read the propaganda posters, because the fine print on them had a different story to tell?
§ Mr. Alan W. Williams (East Carmarthen and Dinefwr)
Does the right hon. Gentleman remember the last year of the Conservative Government? How large was the public sector borrowing requirement? It was some £28 billion, or about 3.5 per cent. of GDP. If the Conservatives had been returned and if they had had a policy to balance the books at any stage, that 35.3 per cent. tax burden would have implied an increase of 3.5 per cent.
§ Mr. Maclean
I remember that. I also remember that the PSBR was declining, following the recession that the country had gone through. I remember how many extra police officers we had under the previous Government, and the fact that waiting lists were shorter and class sizes smaller. I can remember some other promises made by the Labour Government before they got into power, and we will come to some of those in a moment.
§ Mr. Peter Bottomley (Worthing, West)
Is not the simple point that Labour Members who wish to intervene in my right hon. Friend's speech should either say that the Prime Minister did not say what has been quoted, or that he did not mean it?
§ Mr. Maclean
I am grateful to my hon. Friend, who, in his usual erudite way, has made an important point. The Opposition have a problem—[Interruption.] I mean the Government, although they are my opposition and my constituents' opposition. The Government have a problem. The Prime Minister made solemn promises about income tax, which have clearly been broken. He has been informing the House for three years about a situation that, it turns out, is no longer correct—I choose my words carefully. The Government either have to say that the Prime Minister got it wrong or did not mean what he said, or they have to admit properly that taxation has risen and that the Prime Minister got it wrong and, for three years, every week, inadvertently misled the House.
The Government had better realise that those promises by the Prime Minister will come back to haunt them. They do not have to take my word for it; they can look at the growing number of independent surveys that show that the tax burden is rising. Figures published in late 1999 by the Organisation for Economic Co-operation and Development show that Britain has the fastest rising tax burden in Europe and now pays more tax than Germany, for the first time in a generation. The increase in this country is also greater than in any other developed country. While the international trend is towards lower taxes, the first full year of a Labour Government saw the biggest annual rise in taxation for 16 years.
In addition to the OECD report, the Office for National Statistics published figures on 18 November that showed that the tax burden had increased since the 1997 general election. In the second quarter of 1997, the tax burden in the UK was 35.6 per cent. of GDP and in the second quarter of 1999, it was 37.7 per cent. The OECD and the ONS both used longstanding and internationally accepted 895 methods of measuring the tax burden and their figures are irrefutable. They are not Conservative propaganda dreamed up out of thin air.
A March 2000 analysis by the accountancy firm PricewaterhouseCoopers has predicted that the cumulative increase of discretionary taxes imposed since Labour took power will be £10.8 billion by the end of the Parliament. Although net changes in personal taxation will be negligible, the report said that the extra revenues had been generated through a mixture of higher taxes on companies and institutions, and increased levels of expenditure. It beggars belief that the Chancellor could stand at the Dispatch Box today and start boasting about the Government's tax record. Taxes are rising under this Government. They have gone up by 9p in the pound and have come down by 1p in the pound, as my right hon. Friend the Leader of the Opposition said earlier.
The Chancellor made a big play about pensioners. Ministers like to boast that they have given £1.6 billion to pensioners, but they have failed to say how much they have taken away from them, such as the £5 billion a year tax on pension funds. Future pensioners will be worse off because the Chancellor has loaded £5 billion a year of tax on to pension funds. To make matters worse, the most popular savings vehicles of all time—TESSAs and PEPs—have been abolished and the amount of money that people can save tax free each year for their future has been halved.
The Chancellor did not mention the abolition of dividend tax credits, which means that 300,000 pensioners whose income is so low that they do not even pay income tax will have to pay, on average, an extra £75 a year in tax. He did not mention today the scrapping of the married couples allowance in the 1999 Budget. He gave the impression that pensioners would retain the MCA, but the small print revealed—as we always discover with this Chancellor, after all his rhetoric at the Dispatch Box—that those turning 65 after next April will not be able to claim the allowance, which will cost them an extra £500 a year in tax. Those people had neither expected nor planned for that increase, and constituents have come to see me and have written to me on that point. A £500 extra tax bill is a tremendous blow to people who have budgeted carefully for their old age.
Neither did the Chancellor mention the scrapping of the widows bereavement allowance. Labour has abolished the allowance granted to widows aged 60 to 65 following the husband's death and replaced it with a payment that will be available only to widows under pension age. That was worth £285 a year to people. It may be small beer to the champagne socialist party opposite, but it is a lot of money to those people who counted on it. Labour's first Budget in 1997 also abolished tax relief on private medical insurance for the over-65s, so we do not need to hear more rhetoric from the Chancellor on how well he is looking after pensioners. The record of what the Government have taken away from pensioners speaks for itself.
Today, the Chancellor tried to make the most of the fact that he was not putting up fuel duty by more than the rate of inflation. That simply means 8p a gallon extra on fuel and diesel duty tonight. We should be grateful, because it was 17p a gallon last year. However, that still means that our fuel and diesel costs are a third more than 896 the highest priced diesel of any of our competitors on the continent. Refuelling a lorry with a 1,000-litre tank would cost £443 in Italy, £417 in France and £401 in Denmark—and they are the most expensive countries in Europe. In the cheapest countries, it would cost much less—£293 in Portugal, for example. If we take the most expensive countries, it would cost about £420 on average to fill that tank with diesel. In this country, it costs £663 to fill that lorry with diesel, and after the Budget it will cost another £20, bringing the cost to £683. That is almost £700 to fill the tank in the UK compared with £400 in France and Germany, which are competitor countries. Is it any wonder that our road haulage industry is being crucified?
Let us take vehicle excise duty and the nearest countries to us, which are Belgium, Denmark, France, Germany and Ireland. In Ireland, it is £1,278 for a 40-tonne vehicle; in Belgium, it is £860; in Denmark it is £462; and in France and Germany it is £450 and £1,700 respectively. It is £1,800 in Sweden. Germany is a good example, because it is one of the most expensive VED countries in Europe. That is, until we come to the charge in Britain, which is £5,750.
If my constituency in the Lake district in north Cumbria does not have good transport links, it will die. The way in which the Government are clobbering transport through vehicle excise duty and fuel duty is crucifying the road haulage industry in my area and increasing the costs of every other industry that requires goods and commodities moved round the country.
I remind the House briefly of some of the other points in the Budget. Of course, the Chancellor made much of national health service expenditure. I wonder how many times that money has been triple counted already, and how many times it will be triple counted in the next few days. The extra £21 billion is now being claimed to be another £50 billion. By the general election, it will no doubt be an extra £150 billion.
Did we not see in last week's "Panorama", a programme that is not usually critical of a Labour Government, doctors, leaders, nurses and other experts in the NHS complaining that, in their view, the Government had lied about the figures? They talked about the Government having taken credit for the extra doctors coming out of training school when those doctors were in the system in any event and due to leave training school. They talked about how the Government have triple counted the money going into the NHS.
When listening to the Chancellor this afternoon, we could only think, "Good, there will be extra expenditure on the health service." No doubt when we read the small print we shall find that it is nothing like the expenditure that the Chancellor has claimed, and that the Government will still have failed to tackle the real problems of the health service.
We heard nothing from the Chancellor about the Home Secretary making a statement in a couple of days about more funding for law-and-order issues. If the Government are allocating less than £300 million for such issues, that will not deal with the huge cuts in police numbers that we have seen under the Government and will see in future. They have boasted about an extra 5,000 officers, but they will not be extra officers. They will be the officers who will be recruited in any event to try to fill the gaps that will be left by the 10,000 officers leaving the police service or retiring from it.
897 We have had a great deal of spin from the Chancellor, but we have had nothing from him that gives me any satisfaction that the real problems of rural deprivation in the far north of England will be dealt with. A dying agricultural economy and severe transport problems have an effect on all rural areas. We cannot have social inclusion, which the right hon. Member for Alyn and Deeside (Mr. Jones) was talking about and of which the Government were boasting, if thousands of pensioners in rural areas cannot afford to drive to towns and villages. They cannot afford to go out because the cost of motoring has increased under the Government. They have never had bus services in sparsely populated rural areas, and they never will have. It is not social inclusion to exclude those people, and there is nothing in the Budget to help them.
I suspect from what I have heard today that there is nothing to cheer for in the Budget. I am certain that, as more of the fine print dribbles and leaks out from Inland Revenue and Customs and Excise press releases over the next few weeks, as details are winkled out in Committee as the Finance Bill is considered, and as the Chancellor is forced to make clarifications, we shall have nothing to cheer about. We shall find that the stealth taxes are continuing and that the 1p that the Chancellor is giving us back in the rate of income tax is in reality 10p more in the pound, and not the 9p in the pound that my right hon. Friend the Leader of the Opposition talked about.
§ 6.5 pm
§ Mr. James Plaskitt (Warwick and Leamington)
The right hon. Member for Penrith and The Border (Mr. Maclean) said that he would give the Budget a muted reception. I can tell him that it will receive a much more positive reception in schools in Warwick and Leamington, given the extra funding that will come through to them shortly. It will receive a warm welcome from the national health service in my constituency, and by all those who are concerned about the proper funding of the NHS.
The Budget will be welcomed also by working families and low-income families, who have much to gain from the measures that have been announced today. The Budget will be welcomed by all those in my constituency who have found work in the past two and a half years. Unemployment has fallen by 40 per cent. as a result of the Government's measures. The Budget will certainly receive a warm welcome from pensioners in my constituency, who will have several reasons to cheer the measures that have been announced today.
I certainly welcome the Budget because it represents further progress in delivering some of the Government's vital objectives, which brought me into the House. These include tackling child poverty and eventually eradicating it, helping pensioners on low incomes and helping working families to get the best return from the work that they do. We want to boost the vital services of education and health and ultimately deliver full employment. These are the Government's vital social objectives. We have already made dramatic progress towards achieving them, and the Budget takes us much further down that road. That has been possible because we have created a sound base for the economy. That makes possible the mix of tax cuts that are targeted at certain areas and the public investment increases that are similarly targeted at important areas. For the long term, it is essential to maintain all the sound fundamentals that have made such progress possible.
898 The Budgets and measures that the Government have introduced since taking office have helped the country start to overcome three traditional weaknesses in the UK economy. First, there has been a tendency to move towards inflation as soon as there is a period of growth. Secondly, there has been a tendency to under-invest. Thirdly, there have been problems as a result of low productivity. These three structural and fundamental problems have plagued the economy for decades, and the Government are making more progress in tackling them than any of their predecessors.
Inflation has been held at a low and stable rate for three years. On average throughout this Parliament it has been precisely on the 2.5 per cent. target. There is no precedent for delivering that sort of inflation in modern times.
§ Mr. John Hayes (South Holland and The Deepings)
I do not detract from what the hon. Gentleman has said about inflation, but in that context will he say something about the savings ratio and the impact that it has on the strength of the pound?
§ Mr. Plaskitt
If the hon. Gentleman has studied recent economic history, he will know that generally the savings ratio declines as inflation falls. That being so, there is nothing unusual in the present economic cycle. I am pleased that the hon. Gentleman acknowledges that the Government are doing well on inflation. We are meeting the declared 2.5 per cent. target that the Bank is steering towards, and if we take the standardised or harmonised index of inflation that is used across Europe, we have the lowest inflation rate in the European Union.
That is no accident. It is happened because of the measures that the Government have taken. Granting the Bank of England operational independence on the management of monetary policy made a direct contribution towards the success with inflation, as has the principle of using inflation targeting. The sound fiscal stance that the Government have taken has also contributed directly to our impressive inflation record.
The interesting question is whether through the medium and longer term we can hold our excellent track record on inflation. The chances of doing so are good.
We are at a point in the economic cycle when traditionally the Bank of England has started to have inflation worries. We have had several years of steady growth in the economy, and we can look forward to more ahead, as my right hon. Friend the Chancellor promised today. Historically, at this point in the cycle, there has been much anxiety about inflation prospects. By contrast, inflation pressures at present are pretty subdued, and there are many fewer such pressures in the economy than at this stage in earlier economic cycles.
There are plenty of promising signs for the economy. The money markets believe that we are on track to maintain, and to deliver, continued low inflation rates. Our long-term interest rates are lower than in the United States. Inflation expectations are well down across the board. We are seeing the fruits of better and stronger competition in the economy. That is another structural change that is helping to keep inflation down. There is also improved price transparency. That is important, given that 50 per cent. of our gross domestic product is traded.
Wage growth at this point in the economic cycle is also quite moderate. The Monetary Policy Committee and the Governor of the Bank of England have expressed some 899 concern at wage settlements, and in recent months the total earnings figures have been edging up. They have gone above 5 per cent., and I know that the Governor of the Bank of England has sounded some alarm signals.
However, beneath the top figure that I have quoted is the settlement figure, which tells a more interesting story. The settlement figure has held pretty steady at around 3.5 per cent.—precisely the sum that one obtains when one adds inflation to productivity growth. That suggests that the underlying rate of wage growth in the economy is perfectly consistent with keeping to the inflation target. Again, that is unusual for this point in the economic cycle and it represents something of a breakthrough in terms of controlling inflation.
There is evidence to show that many of the fundamental relationships in the economy are changing. The Bank of England and the Monetary Policy Committee need to study the changes carefully, as it is likely that the monetary policy rule book is in the process of being rewritten.
The Government have a part to play in underpinning the progress that has been made. That would all be lost if we were ever to return to management of the economy based on boom and bust, or if we were about to embark on a tax-cutting spree—as happened in the late 1980s, when the Conservative Treasury had reasonably full coffers. It is essential to hold fast to the golden rule introduced by my right hon. Friend the Chancellor. I was pleased that today's Budget statement makes it clear that he is doing just that. He is locking in the fiscal surpluses, and he is forecasting Budget surpluses for each of the next four years.
It is also important that we hold to our achievement in reducing the ratio of public debt to GDP. The Government inherited a ratio of 44 per cent. on assuming office, and my right hon. Friend the Chancellor announced today that that will fall to 33 per cent. in the medium term. The combination of the golden rule and delivery on the ratio between public debt and GDP represent a substantial breakthrough and show that the Government's prudence has contributed to the strong record on inflation.
In the run-up to the Budget, many commentators and analysts urged fiscal tightening, as they were worried that the Budget would cause interest rates to rise. In fact, fiscal policy has been tight for some time—rightly, given the strength of the economy. Over the past four years—so before any of the measures announced today—fiscal tightening was equivalent to 5 per cent. of GDP. It was 0.9 per cent. in the past financial year alone. My right hon. Friend the Chancellor has ensured that that is all locked in, and he is right to have done so, as it will help us to continue to deliver comparatively low interest rates.
It is worth underlining the benefits that have accrued from granting the Bank of England operational independence. Since that independence was granted, to control the cycle of the economy, interest rates have had to move in a band of 225 basis points—between a low of 5 per cent. and a high of 7.25 per cent. That compares with an interest rate band of 1,025 basis points in the previous Parliament, under the different system. We are therefore able to control cycles in the economy with a far narrower movement in interests rates than previously. That is what we mean by economic stability, and it is 900 good for business. It is much easier for businesses to operate when the movements of interest rates are so much smaller.
The Budget holds to the prudent fiscal line, while providing targeted tax cuts and increases in public spending. The hon. Member for West Worcestershire (Sir M. Spicer), who unfortunately is no longer in the Chamber, was wrong when he spoke of an explosion in public expenditure that was out of control. His speech told us more about his personal view of public spending, which is not one that I share. The truth is that public spending is projected to grow at 2.5 per cent. in real terms per annum.
That is exactly in line with the trend of growth in the economy. It is one of the results of the economic stability that the Government have brought about, and it enables us to lock in the growth in real-terms public spending as well as the fiscal surpluses without any risk to inflation. I therefore urge the Monetary Policy Committee to intensify its study of monetary mechanisms. I suspect that we can run the economy on low interest rates without any risk to inflation. However, I agree that no risks should be taken with inflation.
The progress that I have described helps us to tackle the other two structural problems in the economy that I mentioned earlier—under-investment and low productivity.
Under-investment has plagued the British economy for far too long. We have had a relatively low rate of capital formation, and there has been far too much short-termism in the economy. The boom/bust management of previous Governments has infected the whole of industry, so a stable macro-economic framework is essential for driving investment up and for overcoming our historical problems.
The Government have already done much to help. They have lowered corporation tax rates, and their support for research and development has been supplemented by £150 million in the Budget today. There have been changes to capital allowances, and capital gains tax on five-year investments has been cut to just 10 per cent. Corporate venturing has been supported in previous Budgets as well as in today's, as has the extension of share ownership schemes. In addition, my right hon. Friend the Chancellor today announced the lowest rates of capital gains tax and lower corporation tax.
The Chancellor also announced 100 per cent. capital allowances for IT investment. That very important measure will be widely welcomed by small businesses, of which Britain now has 100,000 more than in 1997. That reflects the fact that taxes for small businesses have been cut by 25 per cent. since then.
The measures that we take are designed to deliver increased levels of investment, and the evidence is that we are making progress. Business investment is up 16.5 per cent. in real terms since 1997. Investment now represents 14 per cent. of gross domestic product, compared with an historical average of just 10 per cent. Inward investment to the United Kingdom has risen by 45 per cent. since the election. It now totals £220 billion a year, and Britain is the leading location in the European Union for preferred inward investment.
The strength of sterling is an important issue for manufacturing companies and farmers in my constituency. However, it is important to understand that the problem 901 is not one of sterling strength so much as one of euro weakness. After all, sterling's value against the dollar and the Asian currencies is fairly level. All the strong inward investment in the past three years has taken place in the context of a weak euro and a relatively high pound. The fact is that manufacturing output is rising—it is up by 5 per cent. on the previous year—and manufacturing exports are rising also.
