Budget Resolutions and Economic Situation

HC Deb 08 March 2001 vol 364 cc448-516 2.13 pm

Mr. David Heathcoat-Amory (Wells)

What a difference an approaching election makes to a Budget statement! In some ways, the Budget yesterday was not the worst of the Budgets presented by the Chancellor over the past four years. For instance, it was his shortest statement. The problem for the Government and for the country is that the promises that the Government may make in their last Budget cannot repair what happened as a result of the previous Budgets over their period of office.

Because the Chancellor has squeezed five Budgets into less than four years, we have already had the tax increases of four years, even before the Chancellor made another statement yesterday. Nothing can alter the fact that the Government will go down in history as the largest tax-raising Government of all time. According to their own figures, total tax receipts, which include social security contributions as well as taxes, will have risen over the past four years by a staggering —100 billion, almost exactly.

There were some welcome U-turns in the Budget yesterday—for example, on road fuel taxation—but why did it take a tax revolt, with all the shortages and disruption that accompanied it last autumn, to make the Government listen? If the Prime Minister and the Chancellor spent more time in the House, they would have heard hon. Members making the same points in debate after debate on previous Budgets. They would have been told that the relentless increase in road fuel taxation was not just socially and politically damaging to those in rural areas and others—people who must have cars to get to work—but that it was undermining the competitiveness of the haulage industry, which still faces competitors from the continent delivering goods in this country using fuel that is much cheaper than any available in Britain.

The Government have damaged the haulage industry and manufacturing industry. Although they have repented and although there is a modest cut, we still have the highest petrol prices in Europe. According to some estimates, we have the highest petrol and diesel prices in the world.

Like all Chancellors' statements, this one was better eaten cold. Once the more gullible Labour Members have had a chance to read the small print and the Budget document, as I hope they will, they will see, as we have, a parallel Budget emerging from the mist. For instance, the Chancellor persistently underestimates the tax effect of his measures in successive Budgets. The Government, and the Prime Minister in particular, used to deny that the burden of tax was rising at all.

Even though it was clearly set out in the Government's own documents that the percentage of tax as a proportion of gross domestic product was rising, the Prime Minister used to resort to any circumlocution to deny that fact. It was eventually the Prime Minister's press secretary who came clean and admitted that there was a continuing increase. All he had to do was to read some of the Budget document. In other cases, there have been problems because the Government have difficulty with their own figures. In some cases, by accident or design, they disguise the real truth.

Let us consider the tax burden in the current year—2000–01. In the 1999 Budget, that was predicted at 36.7 per cent. of GDP. In last year's Budget, the figure was revised upwards. In last year's pre-Budget statement in the autumn, it was revised upwards again. Yesterday in the Budget, it was increased yet again to 37.7 per cent. of GDP. That is more than a 3p in the pound increase in income tax. That is what the Government do—they will not admit at the time that they are increasing taxes; that must be discovered retrospectively by examining the documents, which show a continuing increase. The same has already happened to their estimates for the tax burden next year. That, too, has been revised up from previous years to the present level.

Mr. John Bercow (Buckingham)

My right hon. Friend eloquently describes the Government's sneaky and deceptive approach to communicating their taxation measures. Does he recall that, for 15 successive years, the previous Conservative Government published an assessment of the impact of direct and indirect taxes on the disposable income of a family on average earnings and on families in other income deciles? Does he further recall that the Chancellor's consistent and calculated failure to continue that practice was most recently denounced in a report of the Select Committee on the Treasury of March 2000 at, if my memory serves me correctly, paragraph 35?

Mr. Heathcoat-Amory

My hon. Friend rightly points to a further example of fiddled figures. I can give him yet another one. He may know that the working families tax credit is presented in the Red Book as a tax reduction, even though, in the small print at the end of the document, the Government have to admit that it should be treated as an addition to expenditure. I refer the House to page 216 where it clearly says: income tax credits…score as public expenditure under national accounting conventions", but that is not how they are treated in the document. They are not treated as expenditure; they are treated as negative taxation to flatter the Government's taxation figures. Therefore, the figures that I have just given to the House showing the constant revision upwards underestimate the true position. If, as required under national accounting conventions, we also add in the working families tax credit, the rise becomes even steeper and the tax burden becomes even heavier.

It is no wonder that people are cynical about politics and politicians. The Prime Minister complains about public cynicism about his record, but is it any wonder when the Government fiddle the figures in their own Budget document? Therefore, my first request to the Government is that they come clean and tell the truth about what is happening to people's money and the burden of taxation.