§ Mr. Tim Loughton (East Worthing and Shoreham)
I am glad that the hon. Gentleman has come round, in terms of what is happening to the euro. Will he therefore condemn the Chancellor for today's fifth round of sales of our gold stocks at a time when the gold price is falling further and the largest chunk of that money is being reinvested in the euro, which the hon. Gentleman has just admitted is weakening?
§ Mr. Plaskitt
No, I will not. The hon. Gentleman, who serves with me on the Select Committee on the Treasury—
§ Mr. Plaskitt
I beg his pardon—he does not. He should nevertheless know that the Treasury Select Committee has had detailed breakdown figures from the Treasury on the gold sales, and the reinvestment in not just in the euro but in a basket of currencies. So far, the Treasury's move in switching the nature of our deposits has produced a net gain for the Exchequer. So the hon. Gentleman does not need to worry about the gold sales.
There is no getting away from the fact that it is hard going for manufacturing companies which predominantly export to the euro zone. I believe that the Government and the Bank of England are right not to attempt to lower sterling against the euro artificially—it would not work. Sterling's strength against the euro does, after all, help to hold down inflation. Far bigger risks of inflation would result from a sterling devaluation than from holding the current position.
The best bet, and the best way in which to help hard-pressed manufacturing companies in the west midlands and in my constituency, is to deliver the measures in this and previous Government Budgets to give direct assistance with investment. That is why, despite the export struggle that many in the manufacturing sector face, we see growing investment, growing output and—certainly in my constituency—growing employment. The combination makes it possible to live with the weak euro until the rate improves, as the European economies grow.
§ Mr. Nick St. Aubyn (Guildford)
Is there not a more fundamental reason why the euro is weaker against sterling? The European labour markets are far more inflexible than ours. That is why the euro is weaker—it is a fundamental difference. In the past few years, the Government have gone in the same direction and made our labour markets less flexible, with the danger that our currency may also weaken in the future.
§ Mr. Plaskitt
I am interested in the line that I often hear from Conservative Members, who have spent years extolling the virtues of the free market. The euro is doing what I think an international currency is supposed to do 902 in free currency markets. It has depreciated to enable the European economies to recover. The likelihood is that, as the European economies grow, which they are beginning to do, the euro will strengthen.
I turn to the third problem, which I cited at the outset and which has plagued our economy for so long. I refer to the productivity gap and skills shortages. There is a significant productivity gap between us and our competitors. It is part of the under-investment by both industry and Governments. Indeed, Governments have been responsible for historical under-investment in education and training. There is no more important investment than in the skills of the work force. The economy needs a strong skills base. Hence it is vital to raise education investment, across the board, as we are doing. It is vital to help reskilling across the board, as we are doing. The labour market needs to grow not only in quantity but in quality. It is therefore impressive that 800,000 more people are working than in 1997. It is also impressive that the quality of the work force is improving through greater opportunities to train and reskill.
Government measures across the board are helping us deliver on these objectives. The minimum wage, the working families tax credit, child support, the new deal—now extended—all help to make work pay and raise productivity. The lower marginal rates of tax and national insurance for those moving into work are also extremely important. We inherited from the previous Government a situation in which more than a million people moving off benefit into work faced an effective marginal tax rate of 70 per cent. That marginal tax rate is now virtually eradicated, and the further measures announced by my right hon. Friend today in extending the new deal to those over 50 are very welcome.
Finally, the headlines in tomorrow's newspapers will undoubtedly be grabbed by a few key features. They are, of course, excellent features. However, the real story of the Budget is that it makes it possible to have targeted tax cuts and increased public investment in vital areas without any short or long-term risk to the economy. It is possible to do those things only because of the platform of stability that we have created.
The real test of this Budget, as with any Budget, is whether it adds to the fundamental strengths of the economy and to that platform of stability. In my view it does, and that is why it should be commended to the House.
§ Mr. William Thompson (West Tyrone)
As someone from one of the minority parties, I perhaps feel able to look at the Budget more sympathetically and impartially than members of the two main Opposition parties.
What we have heard today is certainly very interesting. When the Chancellor of the Exchequer comes to the Dispatch Box, he paints a glorious picture of the economy. He tells us that we have never had it so good, and that it is going to get better. Then Conservative Members say that that is not true—it is all a con trick. I can perhaps be more impartial and see where the truth really lies.
From experience, I have discovered that many people believe that they are saving on tax when their income tax comes down. When many people hear today's news that the basic rate of income tax is to drop from 23 per cent. 903 to 22 per cent, they will think, "My wage packet will be bigger in the months ahead." What they fail to recognise is that, when the Government reduce income tax, they generally take the money back through indirect taxation. That has been the pattern of all Governments, as well as the pattern of this Government. It has been acknowledged that the overall percentage of tax has been rising. Income tax may have gone down, but the total amount of taxation has gone up.
With the increases announced in today's Budget, many people will indeed be worse off. For example, someone who smokes will find that a packet of cigarettes is going up by 25p. I am not in favour of smoking. However, because of the continual increase in cigarette prices, the Exchequer is getting less money from taxing cigarettes than before. There is also the problem of smuggling. As the price of cigarettes goes up, more and more smuggling takes place. It is difficult to control or stop, with the result that the tax benefit will probably continue to go down.
We are told that 1 million pensioners will be 20p a week better off. What a paltry sum! A pensioner who buys one packet of cigarettes a week will lose that 20p immediately. If he drives a car, he will be much worse off, because every gallon of petrol will cost 8p more. When the reduction in income tax is seen against what will be taken back in indirect taxes, the country at large will probably be worse off.
Vehicle excise duty and road fuel duty cause tremendous problems in Northern Ireland. Diesel prices will increase, and, as the right hon. Member for Penrith and The Border (Mr. Maclean) said, excise duties differ greatly between European Union countries. That is a particular problem for Northern Ireland, because the excise duty for a 40-tonne lorry is £1,278 in the Republic of Ireland and £5,750 in Northern Ireland. Many road hauliers cross the border to buy diesel, and many register in the Republic of Ireland to save considerably on excise duty. My constituency is adjacent to the border, and nearly every petrol pump for 20 miles on the United Kingdom side has been closed down because people cannot keep them going. Drivers cross the border to fill up. Inevitably, a tremendous amount of money—estimated at around £200 million—is being lost to the Exchequer. The Chancellor must consider whether any remedial action can be taken.
Northern Ireland's proportion of the consumption of petrol in the whole of Ireland is falling. It was 35.9 per cent. in 1994, and has dropped to 24.2 per cent. In the Republic of Ireland, it was 64.1 per cent. and is now 75.8 per cent. In 1995, diesel sold in Northern Ireland represented 27.7 per cent. of the whole of Ireland's consumption, but that fell in 1998 to 16.1 per cent., and has probably fallen further since. A lot of money is being lost to the Exchequer and remedial action is necessary.
§ Rev. Martin Smyth (Belfast, South)
It might be argued that the same form of taxation should apply to the whole of the United Kingdom, yet the highlands and 904 islands have been excused aviation taxes even though the same problems of transport to and from the mainland affect Northern Ireland.
§ Mr. Thompson
I thank my hon. Friend for making that point, which emphasises mine. I hope that those on the Government Front Bench will not just listen but do something.
§ Mr. Maclean
I hope that my hon. Friend the Member for West Tyrone (Mr. Thompson) will communicate his message to the BBC newsroom. Last week, a BBC programme waxed lyrical about the wonderful benefits of joining the single currency, giving the example of how much cheaper fuel was in the Republic of Ireland. The BBC newsroom put that down purely to the benefits of the single currency, but my hon. Friend could point out that fuel is cheaper in the Republic because the Irish Government levy less tax on it than the British Government do.
§ Mr. Thompson
I thank the right hon. Gentleman and concur with all that he says. Fuel is not taxed to the same extent in the Republic of Ireland as it is in the United Kingdom.
I welcome what the right hon. Member for Penrith and The Border said about the strong pound. We have become accustomed to talking about the strong pound as if it were a crime or a sin. In fact, we should talk about the low euro: the pound has tracked the United States dollar over the year because of the nature of our economy and exports, and it would be disastrous for us to join the euro as that would endanger our exports to countries outside the eurozone.
The Chancellor of the Exchequer must know of the difficulties of the farming industry because of representations by the Minister of Agriculture, Fisheries and Food on the need for money for farmers in desperate need. The Government could match, up to 50 per cent., agrimonetary compensation available under EU rules, both this year and next. The Chancellor has missed the opportunity to do that today. Our milk and beef farmers are suffering greatly and need compensation.
Although pig farmers have suffered more than anyone else, they are not covered by the European regime and would not be eligible for the compensation. The Chancellor may have been generous to other sections of the community, but he should have been as generous to pig farmers, who are desperate as they face bankruptcy. We sympathise with those who lose their jobs in the motor industry and others, but the Government should show the same sympathy for those who, through no fault of their own, are made desperate by the state of the pig industry. I regret that the Exchequer did not take its chance to help them today.
There are points to welcome in the Budget, particularly the additional money for education and books for primary and secondary schools. The education budget will rise by 8 per cent., and we welcome that. The trouble with increasing it, of course, is that we will have to keep increasing it. I hope that today's announcement will not be a one-off, but will continue.
We welcome increased health service spending. The NHS does a wonderful job, but it is facing a tremendous crisis. How best to organise and pay for it, given that the 905 demand is inexhaustible? There are more procedures and they cost more. There are more elderly people who need the health service. Furthermore, restrictions on the royal colleges add to the pressures on the NHS. We welcome the fact that there will be more money for the NHS, but we are also glad that there will be a review so that we can institute better procedures to run the service more efficiently and effectively for our people.
The Labour Government claim that they are doing well. Perhaps, with a little humility, they might realise that the previous Government left them a reasonably firm foundation on which to build. We have been through enough pain over the past few years; we should now be reaping the benefit that we paid for then.
§ Ms Sally Keeble (Northampton, North)
I appreciate the chance to speak in the debate.
The hon. Member for West Tyrone (Mr. Thompson) welcomed the improvements that are being made in health service spending. However, many of his other remarks—and many of the remarks of other Opposition speakers—made me wonder whether they had been listening to the same speech from the Chancellor as I had. And have they considered the same economic factors over the years as my colleagues and me?
There has been much discussion of the overall tax burden and of the fact that we made no commitments to increase taxes. However, I distinctly remember—as will my Labour colleagues—that one of the earliest pieces of legislation passed by the Government was that introducing the windfall tax. We campaigned openly on that tax; it was a key part of our election strategy. It was used exactly as we said it would be: to increase jobs, and for spending on schools and the health service. That was an open part of our commitment; it was probably the largest single tax take of this Parliament.
I listened with some astonishment as the right hon. Member for Penrith and The Border (Mr. Maclean), who is not in the Chamber at present, said that we were doing nothing about rural transport. I distinctly heard my right hon. Friend the Chancellor say that the Deputy Prime Minister would make a statement about a package of about £285 million for transport, which would include measures for rural buses. I did not have to look that up in my right hon. Friend's statement; I remember hearing it and thinking that it was a good thing. It will be welcomed by many Labour Members who represent rural constituencies.
§ Mr. Hayes
I know that the hon. Lady has a great interest in rural affairs, partly because of the time that she spent as a member of the Agriculture Committee. I hope that she will acknowledge that there was nothing specific in the Budget about an aid package for the countryside, and also nothing about agriculture. Furthermore, no earmarked figure for rural transport was given anywhere in the Red Book or in any of the accompanying documents. That £285 million is a global figure—all that rural transport received was a mention from the Chancellor.
§ Ms Keeble
I appreciate the hon. Gentleman's comments. However, I was referring to comments made by his colleague the right hon. Member for Penrith and 906 The Border, who said that there was nothing for rural buses. There was: it was distinctly mentioned by the Chancellor.
I take the point that the hon. Member for South Holland and The Deepings (Mr. Hayes) made about agricultural measures; I shall deal with that matter later in my speech. If we are to repeat what the Chancellor said, however, we might at least do him the credit of doing so accurately, which the right hon. Member for Penrith and The Border did not do.
Several hon. Members referred to attacks on family life through the abolition of the married couples allowance. However, the Conservatives seemed to have realised that the continuance of that allowance was an anomaly—I think that is how the shadow Chancellor described it. It is wrong to talk about supporting family life without providing support when it is needed—when people have children.
The Budget shows a real commitment to creating a dynamic economy and to maintaining high-quality public services. That is certainly what my constituents and the public want. We always thought that the Tories were committed to one side of that equation—the creation of a dynamic economy. However, the legacy that we were left suggested the opposite. Furthermore, when they were in government, the Tories failed to address one of the key factors—the need to deal with supply-side problems, especially the skills gap. That matter still needs to be tackled, and I am extremely pleased that the Budget begins to tackle it. The Conservatives learned nothing from their defeat in 1997 about the value that people attach to high-quality public services.
The Budget deals with the consequences of economic success. In my constituency, the challenge is no longer to bring the economy back from the brink of crisis—as it was to a certain extent in 1997—but to ensure that the economy can expand as it should over the coming decade. It is a measure of the Government's achievement that people in my constituency and elsewhere in Northamptonshire can look forward to a secure future.
During the general election campaign of 1997, unemployment was not an issue in Northampton, North, so I wondered whether the new deal would have an impact on my constituents. However, even during our short term in office, we have improved the situation. Through the new deal, we have been able to help some important sections of the community. Not only did the increased number of young people employed through the new deal produce a fall of 68 per cent. in youth unemployment, but women, who were for the first time given the opportunity to go out to work through the new deal for lone parents and through the child care tax credit, are £60 to £65 a week better off thanks to the Labour Government.
I draw the attention of the House to a small measure that helps women, although I am not surprised that neither the Chancellor nor other speakers have referred to it. As I read through the Red Book, thinking about what the Conservatives might come up with, my eyes lit on paragraph 5.112, which states:To make the tax system fairer for women, VAT on women's sanitary products will be cut from the standard rate of 17.5 per cent to a reduced rate of 5 per cent.The right hon. Member for Penrith and The Border said that he was sure that various tax changes would be revealed over the coming weeks. That change is small— 907 it might seem trivial to the Opposition, and I understand why—but it is something for which women's groups and women's magazines have campaigned for years.
§ Ms Keeble
Indeed. When I organised an event in my constituency so that girls from all the secondary schools could talk about what they thought the Government should do, that was the only point they mentioned—much to my surprise. They placed a high importance on it. I hope that the Chancellor is given credit for that farsighted support for women.
We have also ensured that work pays by taking steps to help families who, historically, have suffered from low wages. In my constituency and the surrounding area, about 2,700 families will be helped by the working families tax credit.
However, many large challenges continue to face the local economy. The Budget will help to address them. Last week, the east midlands agent for the Bank of England visited Northampton and met members of the local business community. It belied most people's impression of the Monetary Policy Committee to see one of the agents who provide the regular information on which interest rate decisions are made out and about, meeting all sectors of the business community. He met people from small and large manufacturing firms, as well as people from services industries and—for the benefit of the hon. Member for South Holland and The Deepings—the farming community.
There was a sense of a dual economy; the service sector was buoyant, while some parts of the manufacturing sector were held in check by the strong pound, depending on where their exports went. The farming industry faced difficulties, but it was recognised that they would not be resolved by short-term fixes of financial aid. Its problems are very much deeper and more structural.
I am sure that many of the people who met the agent from the Bank of England will welcome the measures that are in the Budget. Those measures will encourage long-term investment and provide stable patterns for existing investment plans. They will encourage innovation, which is important if we are to develop businesses in the new sectors and encourage sound investment in new technology. Everyone in the meeting that I organised agreed on the fact that one of the biggest problems facing the local economy was the difficulty of recruiting skilled employees.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)
The hon. Lady said that agrimonetary compensation would be seen as a short-term fix and that bigger structural problems faced the industry. The common agricultural policy contains a mechanism for agrimonetary compensation which other countries use to help their agriculture. Does she not accept that, if the Government do not want to use that mechanism, they should not unilaterally opt out, but should reform the common agricultural policy across the European Union rather than penalising British farmers?
§ Ms Keeble
Substantial amounts of compensation have been provided under this Government, but we have to top 908 that up ourselves—it is not free money that comes from Europe—as a result of agreements into which this Government and the previous Government entered. The package of measures available helps at the edges, but it does not deal with the deep structural problems of agriculture. I completely agree with the hon. Gentleman about the need to reform the common agricultural policy, and the Government have led the way in getting agreements through Europe. Had it not been for this Government, I suspect that we would have achieved an even worse deal on CAP reform. I was about to discuss the skills gap. Agriculture, even in rural areas such as South Holland and The Deepings and parts of Northamptonshire, is a small sector of the economy, and the skills gap is particularly important for new and growing sectors. That gap puts pressure on what should be an expanding and thriving national economy.
§ Mr. Hayes
The hon. Lady is right in terms of the percentage of the population employed in agriculture, although I would point out to her that the number employed in that sector in South Holland and The Deepings is well above the national average. She is wrong, however, in the sense that agriculture is pivotal to many other related industries. In my constituency, as in many others, the food and food-related industries are based on our having a strong agricultural economy.
§ Ms Keeble
Agriculture is important in many ways other than in employment and financial terms. It is important to the food industry, to the environment and to leisure and recreational activities. The Government have shown their support for those aspects of agriculture, not least in terms of the importance attached to access to the countryside and the need for proper land management. However, the Conservative party opposed the Bill on those issues when it came before the House yesterday.
The skills gap is a problem nationally. In Northamptonshire, the A-level pass rate in schools is below that for comparable counties and, at almost all other stages, achievements in schools in Northampton are the lowest in the county. That is a source of great concern to me. That means that the extra money in the Budget that is earmarked for schools will not just meet some public service pressures, but will deal with pressing economic pressures.
The extra money for the health service will relieve some of the biggest pressure points in that service. Conservative Members have scoffed at what that money will mean but, in practical terms, it will mean that my health authority will be able to makes plans for winter fuel with some certainty. On the scale announced, the money could also provide extra intensive therapy unit and high dependency beds that will make it possible for heart surgery to be carried out in a more planned way.
Most important of all, that money means that it will be possible to provide the extra services that are needed to keep old people out of hospital. It is a disgrace that many old people in my constituency and elsewhere see their own homes for the last time from the back of an ambulance as they are taken to hospital. From there, they go to nursing homes. If we are serious about providing high-quality health care for old people, we must consider developing the new services that can support them in their own homes and give them much more dignified care if they suffer from illness.
909 The Budget and in particular the Tories' response to it show up weaknesses in Tory thinking and policies. That point will be strongly echoed by people outside the House. Sometimes, Tories say that they welcome extra health spending, but sometimes—and we have heard this today—they describe it as taxation by stealth. They must come clean about what they want. Do they want improvements to the health service, and are they, therefore, prepared to support the tax and spending programmes that are needed to achieve that?
§ Mr. Oliver Letwin (West Dorset)
I do not know whether the hon. Lady heard the speech given by my right hon. Friend the Leader of the Opposition, but he made it perfectly clear that we welcome the increased spending on health. That does not imply accepting tax increases, because we are talking about a heap of other spending that she has not mentioned.
§ Ms Keeble
The hon. Gentleman proves my point. When one talks about increased spending on the national health service, one must explain to the public how that increase will be achieved. I heard most of the speech of the right hon. Member for Richmond, Yorks (Mr. Hague). It was extremely amusing, but it did not deal with any of the issues that face my constituents and are of major concern to them.
The Conservatives have now welcomed the minimum wage, but they have not accepted the other side of the equation—the working families tax credit, which will ensure that families have not just the minimum wage but a decent living wage. Conservatives have rejected virtually all our measures to combat child poverty, but they talk to us about the moral duty of Government to cut taxes.
Conservative Members have not shown any understanding of the measures that this Government have taken to help women. I understand from today's announcement that women on maternity pay will be able to receive the working families tax credit, and that is a substantial benefit to women who wonder what they will do when their maternity pay tapers off and fear that they will have to return to work because they cannot afford to live on statutory maternity pay. I am pleased about that provision, but the Opposition do not seem to understand such measures.
Conservative Members do not seem to be prepared to admit that they still believe in a minimalist role for Government and that the Government's purpose is to create the right conditions for some sections of the economy, such as the south-east service sector, but not for all. Everything else will be left to trickle down. After 18 years of Conservative Government, the public know that trickle-down does not work: they want the much more responsible approach that this Government are showing. They want a dynamic economy and public services. That is why the sense of social justice shown by the Government and, in particular, by the Budget will be so important and will resonate so well with the public.
The public will enthusiastically support policies that progressively lift out of poverty the 4.4 million children whom the Tories left in poverty when they left office. The public will support the short-term measures for pensioners—and see them for the real gains that they are—and long-term restructuring.
910 The Tories have shown no understanding whatever of what it means to bring up a family in middle England when one earns only £12,000 or £13,000 a year. The public will fully support the Government's strength of commitment, as shown in the Budget, to provide a stable economy so that families can plan securely for the future; to provide low interest rates so that people can pay their mortgage; and to provide incentives for small business men to enable them to build up their business and plan for the future so that they can be part of a growing, dynamic economy.
The public will respond extremely well to the Government's commitment, which is particularly evident in this Budget, to high-quality public services, which support people at every stage of their family life, in school, in hospital and, through their pension, in retirement. In the Budget, the Government have demonstrated their commitment to building a strong, dynamic economy and to supporting the highest-quality public services, and it will be welcomed by the country at large.
§ 7.1 pm
§ Mr. Peter Bottomley (Worthing, West)
I congratulate the hon. Member for Northampton, North (Ms Keeble) on being the first hon. Member to mention measure 5.112, which is the £35 million a year tax relief on sanitary products. Sanitary towels and tampons are significant. I have calculated that people will save about £3.30 a year because there will be a 10 per cent. drop in price as a consequence of the much greater drop in VAT.
That measure is the result of a successful campaign over many years, and it is right that the Chancellor has acknowledged that campaign. It would have been slightly more impressive if he had not tucked away the press notice on that measure right at the back of the bundle, because many people will have spent some time trying to find it.
It is curious that in No. 19 of the notes for editors in press notice HMT/DETR 1 we hear about 44-tonne lorries being approved for use in this country. That proves my old rule: "Read the notes for editors and you will find the interesting points that the Minister doesn't want to say in public." I shall spare the House the greatest excitement, which is in example 3 in the annexe to Inland Revenue press notice BN2A; it is probably indescribable, and I am not surprised that the Chancellor did not mention it in his speech.
Page 176 of what is commonly referred to as the Red Book—not that it has been red for some years—details the forecast issues and risks. There is an interesting overall question about what has happened and what will happen to household disposable incomes, household spending and the savings ratio. What I am about to say is qualified by the fact that we do not know what will be the impact of stakeholder pensions. The forecasts suggest that the cost of stakeholder pensions to the public revenues will be about £650 million a year, and that implies a fair amount of extra saving for retirement, which will be welcome.
The Treasury, looking back at the last year and forward at the next two or three years, has rightly said that household incomes grew more slowly than expected, but household spending rose faster than expected, and that is the explanation for the savings ratio dropping from about 10 per cent. to about 5 per cent. Projections show that the 911 savings ratio may increase to 6 per cent., but that is a vulnerable figure. If we had continued to have a savings ratio of about 10 per cent., that would have had a greater impact on people's retirement incomes. We need to watch those figures.
We need to be aware also that the way in which the Chancellor dealt with the alterations to self-assessment taxpaying led to a significant increase in the amount of tax paid by many people during the transition period, and that increase is now slowing down. Such hiccups tend to be ignored by the commentators, because they require a reading of the Budget 2000 book, rather than simply reading the press notices, the Chancellor's speech or these debates.
When we are discussing health we always praise the people who work in the health service—in hospitals, in the community and in GPs' surgeries—and in praising the Chancellor's delivery of his speech, let alone the content, we ought to acknowledge the efforts of people not only in the Treasury and the Revenue, but throughout Whitehall. It is quite an achievement to get the product out on the day that the Chancellor makes his speech, so I pay tribute to those people.
I move on to measures that I wish had been in the Budget. I have not yet noticed the Government facing up to the problem of annuities. If there is to be a transformation in the Government's repayment of debt and we will still require people to turn their personal pension pot into an annuity, the reduction in the amount of available Government debt that will match the annuity payments will mean that the returns on annuities will drop. Unless there has been a consultation exercise or taskforce that I have not noticed, the Government should be far more open and consult about how to deal with that. There has been independent sector work on the matter.
I have many constituents who are above retirement age. Many of them have private pension pots and have put off turning them into annuities on the assumption—which I hope is correct—that the Government will take action. It is wrong to require people to wipe out capital, even though it has been built up tax free, on a rate of return that is lower than they get from many other forms of investment that do not wipe out their capital. That is not only anomalous but unacceptable. Will Ministers find a way to discuss that problem out into the open and find a solution within the next 18 months to two years? The solution may be a transitional set of changes, but one is required.
I move on to another issue that affects retired people. In my constituency, 45 per cent. of people are above retirement age, and these issues matter to them. Married couples in which neither partner will be over 65 by the end of the tax year will lose an estimated £500 a year because their birthdays are in the wrong month. On the type of calculation used by the Government, that will mean a loss of £5,000 over 10 years—because of a birthday. Frankly, that is a bad decision by the Government, and it is wrong that it was endorsed by Parliament in previous Budgets.
I hope that the Government will hear my plea and reverse that decision. If, for some reason, they have to eliminate the married pensioners tax allowance, they should do so by reducing it by 10 per cent. a year over 912 several years, so that it is not a cliff-edge change. There is no justification for that sudden change. It may require a reversal of policy by the Government and may look to outsiders as though they are admitting that they have made a mistake, but I am asking for fairness.
I hope that if the Conservatives table an amendment on that, the Government will take it seriously, and I hope that it can be debated on the Floor of the House, rather in the Committee upstairs, because the issue affects people in every constituency. That is the only example that I have come across of a cliff-edge change, and I have gone back through Budget changes in most of the 24 years that I have served in the House.
Many other issues are of interest to my constituents, but it would not be right to deal with too many of them. One that matters to Worthing, West, which is a seaside constituency, is the change in Customs and Excise press notice 1, which abolishes betting duty on amusement machines with prizes, where the stake is 10p or less. That saving of £645 a year, or £450 a year in non-profit clubs, will be welcome. It is not desperately important to overall finances, but it will be a significant advantage to people who provide low-cost, low-return entertainment in Worthing and elsewhere. I say that although I have not had a major contribution from Connaught Leisure in my constituency. However, its owner worked with me in Battersea funfair, back when I was in my teens and trying to fund my education, or at least my debts.
I move on to energy saving and home security, on which VAT is coming down to 5 per cent. There is an ambiguity in Customs and Excise press notice 6. The VAT reduction is not applicable to DIY installation. It is not clear whether that applies only to home security devices or to energy saving materials as well. I do not expect that to be clarified today, but perhaps we could have an answer later. The notes to editors do not make the position clear, but it would be of interest to the trade press and those who do DIY work.
Inland Revenue press notice 8 deals with the installation of new boilers and radiators in social housing owned by councils or registered social landowners, where there is provision for leased boilers and radiators. To many people, this may sound trivial, but if tenants buy homes from their registered social landlord or council that contain radiators and boilers leased from other companies, will that lead to a conveyancing nightmare?
The fact that the boilers and radiators are leased presumably does not require them to be taken out if the house changes ownership. This could be a matter of great importance to people who want to buy the home in which they have been living, rather than being forced to move elsewhere because they cannot afford the lawyers to work out the complications involved.
On charities, I do not remember in which year I first suggested that the Treasury, or rather the Inland Revenue, ought to recognise that if money is given to charities other than through the Charities Aid Foundation, Gift Aid or Give As You Earn, it comes in the main from people who have taxable income or from people below the taxable threshold. Rather like the old system of MIRAS—mortgage interest relief at source—which eventually imputed to all payments of mortgage interest the notion that it came from taxed income or from income below the tax threshold, so that the tax relief could come back to 913 everyone, it would be far simpler if donations to charities were presumed to come from taxed income or from income below the tax threshold.
The only accounting for such donations should relate to those paying the higher rates of tax. That is roughly the case with earnings from dividends and savings, where the tax credit applies to the ordinary rate of tax, and only the higher rate requires a complicated paper transaction. Getting rid of paper matters.
My last point, as I do not want to prevent others from speaking, concerns small employers and small employees—not necessarily in size, but in terms of work. I do not think that the situation has changed from the time 13 or 14 years ago when I was on a ministerial group looking into the reduction of bureaucracy. Suppose I employed someone on relatively low earnings—say, a part-timer for household assistance of one kind or another—and I wanted to pay that person a certain amount of money after tax. If I wanted the person to have £120 a week, there ought to be a simple system whereby I could sign a single sheet of paper, instead of dealing with two offices. Obviously, amalgamating tax and national insurance helps, but the last time that I raised the issue, there were at least two offices involved and the guides were extremely complicated.
Up to a certain amount of money, and for one or two employees, if people want to be straight and want their employee to be straight, it would be a good idea to work out a rough and ready system that produces justice and brings people into the white economy, rather than having them not provide employment or go off the books because the alternative is too complicated. Being open and simple worked if one had a single lodger in one's home up to a certain limit, and the same ought to apply to such simple employment.
§ Mr. Ken Purchase (Wolverhampton, North-East)
The Budget will be widely welcomed throughout Britain. It has many good features, which will improve the standard and quality of life for thousands, if not millions, of people throughout the coming years as the improvements announced by the Chancellor are introduced.
In the context of my constituency, I welcome the extension of the new deal to older workers. It has been a tremendous success in the case of younger workers, halving the rate of youth unemployment and halving long-term unemployment, so three cheers, or perhaps even four, for the extension of the new deal to older workers today.
There is much else that is good for Wolverhampton, but I should begin by saying that I am sponsored by the Co-operative party, which paid almost a quarter of my election expenses at the last general election. I am proud to be a member of the Co-operative party, but as I intend to speak on the business measures, it is right that I remind the House again of my background in the Co-operative movement.
The Budget recognises that prudence is a good thing, but that in the present financial situation, there is room for improvements in life in Britain, in the public services, in business and for individuals. That must be welcomed, and I am sure that it will be welcomed by people who understand such matters and by ordinary men and women. When the press releases are fully analysed, no doubt 914 wrinkles will be ironed out and parts will unravel, but we will have a better understanding of the impact of the Budget.
On the business measures, I especially welcome the capital expenditure reliefs. Let me illustrate that. It is an important fact of British economic life, particularly in manufacturing, that although we show good returns on capital employed, we show poor returns on the use of our people. Why is that? It is not hard to find out. First, there has been massive underinvestment over decades, so that a great deal of machinery and other kit in our companies is very old indeed. I have worked in companies where some of the machinery must have been dragged up off the North sea bed following not the second, but the first world war.
That is how rusty, out of date and hopeless in competitive terms some of the plant and machinery is, and it is still being used in Britain today. No wonder we can say that the return on capital employed shows a good ratio, compared with many of our continental competitors. However, the return on labour is poor. Our unit costs are high and productivity gains have usually been made at the expense of jobs, so that there are fewer people doing more work. We have not got to grips with the idea of constant improvement to our methods and way of working, and the investments needed.
I welcome any encouragement, particularly to smaller companies, that will allow them to invest, knowing that remission has been granted on capital investment sums.
The corporation tax measures mean that conditions in Britain are now the best in Europe, if not among the best in the world. It can no longer be argued that Government overtax and overburden the corporate sector. Far from that, a case could be made in other circumstances for an increase in corporate rates of tax. At this stage, however, the Chancellor is right to stay on course and ensure that investment opportunities are at the top of the agenda. One way of doing that is to keep corporate taxes relatively low.
However, I hope that the Chancellor will rethink the rate at which he taxes co-operative enterprises. At the moment, the co-operative sector pays the standard rate of corporation tax but, given the structure and nature of co-operative enterprises, it would be fairer and more equitable if they were to pay the small firms rate. I remind those who want to be reminded that, before the 1997 general election, we considered the restoration of the lower rate of corporation tax for co-operative ventures. I am not talking simply about the big co-ops; the UK has a growing co-operative sector which needs, among others, tax incentives. Community facilities, which had been lost over many years, are now being offered by many co-ops which are helping to revitalise the communities in which they operate.
The banking reforms proposed by the Chancellor are most welcome. Today's Cruickshank report shows that the banks take in tariffs £4 billion to £6 billion more than is necessary to run their businesses effectively. I am reminded of the Woody Guthrie story that, when being questioned by the House Committee on Un-American Activities about capitalism and banking generally, he replied, immortally, that he had been robbed many more times by a man with a fountain pen than he ever had by a man with a six-gun. That is exactly how I feel. I have dealt with banks for many years, both in business and 915 personally, and there is no question but that bank charges need reforming. The Chancellor has opened the curtains on that and we should put much effort into it.
Hats will be thrown in the air at the amount of money that is to be given to schools, which is well deserved and necessary. However, I sound a cautionary note. Education committees, which were formerly responsible for the distribution of education grant and other moneys, now have little control over what is happening in schools. Many authorities now hold less than 5 per cent. for central purposes, and that is a step too far. Inequalities between schools can be redressed, not by a simple formula, but only by an education committee taking an overview and determining where money would be best spent to obtain the best return on that scarce resource.
As I say, at schools throughout Britain hats will be thrown in the air at the generous and welcome amount of money that they are to be given, but we should be cautious and recognise that education committees—there will always be poor ones, but for 150 years they have done an excellent job overall—have local knowledge that is often far superior to anything that exists in Whitehall. The money is welcome, and on this occasion the distribution is fine, but let us not overlook the fact that local knowledge, through our education committees, is extremely important.
The employment measures aimed at getting workers into jobs are also welcome, and that is especially true in the west midlands where, in the past few weeks, we have been "Rovered", which is not a pleasant sensation. We face in the region of 50,000 job losses. The Secretary for State of Trade and Industry has already announced that between £120 million and £130 million, which would otherwise have gone into the black hole of BMW, will now be rescued and used for regeneration in the west midlands, but that is not enough. Despite the apologies that we have been given for having been told less than the truth about Rover, we still do not know the full story, but we fear that, in the weeks, months and years to come there will be more unemployment and more to think and worry about. Those employment measures need to be built upon. They are an insignificant start when set against the task that faces us.
Before the collapse of Rover, workers at the European headquarters of Goodyear in my constituency were on 21 days' notice of short-time working, which, it is rumoured, may be as little as half-time working. That will affect another 4,000 workers, and the knock-on effect of that, not just in Wolverhampton but throughout the region, will mean the loss of many more thousands of jobs.