That applies not only to taxation—the same sleight of hand is now apparent on public expenditure. Again, the more impressionable Labour Members cheered the announced increases in public expenditure yesterday. I refer those same hon. Members to page 200 of the Red Book, which shows that there is no increase. There is actually an underspend in public expenditure, and only in the financial year 2003–04 do the Government get back to their originally announced public expenditure profile. The Government are spending less than they have announced in previous years. They tax more than they have announced previously, but they spend less.

Mr. Christopher Leslie (Shipley)

I appreciate that the right hon. Gentleman is now trying to set out his stall and paint an awful picture of the Government, but if the Government are that bad, what did the right hon. Member for Henley (Mr. Heseltine) mean when he said that he was in a dilemma?

Mr. Heathcoat-Amory

We are in no dilemma at all; it is the Government who are in a dilemma, and not just the Government, but their figures. We cannot tell from what the Government say whether they are putting up taxes or expenditure; we have to examine the figures, and that is where the dilemma arises. It is the job of the House to find out what is happening and to tell the truth. If the hon. Gentleman is to have any chance at all of retaining his seat at the general election, which I rather doubt, I urge him to start to tell people the truth; otherwise this pervasive air of cynic ism will see the back of him as well as the Government.

Exactly the same subterfuge is apparent over borrowing and debt. Again, the Chancellor made it clear yesterday that he was reducing debt. He made a great deal of that, but it is a pity that he did not describe how it will go up again. I refer hon. Members to page 188 of the Red Book. It shows that the burden of debt will rise by —58 billion during the next four tears, but that, too, was not referred to by the Chancellor in his statement.

All that means that the Government are taking a colossal risk. They are vulnerable to any downturn in the world economy, but there is more to it than that: even if there is no hiccup or downturn in world growth, they are eroding the competitiveness—the performance—of the British economy, on which all the expenditure depends. Again, that shows up in the figures. Business investment has pretty well collapsed. [Interruption.] These are the Government's own figures. If anyone wishes to dispute them, we have a problem with the Treasury figures.

In the Conservative Government's last year in office, business investment rose by 7.75 per cent. It has now slowed to a crawl—to little more than 2 per cent. a year. The savings ratio, referred to by my right hon. Friend the Leader of the Opposition yesterday, was 11 per cent. when we left office, but it has now more than halved to 4.75 per cent. The start of that collapse coincides with the withdrawal of dividend tax credit for pension funds, which is still taking out of the private pension sector more than —5 billion a year Is it any wonder that almost mortal damage was done to the propensity to save, which is showing up in the savings ratio? That is building up serious problems for the future.

Mr. Edward Leigh (Gainsborough)

Does it not follow that it is essential to remove all taxation of savings?

Mr. Heathcoat-Amory

How right my hon. Friend is, and that just happens to be the policy on which he and I will fight the next election. Instead of gimmicky little give-aways, we will remove savings taxation at a stroke below the higher rate.

Mr. Jonathan Shaw (Chatham and Aylesford)

Is the commitment to abolish tax on savings guaranteed, or will that policy be changed tomorrow?

Mr. Heathcoat-Amory

Good Lord, cannot Labour Members do better than that? Yes, it is.

I am glad that the Secretary of State for Trade and Industry is to speak in the debate. Perhaps he can answer some of the questions about competitiveness and productivity. The Department of Trade and Industry has missed out again. During recent months, we have observed how it is usually ignored or overlooked by the Treasury, and the Budget is yet another example of that. That is not to overlook the welcome modest simplification of the VAT system and the promised—again, jam tomorrow—research and development credits for larger companies. However, set against the incredible increase—layer upon layer—in business taxes and regulation during the past four years, that brings practically no comfort for the business world.

For example, yesterday the Forum of Private Business said: On balance, the Budget is likely to make life more difficult for small firms, because of previous stealth taxes…and increased complexity in the PAYE regime. The Institute of Directors said: Insufficient has been done to simplify the ever-more complex tax regime or lessen the burden of state interference and regulation in the business environment. The London Chamber of Commerce said: the Chancellor was more interested in delivering a second term for Labour, rather than a Budget for business. It again drew attention to the problems of tax complexity and the burden that that puts on businesses of all sorts, and their resulting loss of competitiveness in world markets.