Therefore, in welcoming the employment measures, I have to tell the Chancellor that much more is needed. The £500 million in loans to BAe in the north-west and elsewhere is exceedingly welcome, and will help the west midlands, through its aerospace industries, but the blow to our automobile industry is most serious and cannot be exaggerated. The Secretary of State for Trade and Industry is working exceedingly hard on these issues, but I hope that he will seek a solution not only within our own nation, but Europe-wide. This may be the trigger for a Europe-wide auto industry, developing a world-beating science and technology.
916 The west midlands has a conglomeration of universities, all with extensive contacts with the auto industry. If we diminish much further in the west midlands an already impoverished skills base by taking away the work in the universities that filters out into our communities and educates and informs the rest of the skills base in the region, we shall be heading for serious and deep trouble, which, if left unattended, will be irreparable, at least in the medium term. That is a major problem. We welcome today's employment measures, but much more is required.
Workers in the west midlands are often thought to be highly skilled and able to move around between jobs. During the past 15 years or so, far from being inflexible, workers in places such as Goodyear and Rover have developed flexible working arrangements. But in process work, such as that at Rover and Goodyear, skills are specific and non-transferable, and we do not have the skills base that we had 40 years ago when I was an engineering apprentice. I worked with skilled people who could pass on skills that are now long forgotten but which are still relevant and cannot be replaced by machinery, equipment and kit, however high-tech it might be. People working in the west midlands require certain skills and mathematical knowledge that are being lost, and retraining will be particularly important.
§ Mr. David Taylor (North-West Leicestershire)
Does my hon. Friend agree that, even in the so-called bleak years of the midlands manufacturing industry, when industrial relations were certainly a contributory factor to its demise, there was at least an equivalent contribution from poor management and low levels of investment, and at least the Government and this Budget are starting to tackle the latter?
§ Mr. Purchase
My hon. Friend makes a good point. I worked for the truck and bus division of British Leyland, and the management there did not exactly cover itself with glory. My abiding memory is of building the chassis of trucks and buses. Management were confident that people all over the world would buy them and that no one would make them except us. It was a miracle; we survived for about 20 years believing that, before everybody overtook us.
It is hard to describe the track we worked on as a track because when the lads had got so far with a bus or a truck, they would say, "We'll have a tea break now, but somebody had better move the track along." It was not a moving track; someone had to wind the damn thing. We worked with that sort of kit in the mid-1970s. Management were amazed when suddenly we could not sell buses and trucks. Why were the buses in Latin America, the sub-continent of India and the far east suddenly gleaming and new when we no longer had the technology or the investment? We had genuinely lost the plot. As my hon. Friend said, much of that was due to lack of management drive, perception and vision.
Matters have improved, but we have deskilled massively. Part of the answer is education, education, education. However, a new co-operation and a new vision is also required to replace current activities at Rover and elsewhere.
My next point is not frivolous. Announcements were made about maternity pay and services today. They are most welcome. We should do as much as we can for 917 women who have babies and return to work. However, the Chancellor made no mention of provision for paternity pay. I am worried that he might expect companies to make such payments for time off. The bad news is that, in my constituency, across the west midlands and no doubt in other constituencies, there are innumerable companies that have perhaps six or 20 workers, half of whom are young men with the engine running. They are bound to have more and more babies.
Imagine a press shop where a skilled fitter, a press setter and four or five operators work. Two of the lads announce, "Well, the missus is pregnant and I'm off for this month." That means that the other five will be idle. Small companies cannot sustain the loss of one or two young men for three, four and five weeks at a time. Neither is it possible for the state to pay. When we consider proper provisions for maternity pay, we should also consider the effects on small companies whose workers are predominantly male, where key workers such as tool setters may be off for a month. That will hurt, and we must be careful.
The Budget will be welcomed in the west midlands. We have considerable difficulties and I hope that the Chancellor and the Secretary of State for Trade and Industry will be able to tackle them in the coming days. Nevertheless, the Budget will be widely welcomed.
§ Mr. Tim Loughton (East Worthing and Shoreham)
The Budget was heralded in many of the leaks to which we have become accustomed as a Budget that had something for everyone. Taken with the many announcements that were made before today, there was something for everyone.
I represent the part of Worthing that my hon. Friend the Member for Worthing, West (Mr. Bottomley) does not. We do not have young men with their engines running, as the hon. Member for Wolverhampton, North-East (Mr. Purchase) put it, so much as older pensioners who are having their engines overhauled. As my hon. Friend the Member for Worthing, West said, those people, especially those whose birthdays happened to fall from 5 April 1945 onwards, stand to lose £500 a year through the abolition of the married couples allowance. I strongly endorse my hon. Friend's suggestion that if the married couples allowance has to be abolished, the changes should be phased. That would be preferable to the current cliff-edge arrangement.
The abolition of mortgage interest tax relief at source constituted another aspect of the something-for-everyone Budget that was trailed. There is something for 10.5 million mortgage payers in this country—the loss of tax relief on their mortgages.
The Budget contains something for everyone who happens to work in or own a business: the energy tax. They will face additional burdens that will make manufacturing businesses in particular uncompetitive, especially when compared with other businesses overseas. There is much more in the Budget for those who have a pension fund—the continuing raid on pensions that the Government started a couple of years ago.
The Budget was also described as a Budget for hard-working families. However, hard-working families will be £600 worse off through additional taxes. They will have to work harder and longer to stand still because of this and previous Budgets.
918 The Chancellor took a dismal rearguard action to defend the mantra, which we hear so often from the Dispatch Box, that the tax burden is falling. We all know that that is not true. At last, the Prime Minister's press secretary has admitted that the tax burden has been rising and will continue to increase during this Parliament.
§ Ms Keeble
Does the hon. Gentleman agree that the figures that he cites appeared in last year's Red Book and that they refer to tax take as a percentage of gross domestic product? When people talk about tax, they usually mean the amount of money that they pay in tax and the benefits that they gain.
§ Mr. Loughton
There is no point in trying to fudge the issue again; the cat is out of the bag. The Prime Minister's press secretary has admitted that the amount of tax taken as a percentage of GDP has been increasing and will continue to do so. It was 35.3 per cent. when the previous Government left office, it is currently more than 37.5 per cent. and it will be more than 37 per cent. at the end of the Government's five-year term of office if they stay for the whole term. Yet the Prime Minister said, "We are cutting taxes" and also that the Government had no plans to increase tax. The hon. Member for Northampton, North (Ms Keeble) should throw in the towel, because the tax burden is increasing. Even after the Budget, it will continue to increase.
It is difficult to get to the bottom of any Government figures. The chief economist of the Confederation of British Industry recently said:It has become extremely difficult to analyse the Red Book … The document is now far too political and this can conceal what the numbers are really saying … The book's become unreadable. The thing might as well be published by Millbank Tower.
§ Mr. Andrew Love (Edmonton)
Opposition Members have a theme. I have also read the Red Book, and chart C3 on page 204 shows that in the early 1980s, at the height of Thatcherism, the tax to GDP ratio was 2 per cent. or 3 per cent. higher than it is now. If it was right for the previous Government to raise taxes in a recession, why are we tarred with the brush of doing something unusual?
§ Mr. Loughton
The hon. Gentleman is being even more selective than the Chancellor. He knows that the tax take fell in all but one Parliament under the Conservative Government. Every year under this Government, the tax take has increased. It is predicted that that will continue. Labour Members should stop trying to re-fudge the figures on which the Front Bench has at last come clean.
I want to move on to some of the announcements that the Chancellor made today, because there was a lot of recycling. It is favoured by the Environmental Audit Committee, of which I am a member and a great fan. The Government are exceedingly good at recycling—not waste, but spending announcements that they have made before and continue to make time and again. We welcome the announcements on increased spending on health and schools—my right hon. Friend the Leader of the Opposition made that absolutely clear—but nobody in my constituency and nobody out there in the real world believes that public services are getting better.
Nobody believes that the health service is delivering a better service, and we are waking up to the fact that the number of people who have to wait to get on waiting 919 lists has doubled. My constituency has the longest waiting times in the country for the oldest population in the country and nobody believes that waiting times are coming down, because they are not.
Nobody believes that class sizes in most schools are coming down, because they are not. In most cases in my constituency, successful schools are bursting at the seams and people are trying to get their children in. Class sizes are going up. Nobody believes that the service offered by the police force, in very difficult circumstances, is getting better when police numbers are coming down and, for the first time in the past six years, the crime rate, particularly for serious crime, is going up.
Nobody believes that the Chancellor is improving services. People are saying, "Look, we've paid all this extra tax and we're waking up to the fact that the Government are masters of stealth taxes." Over this Parliament, about £40 billion in extra tax will be taken by the Government. What have they done with it? We are told time and again that we need to raise taxes to plough them back into public services, but we are not seeing the successful effect of that money going into them. This is a traditional Labour Budget—a "9p up, 1p down" Budget—that taxes yet more and delivers less.
I want to deal with two main themes: capital taxes and the environment. Stamp duty has not been mentioned by Labour Members and received only a glancing mention from the Chancellor, but stamp duty on property has gone up for the third time. It will be 3 per cent. for properties costing more than £250,000 and 4 per cent. for properties costing more than £500,000.
§ Mr. Loughton
I did not suggest that it will hurt everybody, but many properties in the south-east and London cost more than £250,000 and the picture there is very different. Beyond that, there is growing evidence that stamp duty acts as a serious disincentive to moving house, particularly for those who move into smaller houses in later years or in retirement. The housing shortage logjam in the south-east is being exacerbated and, although the tax is easy to collect and brings in more than £2 billion, it is hurting the housing situation in my part of the country in particular.
§ Mr. Hayes
Is not the hon. Member for Northampton, North (Ms Keeble) also ignoring the fact that the change will have an impact on commercial properties? The knock-on effect in that sector will be devastating. She may argue that she has seen no houses in her constituency worth more than £250,000, but I am sure that businesses there will understand that knock-on effect and be as disappointed as we are.
§ Mr. Loughton
That is absolutely right. My hon. Friend's point is also pertinent because more than 75 per cent. of the properties attracting increased stamp duty are business properties.
§ Mr. Loughton
In a moment. I want to make progress, but I am giving way an awful lot.
920 We are led to believe that one of the intentions behind the measure is to curtail overheating in the property sector, but its effect will be relatively small because most properties are business properties.
§ Mr. Loughton
I have said that most of the properties are business properties and the hon. Gentleman will find that the figure of 5 per cent. of residential properties, certainly in the south-east, is out of date, given what has happened in the property market. Stamp duty is an easy target. The tax is easy to collect, but its implications go far beyond what the Chancellor led us to believe, and it is biased against the south-east of England in particular.
§ Mr. Chaytor
I am extremely grateful to the hon. Gentleman. Does not he accept that the value of a residential property owned by an elderly person who wants to move will have increased dramatically as a result of house price inflation in recent years? That increase represents a windfall and it is therefore perfectly reasonable to accept a marginal increase in stamp duty to acknowledge that windfall, which has not been available to people in other regions of the country. Does not he accept that people moving house will be able to afford such a mortgage only if their earnings are at that level? The measure is not a tax that will impact on people with ordinary earnings and I find it staggering that he defends people whose income is very high indeed as against the marginal increase in stamp duty.
§ Mr. Loughton
I am grateful for that lengthy intervention, but the hon. Gentleman is suggesting that people should forfeit the gain that they have made in the property market not through speculating, but by staying in a family home, perhaps for many years. People selling such houses are subject to 40 per cent. capital gains tax because no changes were made to it as it affects individuals. All the stuff and guff was targeted at companies, but he will have to take my word for it—the measure is a serious cause of a logjam in property markets, in the south-east of England in particular.
The second part of the point about stamp duty relates to stamp duty on equities, which was not mentioned in the Budget. There were expectations, and it might have been more reasonable if the increases in stamp duty on property were recycled into reducing or even abolishing that on equities. That is now a serious problem. The Government make an awful lot of money out of charging stamp duty at 0.5 per cent. on equities and the amount that that brings in has trebled since 1994, partly on the back of the rising stock market. The United Kingdom 921 charges the highest stamp duty rate of all the major world markets and we are glaringly uncompetitive. The rate is 0.3 per cent. in France, one three-hundredth of 1 per cent. in the United States and zero in Japan and Germany. Companies are portable, listings are available on markets around the world—particularly Nasdaq, which can be based anywhere—and 100 of Europe's top 300 stocks are listed in London, but can be traded on other exchanges. We stand to lose an enormous amount of revenue.
Market trading is versatile and can happen anywhere. It brings in some £3 billion, but if the Government do not address this problem seriously, that £3 billion, or a large part of it, could disappear overnight. Stamp duty, as an expert has said, isan anachronism that is inconsistent with UK ambitions to remain a premier financial centre.I ask the Government to re-examine the stamp duty problem and leaving it at 0.5 per cent. will not do.
The Chancellor mentioned the Cruickshank report. I have raised concerns about some of the practices that banks have been up to. The way to ensure that banks open up to fairer competition is to promote competition, which is why, during the last year's progress on the Financial Services and Markets Bill, Conservative Members suggested time and again that the Bill should make it not just a principle but an objective for the FSA to promote competition. Their proposal was rejected, and I think the Government may come to rue the day in the light of the Cruickshank report.
The Chancellor said something about simplifying capital gains tax, but the Budget does nothing of the sort. There are some 54 different rates of income tax and capital gains tax. As the Institute of Chartered Accountants has said, the huge number of alterations to the tax regime in recent years has made life increasingly difficult for taxpayers. None of the changes made today struck me as simplifying the tax system, let alone the capital gains tax system. The system is enormously complicated and exceedingly cumbersome, and it is costly for private individuals in particular to keep track of their capital gains. Those people were offered no hope and no improvement today.
As I said earlier, all mentions of capital gains were targeted on business start-ups. This was a Budget for internet millionaires. We say good luck to them, but what about all the individuals who were given nothing in terms of capital gains tax?
Let me now deal with the related subject of savings. Conservative Members have referred to serious problems with the savings ratio. The figure has been revised down from that of last year's Red Book. When the Government came to power, the savings ratio was 10.6 per cent. Last year, it was 5.75 per cent., and in this year's Red Book it is down to 5.5 per cent. The savings ratio has virtually halved over the last three years, and that is storing up problems for the future.
Perhaps it is no wonder that the Chancellor, in a generous gesture, has extended the £7,000 limit on ISAs for a second year. I hope that that move constitutes an 922 admission that the savings ratio is causing serious concern and that the Government should take action to promote savings.
§ Mr. Loughton
I want to make progress. I have already taken time in responding to interventions, and I do not want to exclude other speakers.
The Budget does nothing to deal with the fact that nearly 25 million adults have less than £500 in savings. Moreover, it takes no account of the fact that two thirds of the population buy lottery tickets each week. The whole savings culture has gone wrong under the present Government. They had another opportunity to address many of the anomalies and complications involved in the PEP and ISA system. There are many complications in the ISA system: people have been taking up maxi and mini ISAs, and have been given some sort of amnesty. The Government had a golden opportunity to merge PEPs and ISAs and to streamline the whole system. We were promised that two years ago. When I mentioned it in the Standing Committee considering the Finance Bill, I was told that the Government wanted ISAs to run for a year before they considered any streamlining, but a year has passed, and there is no mention of this in the Budget statement.
§ Ms Keeble
I thank the hon. Gentleman for being so patient.
According to the M & G Great Britain savings survey, which was published this month—the consumer research was done last month—9 per cent. of the population held an ISA, while 10 per cent. held a TESSA and 10 per cent. had a PEP. It must be borne in mind that many people will have had both PEPs and TESSAs. That constitutes a resounding success for ISAs: a couple of months ago, at the end of the first year, 9 per cent. of the population already had one. I emphasise that the survey was independent.
§ Mr. Loughton
We could continue this discussion in another debate. I know that figures from the M & G survey, and other surveys, show that the number of people who have taken out ISAs has not yet equalled the number of people who have taken out PEPs.
I want to say something about the environment. Last year we were promised 22 environmental tax areas; we were also promised hypothecation of environmental taxes for the first time. We were promised that by a Government who claimed that they would put the environment at the heart of decision making. I welcome parts of that, and I have looked carefully through all the press releases; but, as so often happens with a Chancellor who wants us to believe that black is white, green becomes brown on closer inspection.
The Chancellor has tinkered with vehicle excise duty on cars—the qualification is to go up from 1,100 cc to 1,200 cc. That will have very little impact on emissions. The Chancellor has recycled his announcement about four bands for company cars in the future. We have been told 923 about a possible relief for stamp duty on new brownfield developments. It is nothing to do with reducing VAT on brownfield developments, which we were promised. Indeed, the Deputy Prime Minister claimed just a few weeks ago in the financial press that this was a bit of a done deal with the Chancellor.
The Chancellor recycled the announcement of an increase of £1 per tonne in landfill tax, but that tax is not being recycled to help good causes such as local charitable or environmental concerns, as it was when the tax was invented under the last Government. There was nothing in the Budget to promote recycling of any kind, at a time when recycling is being threatened by a crash in the prices of raw materials.
When we look at the small print, we see that there is an aggregate tax. I think that that is a shame as the voluntary agreements offered by the industry offered considerable improvements. According to the fine detail, aggregates dug out of the ground for export will not be subject to the tax, but those for use in this country will. We are allowed to dig holes in the countryside if we are exporting aggregates overseas, and will not be taxed, but that will not be the case if we are using them to build roads and hospitals in this country. That strikes me as an anomaly. Opencast coal mining will also be exempt from the tax. This is supposed to be an environmental measure, but opencast coal mining is possibly one of the biggest blights on the countryside. In many respects, the Bill is more brown than green.
I welcome the end of the fuel duty escalator, but diesel fuel duty is still going up. Business is still going abroad, and foreign trucks are still taking over from British trucks on British roads. Cars using unleaded petrol will still have to pay more for their petrol—1.89p per litre. A study carried out just this week has shown that families in Sussex now spend more on running their cars than any other household bills. That is more than is spent in any other part of the United Kingdom. The average Sussex family spends £78 a week—17 per cent. of household income—on cars. That is more than food and more than housing costs.
There was nothing in the Budget to encourage travel by bus, tram, metro or bicycle, apart from the recycling of some of the grants relating to rural buses. Despite the early announcement on rural buses, the number of bus passenger miles travelled has continued to fall. We still have the worst record in Europe for passenger miles travelled on public transport—a third of the amount in Denmark and half of the amount in the Netherlands.
The Budget does nothing to deal with the fact that we have the longest commuting times per day in Europe. It does nothing to deal with the problem that more road links are congested for at least one hour a day here than in any other country in Europe, apart from Poland. I am glad that road fuel gas duty has been frozen, but I wish that the Chancellor had shouted more loudly about that. Last year the Government reduced it by 29 per cent., which was very welcome, but the Chancellor did not mention that today. The trouble is that, despite all the Government's claims, this and previous Budgets have done nothing to encourage the conversion of public transport vehicles such as lorries to the use of road fuel gases.
924 According to a written answer last week, since 1996 the number of heavy goods vehicles that have converted to the use of liquid petroleum gas has increased from 24 to the grand total of 68, while the number of buses now able to use it has increased by 15 to 36. In the whole country, despite all the tax measures promised and shouted about by the Government, 36 buses have taken advantage of the tax breaks to convert to LPG.
For all Labour Members' talk of capital allowances for business, there was no mention in any of the notes or in any part of the Chancellor's speech of the use of capital allowances to encourage innovative environmental technology, a measure that was supported by 94 per cent. of business leaders. That underlines the need for a green tax commission to check the Government's green credentials and to build consensus between the Government, business, industry and environment advisory boards.
I could mention energy tax, too. I hope that we will debate that another day. Suffice it to say that there were no great improvements to energy tax in the Budget—a tax that will make many parts of British industry, particularly the steel industry and horticulture, very uncompetitive.
In my constituency, the BOC Group is a large employer. Electricity represents some 78 per cent. of production costs: the cost will be some £8.5 million in the first year. The company is being taken over by a French and United States consortium, which will mean that production in this country can easily move to either of those countries.
Understandably, the company has said:We would have no choice, faced with such a massive cost, but to reflect it in our prices to customers, therefore passing a burden to other competitive British companies as well.It is no surprise that, just yesterday, the Select Committee on the Environment, Transport and Regional Affairs said:We do not believe that the Climate Change Levy meets the tests of good taxation. The system of exemptions, negotiated agreements and reduced rates has produced an extremely complex and cumbersome market instrument which will result in a relatively modest emissions reduction.There is an old Budget adage: the louder Government Members cheer on Budget day, the more they will regret it later, when the Budget has been properly analysed in the cold light of day. Today's Budget is no exception. The devil is in the detail. It is a classic socialist Labour Budget—tax up 9p with one hand but down just 1 p with the other. Labour Members seem to have had difficulty in working that out.
After the Budget, the United Kingdom will still have the fastest rising tax burden in the industrialised world. No amount of fudging the figures, glossy brochures or spin doctoring will conceal that fact. With productivity growth slowing, with all help for industry targeted on new technology sectors—there is little help for traditional industries, which are increasingly tied up in red tape—and with the savings ratio plummeting, the Budget just stores up trouble for the future.
People are not stupid. They have woken up to the fact that services are getting worse and that they are paying more tax by stealth. They will treat with contempt a Chancellor who is more intent on building a war chest for election bribes than delivering effective services. The Government have been sussed. They are taxing more and delivering less.
§ 8.3 pm
§ Ms Rosie Winterton (Doncaster, Central)
I am grateful for the opportunity to speak in the debate. It is a Budget that will be welcomed in my constituency and in south Yorkshire not only because of the extra money that it puts into health and education, but because of the emphasis on full employment—what welcome words they are for my constituency—and on tackling social exclusion. One of the major challenges that the Government face is to ensure that areas such as south Yorkshire, which suffered industrial devastation under the previous Administration, as my hon. Friend the Member for Barnsley, West and Penistone (Mr. Clapham) said, can reap the benefits of a Government who are putting economic regeneration at the top of their agenda.
So severe were the consequences of the previous Government's actions that GDP in south Yorkshire was at such a low level that the area now qualifies for objective 1 status. During the Conservative Administration between 1979 and 1997, poverty and unemployment rose dramatically in south Yorkshire. That is why measures such as the national minimum wage and the working families tax credit are so important for people in Doncaster and south Yorkshire. The action to tackle unemployment is crucial to regeneration in the area.
The fact that youth unemployment has fallen by 79 per cent., long-term unemployment by 65 per cent. and overall unemployment by 30 per cent. is due largely to the new deal, but the establishment of Yorkshire Forward, the regional development agency, has also been an important catalyst in regenerating the area. Indeed, a survey of 1,500 leading business men in the area by the Yorkshire Insider magazine showed that Yorkshire Forward was considered the most influential body in the region.
In the Yorkshire and Humber area, sub-regional economies can vary greatly. That is another major challenge for us to tackle. For example, Leeds has become a boom town, but, only a few miles away, there is quite severe deprivation, which was recognised by the designation of south Yorkshire as an objective 1 area. In my constituency, affluent streets lie almost alongside streets with high levels of poverty, poor housing and the poor health that go with that. Tackling social exclusion means ending that huge disparity in people's wealth and opportunities—people who live close together, but who are far apart economically. The regional development agencies have been tasked to iron out inequalities not just between regions, but within regions.
Objective 1 status will be crucial in ironing out the inequalities in south Yorkshire. That means a cash injection of around £90 million every year for six years, but it is important that match-funding be found. I know that that is something that Treasury Ministers are aware of. I hope that, during discussions on the Budget, they will feel able to give us some reassurances about that. I hope that they can look at how money, for example, from the Coalfields Regeneration Trust could be used to match objective 1 fund money.
One of the things that the Doncaster chamber of commerce has been examining closely is how to use objective 1 money to regenerate our area. Yesterday, I spoke to its chief executive about the Budget and local businesses' attitude to it. He emphasised how vital it 926 would be for the Budget to assist small and medium businesses if the Government were serious about regeneration.
As my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) said, the changes in capital gains tax, the permanent extension of capital allowances and the crucial steps to ensure that venture capital funds are used at regional level mean that it is a Budget for small and medium businesses. In an area such as south Yorkshire, that will help the economic base to diversify from traditional industries, which the previous Government ripped the heart out of, to important new industries. It will also help to attract new business start-ups and inward investment to sites that have been developed, such as the one at junction 4 of the M18, which is now attracting new businesses, thanks to the work of the local chamber of commerce, the local council and Yorkshire Forward.
One important way in which the regional development agency has been able to capitalise on the lead given by the Government is by encouraging partnership between local businesses and the community. That has resulted in a much greater awareness of what is required and of the importance of regenerating the local economy.
In my constituency, Peglers, a company that makes bathroom fittings and employs more than 900 people, also helps other local companies to flourish. It is trying to get one of its suppliers of coatings to open a subsidiary on its site in Doncaster as an offshoot from its other office in the north-east. It is considering how to help the smaller company with finances, personnel and research and development, so that it will grow within Yorkshire and help the local economy. That is an example of a business becoming involved in the community and using factors such as purchasing power to help other local enterprises
We are increasingly making demands on businesses to become involved in local communities. Perhaps we should consider providing a fiscal incentive for businesses that invest in deprived communities. I know that there are special incentives for businesses to give money to charities and it may be possible to extend that principle.
The Red Book refers to the Government's national strategy for neighbourhood renewal. It says:The Government is committed to ensuring that the most disadvantaged neighbourhoods are given the support they need to maximise their economic potential.I hope that we can do much more to develop partnerships between local businesses and communities. Perhaps the Government could assist businesses to invest in severely deprived communities.
Danum school in my constituency is looking to raise some £50,000 from the private sector to kick start its efforts to become a specialist technology school. Perhaps we could do more to encourage local businesses to invest in such projects. Danum school has placed strong emphasis on new technology, realising that such knowledge is vital if south Yorkshire is to compete in the changing industrial world. The regional development agency has emphasised that too. One of its requests for the Budget was that it would include measures to assist companies to get online and invest in new technology. Today's announcement of 100 per cent. capital allowances in respect of information technology for small firms and the £50 million package to get more small firms online will be welcomed in south Yorkshire by the 927 regional development agency, the chamber of commerce and larger industries that want smaller businesses to get on-line too.
Today's announcement will also enable local communities to put together a coherent strategy, which may need more work, to look at how information technology can be spread further. Technology and training are vital for regions such as south Yorkshire, which is moving away from traditional industries and towards the new industrial world. That means a change of culture, with companies being encouraged to take more responsibility for investing in the future of their local communities and helping to provide better training. That change in attitude comes across strongly because the Government have taken the lead and stressed the need for partnership.
Good transport links are at the heart of helping businesses to grow and attracting new businesses to an area. Doncaster is well served by transport links. Last week, I spoke to representatives of a company who told me that they had come to the area particularly because of the motorway and rail networks. Transport is important to us, so we welcome today's announcement of extra investment in transport. Getting the go-ahead for Finningley to become a commercial airport would provide an enormous boost, not only because it would improve airport links for passenger and freight services, but because it would provide enormous potential for employment and lay solid foundations for future regeneration.
In addition to its objective 1 status, Doncaster will benefit from the new deal for communities. The Doncaster regeneration partnership is establishing business forums that bring together the local authority, the health authority—and all the social partners—and local businesses to give us an idea of what businesses want and to give the regional development agency better feedback about what skills are needed so that the skills action plan can effectively meet the needs of business. That is crucial for training and developing skills and is an example of partnership in practice. The new deal for the community will also enhance town centre communities.
The hon. Member for East Worthing and Shoreham (Mr. Loughton) talked about stamp duty. The review of stamp duty relief in respect of new developments on brownfield sites is most welcome. I hope that the proposed stamp duty relief will extend to refurbishment—for example, where a warehouse is converted.
Since the Government came to power, my constituents, who were neglected by the previous Administration, have witnessed a sea change in their economic prospects, individually and regionally. The lead shown by the Government has meant that businesses are focusing on their contribution to the community. Companies, the council and the community are working together to turn round the local economy. Hope has replaced despair. Whereas there was a crisis of confidence under the previous, Tory Administration, we now have a climate of confidence. I believe that this Budget will build on that new-found confidence, and I welcome it wholeheartedly.
§ Mr. Paul Burstow (Sutton and Cheam)
This Budget is the work of a master craftsman. Every statistic chosen by the Chancellor for today's Budget statement has been 928 very carefully honed and shaped, to paint the rosiest picture possible. The statistics are intended to try to direct and divert both the eye and the ear of the beholder from the substance to the gloss, perhaps misdirecting our attention from some of the Budget's more important details. As other hon. Members have already rightly said, the devil will be in the detail. The Budget may escape more detailed scrutiny in Budget week, and only subsequently be revealed for what it truly is.
Although I welcome any additional resources that the Chancellor has made available today, I should like to deal with three specific matters that will cause my constituents real concern: education, pensions and health.
One should compare today's announcement of an additional £1 billion for education with the tax cuts—which are four times greater than the increase for education—and examine some of the details of the practical effects that that funding increase might have in the constituencies. As I listened to the Chancellor, I was reminded of some papers that I recently received from a constituent of mine, Mr. Coolen, who is a parent governor of Nonsuch primary school, which is in my constituency. In the coming year, his school faces a funding cut of £28,000.
People might think that the school faces that cut because the local education authority has been mean and not done the decent thing by ensuring that the benefits of increased standard spending assessments are fully passported to schools. They would be wrong to think that. People might also think that the local authority has not done enough to ensure that it meets all the tests for the standards fund, and is therefore not benefiting from the Government's largesse in that fund. However, that is not correct. People might even argue that the local authority has not fully funded teachers' pay awards, and has thus shifted the burden on to the poor governors, leaving them to try to make up the difference. That would not be true, either.
In every single case, my local authority—the London borough of Sutton—has done what the Government have asked of it. It has ensured that the money that it says is available is put into schools. The simple fact is that there is not enough money. That is why not only one school, but many of my schools are facing financial difficulties in the coming year.
The specific school that I mentioned is a relatively small primary school. It is finding the going particularly hard and has a particularly severe squeeze on its budget because the number of pupils attending it is being reduced, partly as a consequence of the Government's initiative on reducing class sizes for younger pupils.
So although I entirely welcome the fact that the headmistress will eventually be receiving a cheque for about £3,000 for books and equipment, I urge Ministers not to expect huge parties to be thrown by staff and governors across the land to celebrate the arrival of such a cheque. All that money will do is make good the cuts that have been made because of the general underfunding of education. A good headline in today's press is not an adequate replacement for ensuring that our schools are funded adequately and properly, year in and year out.
§ Mr. Richard Ottaway (Croydon, South)
Before the hon. Gentleman moves on from the subject of education in Sutton, will he join me in condemning Sutton's Liberal 929 Democrat-controlled council, whose funding of grant-maintained schools has led to pupils and their parents conducting a whip-round, simply to make up for the council funding deficit?
§ Mr. Burstow
I am delighted that the hon. Gentleman has given me the opportunity to nail the Tory myth that is being peddled in my constituency. The hon. Gentleman may be a little detached from such matters now—although a few months ago he was responsible for whipping up such matters—but I should tell him that all the GM schools have had to accept that the LEA has bent over backwards to ensure that they receive fair funding. This year, in the budget that has just been approved by the local authority, there has been a substantial increase in the funding going to all secondary schools, but particularly to GM schools, to compensate for the fact that the Government's fair-funding formula—which he declined to mentioned—has now been properly funded. That is the consequence of a collaborative and co-operative approach, rather than the confrontational approach that the Conservative party wants to try to foster in my constituency.
The Government hope that many pensioners will have felt a very warm glow when listening to the Chancellor's words today. However, let us examine some of the truth and detail underlying those words. On 1 April, most United Kingdom pensioners will be receiving through their letter box a 75p increase in the basic state pension. People—not only pensioners, but many people—feel very angry about the Government's failure this year to provide a decent increase in the basic state pension. They feel insulted, and that will not be assuaged by today's warm words from the Chancellor.
The situation is worse than that, as many pensioners will be receiving less than a 75p increase. It is worth reminding the House that one quarter of pensioners—about 2.5 million of them—will be receiving a far smaller pension increase this year. Moreover, most of those pensioners are women. Many women pensioners may not have complete contribution records, or are widows, or are on pensions of no more than £39.95 per week. What does the Government's inflation increase amount to for them? It amounts to a weekly basic state pension increase of about 45p. That is what the Government are giving 2.5 million of our poorest women pensioners.
What would the Liberal Democrats do? Last week, in our alternative Budget, we outlined precisely what we would do. This year, we would have paid a £2 increase in the basic state pension. That is not a dramatic sum, but it is certainly more than the Government were willing to find—they had the money in the social security budget—to increase the basic state pension.
The evidence is very clear: the poorest of our pensioners are the oldest of our pensioners; and the majority of the oldest of our pensioners are women. We must therefore look at ways in which we can most effectively target help to reach those pensioners.
The Government place their hopes and aspirations on the so-called minimum income guarantee. However, that guarantee is no guarantee at all, as it requires people to undergo a means test. Many hundreds of thousands of people in the United Kingdom, some by choice, simply do not undergo that means test. On the Government's own figures, 700,000 people do not claim under the minimum income guarantee, and are consequently living below the poverty line.
930 Liberal Democrat Members say that the Government, in this Budget, should have moved towards adopting a different strategy for targeting help. They should be targeting help on the basis of age, not only on means, and using the basic state pension as the vehicle for delivering that help. We say that that could be done in age additions, starting at the age of 80.
In 1971, the Conservative Government introduced a 25p age addition, which provided a little help for pensioners. In 1971, 25p was worth something; today, it does not even cover the cost of a first-class postage stamp. The addition has not been uprated, on the basis of any index, since 1971. Hon. Members should go to a meeting of pensioners groups in their constituency, mention that 25p and see how delighted they are about how generous successive Governments have been on the addition. Year after year, they have expected the figure to be uprated, but it has not been. If it had been uprated on the basis of earnings, it would now amount to £3.70. Liberal Democrat Members believe that there should be a £5 age addition at the age of 80. We believe that that is affordable, and that it could have been afforded in this Budget.
What about those who are 75? Currently, they receive no age addition whatsoever. We think that wrong. The Government themselves recognise in their minimum income guarantee that there should be an age addition at 75, but they do not believe that it should be provided in the basic state pension. We propose that a £3 age addition should be included in the basic state pension.
How would our proposals affect increases for pensioners? They would result in an increase of £2 per week for anyone retiring at 60 or 65. At 75, pensioners would receive an extra £5 a week in their pension, and they would receive it now. Those over 80 would receive an extra £6.75 a week in their pension, which would begin to make a difference to pensioners who are living in poverty.
Beyond that, we have seen the Chancellor's announcement about the generosity of the winter allowance—an extra £1 a week for pensioners. That is the sum total of what the Government are doing to try to help some of the poorest of our pensioners, alongside, perhaps, some of the richest. There are still thousands of pensioners in my constituency waiting to receive their winter allowance. Some have been told that they will probably not get their outstanding backdated payments until next winter, when they will be portrayed, no doubt, as a bonanza for pensioners.
No one would wish to say that the free television licence proposal for those over 75 is not welcome; I know that it is in my constituency. However, there is a question. There are pensioners receiving just a 45p increase in the basic state pension who are below the age of 75. Where on earth are they to find the money to pay for the increase in the television licence until they turn 75? The money is not there. The Government have not provided it, and they are making it harder for those pensioners to make ends meet.
On tax—and the tax situation for pensioners in particular—it is welcome that, one year on, the Government have accepted that the 10p tax rate ought to be applied to the savings income of pensioners. That issue, as my colleagues and I argued during debates on the last Finance Bill, should have been addressed then. 931 However, the Government said that it was not necessary because they were being generous enough, and that the measure was not intended to help the income of pensioners. It is welcome that the Government have decided to make the rate retrospective and to apply it a year back. That is a welcome acknowledgment that the Government were wrong not to have included the measure in last year's Budget.
In the detailed press releases, there is a reference to the tax back campaign—something that is long overdue. Millions of pounds of taxpayers' money are sitting in the Treasury: money that should not have been paid because the pensioners were not on the income to warrant paying the tax. They do not know that they are entitled to claim it back. The Government campaign appears to be that they will have an extra page on the Inland Revenue website. Wow—that is how those people who do not know they have money sitting in the Treasury are to learn that they can get tax back. This is not a tax back campaign, but a way of maintaining the Treasury's grip on money that does not belong to it. The Treasury should be doing more to notify those pensioners of their right to get that money back.
Another tax issue that I hope the Government will act on concerns pensioners whose incomes are below the threshold for paying tax but are nevertheless obliged every year to fill in tax assessments. What a waste of time—what a waste of public money in sending out those forms. Why cannot we have some form of certification process, where pensioners can exclude themselves by declaring that they will not be in receipt of incomes above the tax thresholds, thus saving the taxpayer the need to administer a system that is generating no income but is causing a great deal of worry and anxiety for many pensioners?
On health and long-term care, the £2 billion announced today by the Chancellor—to be reannounced tomorrow, and probably many times after that by other Ministers—is welcome. It is undoubtedly a welcome acknowledgement by the Government that they got it wrong on NHS funding for the first three years of this Parliament. An emergency infusion of cash now is necessary because the Chancellor left the NHS bleeding to death for the first two years the Government were in office by sticking to the Conservatives' spending plans.
The extra emergency money is coming in ten days before the beginning of a new financial year. That is boom and bust gone mad—it is absolutely crazy. How can we expect NHS managers to plan sensibly in an environment where they are told ten days before the beginning of a financial year that they have an additional £2 billion to spend? At this moment, we do not know the details, because the Prime Minister and the Secretary of State will spend four months working out how to spend the money.
§ Mr. David Taylor
That £2 billion represents about £3 million per average parliamentary constituency, and represents about £10,000 per day. It is not as if the money must be spent on the first day, the first week or the first month. The hon. Gentleman is exaggerating the difficulties that any health authority or trust will have in dealing with the money.
§ Mr. Burstow
Try telling that to the 512,000 people who are currently on waiting lists to see a consultant 932 before they even get treated. Try telling that to the people who have had their operations cancelled in the last year. Try telling that to my health authority, which has been told that, on the current allocation, it will be £4 million short if it honours the Government's commitment—made on its behalf—to fully fund the nursing and doctors' pay awards. That is why a system where the Chancellor announces at the Dispatch Box ten days before a financial year begins that, suddenly, there is an extra £2 billion to be made available is not a sensible way of spending public money.
§ Mr. Philip Hammond (Runnymede and Weybridge)
Does the hon. Gentleman agree that the real test of the usefulness of this additional money will be whether it is to be passported through to health authorities and trusts, so that people at the sharp end can spend that money to deliver better health care, or whether it will be held back by the Government to use for its pet projects?
§ Mr. Burstow
We await with bated breath what the Prime Minister has to say to the House tomorrow. There must be a real fear that there may be a similar approach in education, where the standards fund is used as a way of following Ministers' pet projects, rather than meeting local priorities. We will judge on what the Government say and what they then do in practice.
§ Mr. Alan W. Williams
I find the hon. Gentleman's comments on pensions and health extraordinarily grudging. We are talking about £2 billion on a budget of £40 billion. There is an extra 4 per cent., when the Budget this year is 5 per cent. up in real terms on last year. Cannot the hon. Gentleman find it in the bottom of his heart to give the Labour Government credit for doing something right?
§ Mr. Burstow
If I sound grudging—Labour Members think that I do—it is because many of my constituents feel grudging. They have suffered over the last two years from an underfunded NHS and a Government who over-hyped and over-promised in opposition and have subsequently failed to deliver. The announcement today is about trying to put right the fact that the promises were unfunded. To the extent that the announcement puts in place the necessary funding to deliver these proposals, of course I welcome it. However, that is as far as I go in welcoming this sum today.
The crucial question—as the hon. Member for Runnymede and Weybridge (Mr. Hammond) said—is how the money will be spent. It must be invested in building up the capacity of the NHS. That means, as the Government have rightly acknowledged, more nurses and doctors. We must make it worth while for some of the 70,000 nurses who are currently outside the health service to come back into it, to start to fill some of the 15,000 nursing vacancies.
There is a need to invest in physiotherapy and occupational therapists. If all the money goes to the acute sector, it will not meet people's real needs. We need investment in recuperative and rehabilitation services so that we will have easier discharging from hospitals and reduced emergency re-admissions to hospitals, which all too often is one of the biggest problems. We need to look at ways to ensure that we help older people to continue 933 living in their own homes, rather than being prematurely consigned to care homes, as is all too often a byproduct of our current health care arrangements.
On the funding of long-term care, the Government's silence—which continued today—is deafening. A royal commission was established in December 1997 and it reported, as it was requested to do, in just over a year, in February 1999. We then waited week after week, month after month, for the Government to say what it was going to do in response to its recommendations. We were told in December that we would have a debate in which the Secretary of State would outline the Government's proposals. However, we were then told in December that the Government were going to review the matter still further and that we would have a White Paper in June this year.
All this means that there will have been no legislation in this Parliament to change the legal framework under which long-term care is financed and operated. So much for the Government who promised before the general election that they would do something to prevent hundreds of thousands of people from being forced to sell their homes to pay for their care. Under this Government, 100,000 more people have been forced to sell their homes to pay for their care, because the Government have done nothing to implement the royal commission's proposals.
It is hardly surprising that we have constituents coming to our surgeries who have been confronted by local authority accountants proffering a bill to them to pay for their care. That has happened to families such my constituent's, Mr. Albert Philo. His family cannot believe that after decades of hard work and diligent taxpaying, they have to pay for nursing care. Mr. Philo has a medical condition—dementia—and his family thought that the NHS was free at the point of use on the basis of need. However, Mr. Philo's wife is being pursued for payment for his care, pushing her into debt and causing great anxiety. The Budget does nothing to sort out the chaos that is long-term care finance.
The Government have made much of their support for carers. We have had a national carers strategy, and that was welcome because it codified much good practice around the country. However, we heard nothing today about carers, and the Government have allocated a mere 15p extra a week for carers. The vast majority of carers are older people, caring for a husband, wife, parent or adult child. Because those carers are pensioners, they are not entitled to the invalid care allowance. If the Government valued older carers, they would extend ICA to all pensioner carers.
In the Budget today, the Chancellor offered pensioners an inflation increase in the basic state pension of £2—in April next year. Wow! He also offered them an extra £1 a week in their pocket through the winter allowance, and a consultation on the income tapers on the minimum income guarantee. But what does the Budget do now to make a difference to pensioners? It puts 75p in the pockets of pensioners, with possibly a little bit more through the winter allowance in due course. When pensioners come to examine the rabbit that the Chancellor has pulled out of his hat for them this year, they will find that it was not just emaciated but well and truly dead before he even drew it out of his hat.
§ Mr. David Chaytor (Bury, North)
I am pleased to congratulate my right hon. Friend the Chancellor on his Budget speech. By contrast with the hon. Member for Sutton and Cheam (Mr. Burstow), I shall try to bring a note of enthusiasm and gratitude into the debate and not repeat the Liberal Democrat approach of occasional helpful suggestions spoiled by opportunism and grudging acceptance of what are major improvements to the public services and quality of life of people in this country.
The Budget will be warmly welcomed by my constituents in Bury, North. Whether they are pensioners, parents bringing up children, patients, doctors, nurses or ancillary staff in our hospitals or teachers in our schools, they will be pleased that the Chancellor has listened in the past few months and responded to many of their pleas. I also welcome the fact that the Budget moves our party forward in its historic commitment not just to achieving full employability but to achieving full employment.
In my constituency, the most recent recorded figure for unemployment was 2.7 per cent. Not everyone will need reminding that that figure is below the 3 per cent. recommended by Beveridge in his definition of full employment in 1945. That 2.7 per cent. represents a dramatic fall in unemployment in the past two years, including, most notably, a 70 per cent. reduction in youth unemployment.
I was astonished by the line of attack on the Budget from the official Opposition. Since I was elected a Member of Parliament three years ago, thousands of people have written to me and come to my surgery and I have had thousands of discussions in the street, at social events and on constituency visits, and no one has ever said to me, "I am really worried about the tax burden and the percentage of GDP being taken by tax."
The Conservative party has failed to move on from the election campaign that it fought in 1987, which was dominated by its obsession with tax cuts. It does not understand that people are now calling for more investment in public services, and fails to grasp that they understand that there is a price to be paid for that. My constituents tell me—I have no reason to think that they are different from people in any other part of the country—that their priority is more investment in jobs, education, the national health service, better public transport, an improved environment and a lower level of crime. The Conservative party's obsession with the tax burden does not address those issues.
In most western European democracies, tax as a proportion of gross domestic product varies only slightly. Perhaps there is a limit below which it should not fall, and that may be 35 per cent. Equally, there is a limit beyond which it should not increase, and that could be 40 per cent. Within that band, and allowing for the circumstances of different countries and different stages in the economic cycle, the tax burden as a proportion of GDP is not the main issue in the debate about tax, public services and the economy.
The distribution of the tax burden and the way in which the revenue raised is invested are the most important matters. We are seeing a much fairer distribution of the tax burden. Those who can afford to pay are expected to pay a little more, and many hundreds of thousands of the lowest-paid workers have been taken out of the tax net. We are seeing also that the Government are spending tax 935 revenue more productively than ever before. We are investing for the future rather than picking up the economic problems that we inherited from the previous Government.
§ Mr. Steve Webb (Northavon)
The hon. Gentleman and I probably have more in common than either of us would care to admit. The hon. Gentleman talks about fairness in the tax burden, however. The Government have abolished the married couples allowance, which has led in reality to a flat-rate subsidy to all taxpayers—worth the same to them all. Mortgage interest tax relief now has the same quality. Would it not have been better to use progressive rates of income tax? Is not that the best way to get a fairer distribution through the tax system, with a higher rate for the highest earners?
§ Mr. Chaytor
The hon. Gentleman raises an interesting point. However, if a party makes a commitment in an election manifesto not to raise income tax rates, it should adhere to it. When we come to the next general election, I think that the electorate will be pleased that it has had a Government for four or five years who have stood by their commitments on tax, in contrast with the previous regime.
I shall refer briefly to three issues. First, my local authority is one of the most successful in the country in terms of organisational efficiency and support for schools—which was recognised in the recent Ofsted inspection. That applies also to the results delivered by both primary and secondary schools in the area. Bury's primary and secondary schools deliver astonishingly good results on the basis of a meagre level of resource. They will be delighted to learn of the 300 per cent. improvement in the books and equipment allocation to primary schools and of the new £30,000 allocation to secondary schools.
I am delighted that my right hon. Friend the Chancellor has started to make direct allocations to schools. One of the remaining problems in funding education is not that the overall increase is too small but that the method of distribution through the standard spending assessment system remains grossly unfair. Despite Bury being in the top 10 per cent. in terms of examination results at various primary and secondary schools, it is in the bottom 20 per cent. in terms of funding. On all the socio-economic indicators, it should be somewhere in the middle. Following the announcements of my right hon. Friend and those of my right hon. Friend the Secretary of State for Education and Employment, we are seeing direct net cash allocations to schools to compensate to some extent for the deficiencies in the SSA system.
§ Mr. David Taylor
I thank my hon. Friend for giving way, and I note that the £1 billion announced today is equivalent to about £1.5 million per parliamentary constituency, and to about £10 million for the county constituencies in Leicestershire. That money will be welcomed and well used, but the difficulty is that the SSA distribution in Leicestershire leaves us £13 million adrift of the average county. Does my hon. Friend not agree that the reform of SSAs, for which we have called for so long, cannot be long delayed?
§ Mr. Chaytor
I can only agree with my hon. Friend. I urge him and other hon. Members with constituencies 936 whose local authorities are in the bottom 40 of the funding league table to continue to argue for complete reform of local government finance. Perhaps they should argue specifically for the use of the DETR index of social deprivation as the main tool for the allocation of education funding.
I turn now to the question of health. Again, my constituents are delighted with the new health spending that has been announced already. After many years of neglect, it has helped us finally to merge our two hospitals on to one site, and to modernise our accident and emergency unit.
However, my reservation is that far more money could be squeezed out of the total health budget if we completed the modernisation of the structure of the national health service and moved away from the internal market, which reproduced bureaucracy as if there were no tomorrow. I urge the Government to build on the new investment allocated to health by continuing the process of merging trusts and reconfiguring health authorities, which is taking place in the context of establishing primary care trusts and primary care groups. Far too much money in the NHS is tied up in duplication and bureaucracy.
Even so, I must tell the House that the nurses and midwives who have lobbied me recently about levels of understaffing and recruitment problems will be delighted with the new investment announced today. The general practitioners who have been talking to me for two and a half years about the need for higher funding will also be delighted, as will those patients in Bury still on waiting lists—although I must note that those lists have fallen dramatically in the past two years.
§ Mr. Hammond
Can the hon. Gentleman tell the House what the out-patient waiting list—the list of those waiting for a first consultation in out-patient departments—is in Bury?
§ Mr. Chaytor
No, I cannot. However, if the hon. Gentleman has a particular interest in the subject and wants to discuss it with me afterwards or write to me about it, I am sure that I shall be able to find the information for him.
Finally, I want to say a few words about environmental policy and the issue of green taxation. Two Budgets ago, my right hon. Friend the Chancellor was criticised by environmental groups for doing nothing to advance the cause of the environment. I think that he received an award for being a very un-green Chancellor. Last year, his reputation changed dramatically. He was widely praised for the various initiatives that he introduced, and was applauded as the first green Chancellor. That was thanks to his changes in transport policy and the fuel duty escalator; to the climate change levy; to the taxes on aggregates and pesticides, and to other measures.
This year, I imagine that the verdict on the Budget will be a little more neutral. However, I welcome the slow but steady progress towards a green tax policy that my right hon. Friend the Chancellor is still making. I welcome, too, his announcements on the aggregates tax and the landfill tax. I expect that the Opposition will say that that is just another recycled announcement, but we are talking about the Budget: if a proposal is relevant to this year's measures, the fact that it was announced last year is insufficient reason not to mention it again.
937 I also welcome the implementation of the commitment to reform the taxation of company cars. That has been a central plank of the welfare state for the middle classes for many years.
Nevertheless, I want to raise one or two reservations. I understand the political reality behind the doubling of the oil price over the past 12 months, and I also understand why it is impossible to continue with the fuel duty escalator. However, we should not believe that we can carry on burning hydrocarbon fuels as if there were no tomorrow. Frankly, hon. Members who believe that it is environmentally sensible or sustainable to argue for lower fuel duties on petrol or diesel are living in cloud cuckoo land.
We need to develop the debate about fuel tax policy and get away from the Dutch auction on tax. Underlying this is a very serious problem. We need to ask ourselves why the price of oil has risen by 100 per cent. in the past 12 months. Why does it cost $30 a barrel? What is likely to happen to oil prices and oil reserves in the years ahead? Can we conceivably carry on using oil as we have done in the past, even if there is oil still to be used?
Within 10 years, we will reach the peak of global oil production. After that time, existing oil reserves will start to run down. There may be new discoveries, but as each new oilfield is discovered and exploited, the cost of extracting the oil becomes greater. As more and more countries industrialise, demand for the use of oil will increase. The idea that we can continue for ever to live in a cheap oil economy is nonsense. We must get used to the fact that oil will become scarcer, more expensive and, as oil reserves diminish, an increasing proportion of global oil reserves will be controlled by middle eastern countries, particularly Iraq.
There is only one intelligent solution, which is dramatically to increase the use of alternative fuels. In the press notices that the Chancellor has provided, I am delighted to see that there is a fiscal incentive for the use of alternative fuels in the proposals for a banded vehicle excise duty and in the reform of company car taxation. However, I still do not think that that goes far enough. In the next 10 years, we must dramatically reduce our dependence on oil as a fuel for motor vehicles and increase our use of liquid petroleum gas, compressed natural gas, fuel cells and various hybrid forms of motor engine. If not, in five, 10 or 15 years' time, we will be completely dependent on oil supplies that are in the stranglehold of Iraq. There is no question about that.
This has been a marvellous Budget. However, although huge strides have been taken on the green tax dimension of the Budget in the past two or three years, we still have a long way to go. We may be on target to meet our Kyoto target of a 12.5 per cent. reduction in carbon dioxide emissions by 2010, but beyond 2010 the reductions in emissions that we will have to achieve will increase dramatically. There are estimates of 60 per cent. cuts by 2030. We cannot achieve those cuts in carbon dioxide emissions, which are crucial if we are to stabilise the problem of climate change, without realising that our chronic high dependence on hydrocarbon fuels must come to an end.
Finally, I congratulate my right hon. Friend. I will be delighted to catch the 9.30 pm train from King's Cross this evening and go back to my constituency with the good news. I am confident of a very positive response.
§ Mr. John Hayes (South Holland and The Deepings)
I hope that my contribution to the debate will raise new issues rather than repeating what has already been said—which is unusual in itself. I always think that a person who speaks on the first day of the Budget debate is either very bright or very bold. I should like to think I am the former, although by the time I have finished, hon. Members may think I am merely the latter.
The Chancellor spent the first part of his speech talking about the prevailing economic circumstances. He talked about employment and inflation. He did not, however, speak about the decline in the savings ratio, which has halved during the Government's time in office, and the consequent damaging effect on manufacturing, particularly on exports.
The Budget contained nothing for manufacturers, despite all that we have heard in recent days and weeks about the plight of exporters. Nor did the Chancellor give much attention to investment. Some concessions have been made, particularly on high-tech investment, to which I shall refer later, but investment in manufacturing industry is below that of most of our world competitors and that is a serious problem for our economy.
The Budget certainly taxes more and delivers less, particularly for rural Britain. It contains no aid package for agriculture, which has been badly hit—in spite of protests in the House and in Parliament square. Pig producers can scarcely produce pigmeat economically; they cannot sell it for what it costs to produce. The dairy and beef industries are in crisis, and the arable sector faces prices equivalent to those of 25 years ago.
My constituents, such as pig farmer Stewart Stables, and Jane and Michael Cook, who farm cattle, are hard pressed by prevailing circumstances which the Government have failed to address in this Budget. Unlike the hon. Member for Bury, North (Mr. Chaytor), they will be not pleased: they will be deeply disappointed. There is nothing for poultry farmers, who face ever more competition from abroad.
There is nothing for rural services either. We heard a lot about spending increases for education, health and transport—on which I shall elaborate later—but little about how the money might be skewed to favour disadvantaged areas, particularly rural areas. Rural Britain has missed out. Given the nature of the crisis in rural Britain, that is extraordinary.
Let me turn to the national health service. I have had a chance to study the detailed proposals for the NHS, and Labour Members may be surprised to learn that, although great play has been made of the extra money, the figures for year-on-year growth fail to match the aspiration—I use that word advisedly; the Prime Minister told us that that was what it was—that NHS spending as a proportion of gross domestic product should match the European average. The increases do not provide a foundation for meeting that aspiration. There is a 7.9 per cent. increase for 2000–01, but growth tails off to 5.8 per cent. for the next three years, averaging out at 6.3 per cent. overall. To meet the Prime Minister's aspiration, the figure should average closer to 7.5 per cent. The pledge—which later became an aspiration—has gone out of the window.
The problem behind the Government's approach to NHS spending is that they do not understand the difference between affordability and cost-effectiveness. 939 They do not understand the difference between political judgments and the clinical judgments on which NHS spending should be based. The distortion created by their obsession with waiting lists has badly damaged the NHS.
Health service managers have been left confused by the continual reannouncement of figures. The British Medical Association wrote to the Prime Minister to complain that it was impossible for health service managers to plan effective delivery of services when they did not know how much they would receive. Today's Budget statement was peppered with reannouncements.
Naturally, we welcome extra spending on the NHS. We have heard some silly nonsense from the Labour Benches to the effect that the Conservatives do not welcome justified and targeted spending on public services to benefit the disadvantaged. Of course we support that. The point made by the hon. Member for Bury, North—that all tax and all spending were good—was primitive to say the least. Do Labour Members not understand the difference between tax yield and tax rate? Do they not understand the difference between targeted effective spending and spending per se? The Conservatives are merely saying that if the Government take money from people, they have a responsibility to ensure that it is spent wisely and accountably. That is the point that we have made repeatedly.
§ Dr Lynne Jones (Birmingham, Selly Oak)
Is the hon. Gentleman suggesting that the Government's proposals for increased spending on health and education would not be a wise use of taxpayers' money?
§ Mr. Hayes
I was about to come to that point. We do not yet have the details about the £1 billion that was announced today, but the certain problem with that proposal is that it takes a broad brush approach to education expenditure. To target that money at the most disadvantaged pupils and schools, we need to address the formula funding package. That is understood by professionals in the education service.
Of course, no school will say no to extra cash, but all schools will admit that the root of the problem is the way in which we fund education. I admit that the previous Government were responsible for formula funding, although it was based on preceding traditions—as was brought out in one of our recent debates on education. However, the formula needs adjustment so that the extra money goes where it is most needed. It is not good enough to take a broad brush to education expenditure; one has to spend money differentially—in favour of disadvantage—to raise standards throughout.
Let me offer the hon. Lady an example. The schools that will suffer most from today's proposal—or that will benefit least—will be small rural ones, or those in inner cities that have the lowest number of pupils. Is it right or wise to allocate £1 billion on that basis? Would it not have been better to allocate the money in favour of disadvantage? The proposal is headline-gathering; it does not involve the intelligent use of the funds to increase the quality of education for the majority of the children who need the most help.
940 There was also an announcement on e-commerce and investment in high-tech industries and information technology. We should consider that in parallel with the attack on IT skills that was the result of the IR35 changes. The Budget states its aim:To encourage firms to take up the challenge to get online, the Chancellor announced … that firms would be eligible for discounts for electronic filing and payment of tax returns.There was a reference to 100 per cent. tax relief on investment in IT.
To be fair and accurate—qualities for which I am known—it was suggested that in addition to the 100 per cent. first-year capital allowances for small enterprises investing in information and communication technology, there would be a £60 million packageto help SMEs understand what getting online means.However, that £60 million is relatively small fry, so those changes will breed an acquisition culture in high-tech and ICT, rather than an application culture.
We should be encouraging small and medium-sized enterprises to make more effective use of ICT. We do not want people to make more and more investment in hardware, if that hardware is not applied effectively and fruitfully in the development of their business. The changes will encourage acquisition without necessarily encouraging good application. That has been the story in the past for both the private and the public sectors. Any hon. Member who doubts that should read the surveys of good IT practice, which suggest that, despite investment in IT, much of it has been under-utilised through lack of understanding. Given that people will find it harder and harder to acquire the skills, the consultancy and the training that they need as a result of the Government's attack on the industry's private consultants through the IR35 changes, the future is gloomy for IT investment as a result of the Budget.
The Budget is big on headlines and soundbites, but as we have seen in previous Budgets, we can trust and value only what is actually delivered, rather than what we are told will be done. It is certainly true that the tax take has increased during the lifetime of the Labour Government. That has come home hard to people. I was amazed to hear Labour Members claim that they had never received a single letter complaining about tax increases. Are they telling us that people have not written to them complaining about the abolition of the married man's tax relief, the abolition of MIRAS or the possible introduction of a pesticides tax, which has now, happily, been abandoned because of the campaigning of mainly Conservative Members? Have they not received letters about the threat that the climate change levy will represent to arable farmers and to horticulture? The Red Book recognises that those industries are energy intensive, but sufficient help is not being provided to help them to cope with the levy.
I do not know how the Government can have the brass neck—that was the phrase used by my right hon. Friend the Member for Richmond, Yorks (Mr. Hague)—to announce measures that are headline and soundbite oriented against a background of profound disappointment in communities throughout the country. Someone talked about more humility. I would like more humility, but I would also like more accuracy. I welcome extra spending when it is targeted and is effective in doing good, raising standards and in providing a better quality of life. I do not 941 welcome stealth taxation and ineffective spending, but that is what lies at the heart of the Government's policies and of this Budget.
§ Mr. Alan W. Williams (East Carmarthen and Dinefwr)
At last, we have heard a 10-minute speech, and I shall try to keep my speech to that length to allow other hon. Members to take part.
I very much welcome the announcements in the Budget. I have listened to four or five hours of speeches and many comments from Opposition Members, including from Liberal Democrats, have been very grudging, nitpicking and mean-minded. My right hon. Friend the Chancellor of the Exchequer, the Treasury team and the Government have a terrific grasp of the economy. We are in a strong position, with steady growth of 2.5 to 3 per cent. a year and low inflation, which is well under control at less than 2.5 per cent.
We also have an incredible surplus in the Government accounts. Last year, it was projected to be £2 billion, but it will, in fact, be £17 billion. Why should the Government be in surplus? Would it not be wiser to invest the money in health, education, pensions and other services? I know that my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) will agree when I say that I do not understand why we have a preoccupation with repaying debt. The debt burden was 44 per cent. when we came to office and it will be 33 per cent. in a few years' time. Why pay it off? We have one of the lowest debt burdens in Europe.
Money is abundantly available to increase public expenditure. I am delighted that an extra £1 billion for education was announced today and that it will go to individual schools, bypassing local education authorities. I am pleased that there will be more piloting of educational maintenance allowances for 16 to 18-year-olds who stay on at school. I hope that they will be important during the next Parliament and especially in areas where participation rates in further and higher education are low.
I welcome the £2 billion for the national health service. In a budget of £44 billion, it represents an extra 4 per cent. and a substantial rise when we had already budgeted an extra 5 per cent. for the health service this year. In real terms, the increase is 9 per cent. Over the next four years, that is an average 6.1 per cent. increase in spending each year. We need such investment and I am pleased for my constituents that it will be made.
Over the past three years, we have done many things for pensioners. The one thing that they particularly want is the restoration of the earnings link, but we have refused to do that because of the long-term implications. However, every measure will help and the extra £50 for the heating allowance is very welcome.
I also look forward to the new pensioners' credit, and to the consultation that will take place over the next year about its nature. I am certain in my mind about where it should be directed. We have a minimum income guarantee that helps the bottom decile of pensioners, but the pensioners in the bottom five or six deciles need help, so the pensioners' credit should be directed at them.
Mention was made earlier of nursing care. I hope that when the comprehensive spending review announcements are made in July, it will be made a Government 942 responsibility and become part of the NHS. That would particularly help older pensioners, who are the poorest pensioners.
Don Cruickshank's report on banks, which was published yesterday, is very welcome. It comes as no surprise to hear that he thinks that the banks are making unjustifiable profits to the tune of between £3 billion and £5 billion a year. I am pleased that the matter is being referred to the Competition Commission. This morning, The Guardian published a powerful editorial about imposing a windfall tax on the excess profits that the banks have been making in the past three to five years and using that money for the NHS. Certainly, the politics of that would be well justified; it would be popular, although not of course with the Opposition. We ought to look at that suggestion very carefully.
The Government have done very well on prices. The Department of Trade and Industry has put pressure on the regulators to investigate prices for water, electricity and other utilities. On average, water bills in Wales are £34 lower this year, electricity prices will be 10 per cent. lower by the end of the year, and action is being taken on supermarket prices and car prices. That is better than tax cuts, because water and electricity costs bear more heavily on low income households. We are making very good progress on that.
My one concern about the economy is the value of the pound. I know that the issue is never directly addressed by the Treasury or the DTI, and it is certainly not addressed in the Budget, but it is a problem. We have been sanguine about the high pound during our period in office, but it is certainly causing great pain to manufacturing, including the steel and coal industries. As we have heard over the past week, Rover has suffered. Farmers are also badly affected.
§ Mr. Williams
No, I will not because others want to speak.
We have a high pound-weak euro paradox. Those factors are different sides of the same coin. One of the problems with the weak euro is that it makes membership of the euro almost impossible at present exchange rates—membership is not on the horizon. When I hear the Chancellor, the Secretary of State for Trade and Industry and the Prime Minister say that we want stability in the economy and an end to boom and bust, of course I agree with those mantras, but industry also wants a sustainable, competitive pound, which we do not have at the moment. We must fulfil that aspiration as soon as we can.
I am pleased with the Budget, particularly the measures on health, education and small businesses, and with what they will do for my constituents. I now look forward to the announcements in July in the comprehensive spending review, because the Chancellor has put £4 billion into the economy today, and there is a lot more left where that came from. I hope that he will put it to good effect later this year.
§ Mr. Nick St. Aubyn (Guildford)
To judge by the comprehensive spending review, one would not have believed that today, on Budget day, the hospital in Ashford would announce that the accident and emergency 943 unit just up the road from my constituency would nevertheless still be closed. One would not have believed that today, on Budget day in the year 2000, the accident and emergency unit in Guildford is still under threat.
If the extra £20 billion in health and the extra £20 billion in education that the Chancellor announced in the CSR cannot stop the closure of key services in our constituencies, why on earth should we be impressed by the additional £2 billion in health and £1 billion in education that he proposes to spend in the coming year?
The problems that we have are far too deep-seated for the Chancellor's announcements simply to spirit them away. I accept that waiting lists in the west Surrey area and in the south-east as a whole have gone down by 4,000, but the numbers waiting to go on the waiting list—the numbers waiting to see a consultant—have gone up by 40,000 in the same region.
The truth is that the Government tax more and deliver less. That is because they have not tried to manage the money that they have raised. They thought themselves so clever to have picked everyone's back pocket without anyone realising it that they have not recognised that that is real money, which needs to be looked after carefully and used wisely.
In education, the Government came up with the idea of cutting class sizes in the first three years of a child's education. We are in favour of lower class sizes, but we would not have done that in a way that meant that class sizes for every other year group in schools have had to go up. The Government said in their class size pledge that in the lifetime of this Parliament the cost would be £100 million. Now we know that its cost will be at least £620 million—more than six times the amount that they budgeted for.
When we did our own analysis and asked what would have happened if the Government had tried to use the independent sector to provide some of the places that were needed for the first three years in education, we found that the cost of delivering their class size pledge would have been less than £60 million—a tenth of what they propose to spend to deliver it.
That example illustrates that it does not matter only how much a Government are raising in tax or how much they propose to spend in key services such as health and education but how they intend to spend the money to maximise its value. That is how the Conservatives have previously taxed less and spent better, and how they will do so again.
§ Mr. David Taylor
It is interesting to hear the hon. Gentleman stating how important it is for Governments to use taxpayers' money wisely. How would he categorise the £5 billion that is the approximate current cost of the BSE crisis, the £10 billion cost of the poll tax debacle, and the £28 billion overspend in the last year of the Conservative Government, largely because of the cost of social and economic failure?
§ Mr. St. Aubyn
The hon. Gentleman should study the figures more carefully. This Government inherited a deficit of only £9 billion. That was the outturn. We were so cautious that we provided for a bigger deficit, but the outturn from the previous Government was only £9 billion.
944 That leads to my next point. The Budget today demonstrates that the panic measures introduced by the new Chancellor in 1997 were an overreaction. There was no need to attack savings with his pensions tax and his abolition of TESSAs and PEPs. There was no need to do that in order to bring the country's finances back into balance. Today's figures and today's projections for revenue from taxes demonstrate that. The damage that the Chancellor did to the economy three years ago is being paid for now in much lower levels of saving, after his attack on saving, and, therefore, much higher interest rates, with real damage to the real economy.
But what was really missing today in this, the first Budget of the new millennium, was any indication that the Chancellor understands the implications of the new economy that is sweeping the world. We know that from all the evidence before our eyes and from what is already happening in the United States. We know that from the Government's statements about their aspirations for Britain's role in the new economy. Instead, the Chancellor was bogged down in his analysis of the old economy.
Let me give one example: stamp duty on share transactions. In a week when three stock markets in Europe, those of France, Belgium and Amsterdam, have combined to create a real rival to the London stock market, with far lower dealing costs from stamp duty than we have in Britain, the Chancellor was silent on that critical subject. If he fails to address that issue, the revenue from stamp duty will be spirited away as more and more share trading happens on that alternative rival market, and the more that happens, the more other profits and revenues, which flow back to the Exchequer in increased taxation, will also disappear across the channel. By failing to address the new economy, the Chancellor is undermining his ability to raise tax in the future.
§ Mr. Hayes
Another example of the Chancellor being bogged down by assumptions about the old economy was the section of his Budget speech dealing with share ownership. He talked about share ownership with a maximum value of £100,000 for up to 15 employees. That will allow small firms to stay small rather than allow medium firms to grow bigger. The Chancellor needs to understand that, when he cuts capital gains tax, many of the dot.com companies' life cycles may be only two to five years, so reducing it to 10 per cent. in four years is not good enough.
§ Mr. St. Aubyn
I am grateful to my hon. Friend for anticipating my next point. The other day I visited a firm in my constituency called Lionhead, run by a gentleman called Peter Molyneux, who before that had started a company creating some of the world's most successful computer games. Having sold on that business, which grew from employing two to 500 people in the Guildford area, he started the new company, developing some exciting computer games. He made exactly that point to me.
In an industry such as computer games, which now has a turnover in Britain which exceeds that of our film industry and has the potential to grow many more times over if it is treated correctly, the penal rates of capital gains taxation, and the regime that will still apply after the Chancellor's announcement this afternoon, mean that many businesses like that of my constituent's, without his dedication to wanting to see Britain succeed in this critical part of the economy, will be sited overseas.
945 As computer games will soon be sold over the net—there will be no shop to go to, they will simply be downloaded—they can be sold from any part of the world and there is a tax competitive global market here. Yet our Chancellor completely failed to spot the fact. Here in the new millennium he does not understand what the new economy means.
The Chancellor's concession on capital gains tax will cost him £250 million in the coming year, but his additional revenue in the short term from capital gains tax in the same year will go up by an extra £1 billion. He is taking four times more in extra capital gains revenue than he is giving back with his pettifogging concessions. The result again will be that, while he has revenue in the short term from capital gains, as he will have revenue in the short term from stamp duty, in the long run he will undermine the economy's ability to generate any valuable tax revenue at all in the areas where our economy must compete as a soundly based service economy.
We need to consider comprehensive tax reform for the future. Our structure of capital taxation—capital gains tax, inheritance tax, stamp duty—is decades old. Indeed, some of it is centuries old. We need thorough-going reform, which the Chancellor lacks the courage to deliver, even if he had the imagination to realise that it was necessary.
The Chancellor's attack on savings in the past three years has created the problem that an increasing number of people choose to spend the gains that they make through investment and houses rather than reinvesting it, saving it and passing it on.
If the changes have to occur, we must begin by applying a great deal more honesty than the Chancellor displayed this afternoon. He attacks the tax cheats in our economy; perhaps we should consider the person who has done most to cheat the taxpayer: the Chancellor with his billions of pounds in stealth taxes.
One of the press releases stated that a helpline would be established for those who wanted to ring up and find their way out of the hidden economy. Perhaps the Chancellor needs a helpline to find his way out of the stealth tax economy. Such a helpline is available to him: it is the shadow Chancellor's telephone number. If the Chancellor needs it, I can give it to him without delay. He needs help if we are to rescue our economy and our tax system from the fiddling, meddling, stealth taxes and confusion that the Chancellor has built up in the past three years.
§ Ms Chris McCafferty (Calder Valley)
I shall be brief because I realise that other hon. Members want to speak. I congratulate my right hon. Friend the Chancellor on his Budget. In reading the very small print on the last page of the Budget document, I am especially delighted that the Chancellor has listened to hon. Members from all parties who supported a reduction in VAT on sanitary products to 5 per cent. The 250 hon. Members who signed my early-day motion on the subject will applaud the Chancellor's sensitivity in acknowledging that those products are not luxury items and his understanding that the measure helps not only women but families, especially poor families. Perhaps it is a pity that the Chancellor missed the opportunity to announce the measure himself.
As was previously mentioned, the campaign to reduce VAT on sanitary products began in the 1970s after the failure to categorise them as essential items in the family 946 budget. Many Members of Parliament who were involved in that campaign are still in the House. In the 1980s, Shirley Williams, now Lady Williams, held a campaign on the issue, and in the early 1990s my hon. Friend the Member for Vauxhall (Kate Hoey), who is now a Minister, led another campaign. A petition that contained 500,000 signatures was presented to Mrs. Thatcher in the 1980s, but it was completely ignored.
Despite all efforts, previous Chancellors have refused to right the glaring wrong. My right hon. Friend has recognised that while VAT on sanitary products is a female issue, it is also a family issue and a poverty issue. A family with a mother and two teenage daughters on a low income or benefit cannot avoid the expense of sanitary products. They are not like bread or jam; women cannot decide, "I'll skip it this week."
Today's measure is fair and lowers the cost of a necessity. It sends a message to women that the Government will continue to work towards equality in the tax system as well as in the workplace and in society.
Life without sanitary products would be unpleasant, unhygienic and unthinkable. That is why 15 million women spend so much throughout the year on sanitary protection. I welcome an important measure for women everywhere.
§ Mr. Owen Paterson (North Shropshire)
It is a pleasure to follow the hon. Member for Calder Valley (Ms McCafferty) and I am touched that so many hon. Members have stayed behind to hear what I have to say.
The Budget is typical of the Chancellor. His description of the economy and the colour of his language made a marked contrast with the reality of what we find buried in the Red Book and the reality that I see on the ground in Shropshire. The Shropshire economy is in crisis. My pig farmers are emigrating to Saskatchewan, dairy farmers are applying to get out of dairy farming and get rid of their quota at the rate of 10 or 12 a week, high-tech businesses write to me about the iniquitous imposition of IR35—which was not mentioned in last year's Budget—and the director of a construction business has already clocked up 9,000 miles this year in a pursuit of payment, made ludicrous by the fact that he has to present an identity card carrying his picture to get paid. There has been a £30 billion explosion of tax on business and extra regulation has cost £5 billion. The average family is £600 a year worse off and, pertinently for a rural area, the average car owner is £900 a year worse off.
In previous Budgets we were promised that extra money would be spent on services, but I do not know where it has gone. It has not filtered through to my part of the country. West Mercia police force, which gained 405 officers under the Tories, has lost 78 since the Government came to power. It applied for 36 under the new scheme but has been given only 18, so we are 60 down. The fire brigade is 47 per cent. underfunded by central Government and has to be bailed out by council tax raised by the council. On education, spending on a primary pupil in Shropshire is £2,220, but £3,396 in Southwark. On the national health service, people were turned away from urgent treatment during the Christmas period and there are patients in my constituency who are not being given beta interferon. Above all, my constituents resent the £1,000 million or more that the 947 Government are spending on themselves—Parliaments, Assemblies, reviews, special advisers and general hangers on.
§ Mr. Hayes
I interrupt my hon. Friend to prevent him from becoming even more distressed about the plight of his constituents. The Government recognise the problems in areas such as his and the Cabinet Office report on rural areas says that the rural economy is in crisis. But does he agree that we heard nothing about how the Government will address that countryside crisis?
§ Mr. Paterson
My hon. Friend is absolutely right. We heard nothing at all about the rural economy and that report says that Shropshire's average income is 22 per cent. less than the British average.
Some threatening figures are tucked away in the Red Book. The savings ratio is dropping from 5.75 per cent. to 5.5 per cent. That accounts in part for the unnecessarily high interest rates that we have suffered over the past couple of years, which have made the pound even stronger against the pathetically weak euro and damaged agriculture and small business. Tax and social security contributions as a proportion of gross domestic product are also increasing from 36.9 to 37.3 per cent., and it is obvious that the Government have not controlled social security spending. Benefits are set to increase from £93.3 billion in 1998 to £104.5 billion. If we throw in the working families tax credit—which we should, according to the Organisation for Economic Co-operation and Development method of computing—that amounts to £110 billion.
Extra taxation and regulation have led to an explosion of the black economy, which can be glimpsed in the collapse of tobacco duty. The take has dropped from £8.2 billion last year to £5.7 billion this year. The most obvious manifestation of the increase in the black economy is the large number of anonymous white vans in the country. I should very much like to know Ministers' estimate of the size and the rate at which the black economy is growing.
Turning to legal road users, £36 billion is taken from them in taxation each year, but only £6 billion is spent on roads. For every £10 of fuel, £8 is tax. Of every £8 of tax, only £1.50 is put back. The Automobile Association estimates that £12 billion needs to be spent on the roads and Shropshire, my own patch, has a £100 million backlog of road repairs. That represents a stark contrast with the United States, where about £50 billion is raised in tax and £49 billion spent on the roads. In an area such as mine, the car is the basic means of getting around and two thirds of people in Shropshire drive to work in a car. The price of petrol has been increased by 8.6p a gallon today and the vehicle excise duty changes assume that drivers have the choice of running a smaller car. That is not necessarily so in a rural area as people's very jobs probably depend on having a larger car or a van. In a rural area, tax changes have no marginal impact. People must drive: their jobs depend on it. Taxation simply reduces their spend, and makes every business less competitive.
The most dramatic manifestation of that is the road haulage industry, which I have mentioned before. As of this morning, diesel was 65p a litre; it is now 67p a litre. Let us compare that with the equivalent of 35.5p in 948 Belgium, 36p in Luxembourg and 37p in Spain. This morning, vehicle excise duty was £5,750; on a 40-tonne lorry, it has been reduced to £3,950. Apparently, the BBC reports that the road haulage industry is ecstatic, but I do not think so, because the difference between us and the rest of the continent is still marked. VED is £358 in Luxembourg, £328 in Spain and £308 in Portugal.
I have been present for most of the debate, but I slipped out earlier to talk to the man who was cited in last year's infamous KPMG report as one who was happy with the current haulage taxation regime. He has calculated that, although VED improvement and changes in fuel duty make him £61,472 better off, he is still worse off by £1,367,788 running a business based in the United Kingdom rather than one in Luxembourg. There is a vast difference between the benefits of lower social costs and corporation tax in this country, and the gains from cheaper VED and fuel duty in Luxembourg. He says of the Budget:I don't think it helps at all. We're still not competitive against a European haulier who comes here with cheap diesel, ridiculous VED and no vignette or road tolls. I will still continue to move my vehicles abroad.I warned of this last year. I do not take any pleasure in reporting to the House that that haulier has since reduced his trucks from 100 to 75, and reduced the number of his employees from 160 to 125.
We are looking at another Longbridge here. There are 2 million people in haulage, distribution and goods vehicle manufacture. Although a cap has been imposed and we have been held to the rate of inflation on fuel, it is estimated that 26,000 haulage jobs will go, along with 27,000 associated activities. My constituent Mr. David Yarwood, who runs a business called Greyroads Ltd, has injected a little Shropshire common sense into the situation. He says:
We must look on the bright side. It can now be only a matter of time before the government realises they too could soon be joining the out of work hauliers, then perhaps this country could get back to some sort of normality.This is an entirely stupid policy. If we add the loss in cabotage to the loss of international business, the loss represented by fuel bought abroad and the cost of job losses, we find that the difference to the Exchequer is £1.1 billion.
The allowance to 44-tonne trucks today is a clear breach of Labour's manifesto. On 4 February 1997 the Prime Minister, then Leader of the Opposition, said:This cannot make sense and a Labour government will not agree to heavier lorries.That was a manifesto pledge, and it is even in the Government's White Paper. That shows that the Government do not understand the environmental impact of their policies.
It is clear that there is no environmental gain: 97 per cent. of goods are carried by road, and if they are not carried by British hauliers they will be carried by foreign hauliers. Figures issued by the Library today show an astonishing increase from 155,000 foreign vehicles leaving the country in the third quarter of 1997 to 220,000 leaving it in the third quarter of 1999. We have the road damage and the pollution, but everything else goes abroad: the corporation tax, the VAT and all the other benefits.
949 I envisage further damage to the economy from the energy tax proposals. What on earth is the environmental, social or economic advantage of flying in horticultural products on jumbo jets that do not pay aviation fuel duty?
Ominous indications are buried in the Red Book. Substantial increases in public expenditure are planned. Those will be sustainable only if the economy does not turn down. The Government's outrageous increase in taxation will not encourage the creation or growth of a single business in north Shropshire in coming years.
§ Mr. Gareth Thomas (Clwyd, West)
I am grateful to the hon. Member for North Shropshire (Mr. Paterson) for abbreviating his speech to allow other Members to get in. Indeed, I will confine my comments to a few remarks, so that others may speak.
The Budget will be welcomed in both my constituency and the country at large because it addresses the economic and social priorities: the need to build on the foundations of stability, sustained growth and low inflation that have been laid by the Government; the need to improve public services, which were allowed to run down under the previous Government; and the need to tackle the blight of poverty that scars society and that, again, is part of the legacy of the Conservative party.
One of the most striking features of the Budget is that the purse strings have been loosened, but prudently. It is welcome that the Budget gives a very large boost to national health service funding: there will be real growth of 6 per cent. per annum, increasing from £45 billion last year to £69 billion by 2003–04. That represents the largest spending increase for the NHS, which will be warmly welcomed by my constituents.
The £1 billion increase in education spending will also be welcomed. The figures for Wales—as I am a Welsh Member, it is pertinent to refer to the matter—have not been announced. Of course, we have a directly elected Assembly, which is charged with responsibility for allocating funds, but I would be surprised if it did not follow broadly the same pattern of spending.
The Chancellor is right to introduce measures to support families and to tackle child poverty. I am particularly gratified with the increase in child benefit to £15 for the eldest child. That represents a 26 per cent. increase over the duration of the current Parliament. The 1p cut in the basic tax rate will mean that the tax burden on working families will be at its lowest since 1972.
The Government are spending an additional £7 billion on pensioners over the Parliament. Many will share my view that more needs to be done to tackle pensioner poverty, but let us give credit where credit is due. The increase in capital limits attached to the minimum income guarantee, the increases in the winter fuel allowance, together with other measures that have been introduced during the year, will substantially improve the quality of life of many pensioners.
Great strides have been made in increasing employment opportunity and in making work pay for many millions of low-paid families. Extending the new deal to the long-term unemployed is particularly to be welcomed, as are the Chancellor's announcements on building stronger businesses and on help for small and medium enterprises. I am pleased to note the cuts in capital gains tax and corporation tax, which will create an environment that is amenable to growth and job opportunities.
950 In conclusion, it would be remiss of me, as a Welsh Member, not to refer to objective 1 and the need to ensure match funding, which is very much a vexed issue in Wales, where the debate has raged for the past year or so. I fully accept that the Government can make no commitments until the conclusion of the comprehensive spending review. I note that my right hon. Friend the Prime Minister has undertaken not to let Wales down, and I take comfort from the fact that the Red Book includes some interesting indications of the thrust of Government policy.
On page 52, the Government state that part of their economic strategy is toencourage balanced economic growth across all regions and to enable each region to make the most of its comparative advantages.My hon. Friend the Member for Doncaster, Central (Ms Winterton), who is in her place, represents an objective 1 area. She will also take comfort in the commitment on page 28 of the Red Book that the CSR process is aimed at determining how departments' programmes can bestcontribute to the achievement of the Government's objectives …One of those objectives must be to ensure balanced development across the country.
This year's Budget is proof that the Government's sound management of the economy is allowing us to achieve our overall objectives of social justice, equality of opportunity, full employment and the eradication of poverty.
§ Dr Lynne Jones (Birmingham, Selly Oak)
I also congratulate my right hon. Friend the Chancellor of the Exchequer on giving short shrift to the siren voices on the Conservative Benches calling for tax cuts. That is the last thing that we need in the west midlands, where we are still reeling from BMW's betrayal of Rover. Tax cuts would certainly result in higher interest rates and further strengthening of the pound, which, in the debate on Rover, Conservative Members claimed to be against.
Even if Conservative Members do not understand, my right hon. Friend the Chancellor stated three times that fiscal policy and monetary policy must work in tandem. First, he said that fiscal stability was needed; secondly, he said that the Budget would lock in greater fiscal tightening; and then he said that the Budget would lock in even greater fiscal tightening. Despite that, the tax take will still be lower than it was during seven years under Mrs. Thatcher's Government.
There is clearly no need for tax increases. The Government have concentrated on making sure that taxation is fair and tax reductions are targeted on those who are less well-off. I commend my right hon. Friend for that, although I would prefer less reliance on means testing.
Of course, there is only so much that my right hon. Friend can do to bring down the value of the pound to a more competitive rate that would assist our manufacturing industry. One reason for the strength of the pound is the weakness of the euro, and that is partly due to mismanagement by the European investment bank. I urge my right hon. Friend the Chancellor to use whatever influences are available to him to impress upon the 951 European Central Bank the importance of adopting a symmetrical inflation target, as that policy has been most successful here.
§ Mr. St. Aubyn
Does the hon. Lady feel that we should on no account join the euro unless the European Central Bank adopts the suggestion that she has made?
§ Dr Lynne Jones
I think that the sooner we can join the euro, the better. However, I should like there to be better management by the European Central Bank—[Interruption.] That is not inconsistent. Fundamentally, the European economy is sound. Bankers should have greater confidence in that fact and not try artificially to stimulate the euro by increasing interest rates. The euro should be allowed to fall to its natural level, after which it will start to bounce back. However, whenever the euro rallies slightly, that seems to encourage major holders of the currency to sell, which is counterproductive in reaching the ultimate objective.
The euro could be managed better. If the bankers took advice from the Chancellor, I am sure that it would be better managed, and that we could eventually have a more competitive pound and an enhanced ability to join the common currency.
In this Budget, we are starting to see a Labour Government recognising that taxation is not such a bad thing. We pay our taxes because we receive services in return. As the fourth most wealthy country in the world, we should be able to afford excellent public services. The Government realise that, despite the extra cash that has gone into the health service, a great deal more needs to be done.
I do not necessarily believe that, ultimately, health spending must be increased to the same level as that in other European countries. The NHS, by its very nature, is more efficient in the provision of services. Nevertheless, we need a more service-oriented approach in health provision—as I discovered to my cost yesterday. After sustaining a small injury to my hand, I had to sit for two hours, with a whole crowd of other people, in my local hospital's casualty department. We expect to be able to make appointments in the private sector—whether it is to see a hairdresser, to reserve a table in a restaurant or to have a car repaired—and we do not expect to have to wait. We should demand the same level of service in the public sector, in our NHS, as we demand in the private sector.
The Governments who have been pandering to the idea that we have to keep taxes down have artificially prevented the British people from spending more on health and education services. As society becomes more wealthy, we expect to have excellent public services. I congratulate the Chancellor on his announcements on spending boosts for those services.
I have some concerns, however, about other matters. I thoroughly agree with my hon. Friend the Member for East Carmarthen and Dinefwr (Mr. Williams) when he points out the need for greater capital investment. Although the extra money for transport—£250 million—is welcome, in the west midlands, Birmingham city council is arguing that we should be increasing investment in public transport by about £400 million, although 952 obviously not all in one year. We need such up-front capital investment to boost business investment and to encourage greater investment in our region.
The Chancellor said that he was committed to balanced economic development across the regions. We need more capital spending on our infrastructure. Even with the planned increases, we shall still not return to the capital investment level as a percentage of gross domestic product that was reached in 1994–95 by the previous Government. We are still far from the capital investment levels achieved by previous Labour Governments.
There is no need for us to use private finance for public sector capital investment. I am not advocating that we should let borrowing rip, but there is clearly scope for investment that will reap dividends in future revenue income. Transport is a very good example of that. If we make up-front capital investment, we can introduce environmentally friendly congestion charges, which would pay for that capital investment. It would also be beneficial—
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.