Mr. Nicholas Winterton (Macclesfield)

Does my right hon. Friend intend to refer in any detail to the climate change levy? Would he be interested to learn from me that a textile company that I know well, which employs some 300 people and has invested more than —1 million in energy saving and in reducing any output of pollution into the environment, is likely to be faced with an annual tax increase from 1 April of —60,000 to —80,000 as a result of the climate change levy? Is that a way to make British manufacturing industry more competitive?

Mr. Heathcoat-Amory

My hon. Friend is spot on. The tax is completely unnecessary and could easily have been withdrawn yesterday. The Finance Act 2000 does not require the Government to introduce it; it merely permits them to do so. They could have announced that they had recognised on mature consideration the damage that the measure would cause, especially to British manufacturing industry, and withdrawn it. Instead, as my hon. Friend said, in four weeks' time, all businesses, whatever their size, will be paying a surcharge on energy bills that are already rising. For example, gas prices have doubled for business in the past year.

For that reason, the new surcharge is likely to be entirely counter-productive in environmental terms. If businesses do not invest here or if they migrate from this country to other tax jurisdictions in countries with lower environmental standards, the global environment, which is supposed to be what the charge is all about, will suffer as a result. The tax is amazingly complicated. Any reductions that are required by international conventions can be met far more easily and cheaply in other ways. That is how the Conservative party has always achieved such reductions. We met the Rio targets and we will meet those set in Kyoto, but we will do it by other means. We take seriously our environmental responsibilities, but we do not agree that it is necessary to create an industrial desert in order to fulfil them.

That is why I agree with my hon. Friend the Member for Macclesfield (Mr. Winterton). Indeed, he is in extremely good company, as the Confederation of British Industry has also drawn attention to this damaging levy. Mr. Digby Jones, its director general, said again in a press release yesterday that it is seriously damaging UK competitiveness. Furthermore, the Engineering Employers Federation said that the Climate Change Levy remains one of the most badly designed and ill-conceived economic instruments of recent times, a device for raising revenue rather than a serious attempt to encourage energy efficiency. Manufacturing will be bitterly disappointed the Chancellor has failed to address the anomalies of this tax. I entirely agree with those points. Any pretence that the Government are pro-productivity or pro-competitiveness is completely contradicted by their persistent introduction of such measures. They did the same with IR35, which, as I think the House will know by now, was the 35th press release issued by the Inland Revenue in respect of the 1999 Budget. It was never referred to in the House or announced by the Chancellor, but the measures that it set out turned out to be among the most damaging ever conceived for the IT sector.

The Government have the gall to publish a leaflet called "Productivity in the UK: Progress towards a productive economy", which contains a section about business skills, when they are driving people abroad with their policies. One of the most lively websites on the internet is called GoAbroad.com. It is used by people who will not put up with these conditions and are taking their skills elsewhere. Consequently, companies telephone the Home Office and say that they are short of skills, and the Government decide to relax immigration controls in respect of IT specialists, thus denuding the third world and poorer countries of skilled people so that they can replace people driven out by this mad measure called IR35. That is not what the Government say that they are doing, but it is what they practise in reality.

The House will remember the fiasco regarding double taxation relief, which was announced in last year's Budget and was another ill-thought-out measure. A prominent accountant from PricewaterhouseCoopers, Mr. Peter Wyman, pointed out that it was not going to work. The Chief Secretary to the Treasury insulted Mr. Wyman in the House, but he turned out to be absolutely right. Indeed, the Government have now admitted that he was right and have withdrawn all the measures. They amended them in the Finance Act 2000 and then announced more amendments in the pre-Budget statement. Now we learn from the Budget statement that there are to be even more amendments. That is three to Mr. Peter Wyman and zero to the Chief Secretary.

A little more humility is required from a Government who have been warned persistently about the damage that is done by such measures, but still they persist with them.

The erosion of our competitiveness is now beyond dispute and is doing much damage to our international reputation. On productivity in the United Kingdom, The Wall Street Journal reports: Real economy-wide output per worker rose at an average annual rate of 2.4% from 1992 to 1997"— the period of the previous Government— but grew by only 1.4% annually over the last three years, only half the rate achieved by the US. People reading that report in the United States and elsewhere will realise what has happened in this country: the productivity record inherited by the Government has now also collapsed.

Mr. Phil Hope (Corby)

The right hon. Gentleman quotes from various newspapers, but perhaps he should remind the House of the front page of today's edition of The Sun, which announces that it is supporting Labour at the next election.

Mr. Heathcoat-Amory

I conclude from that intervention that the hon. Gentleman is simply not interested in what is happening to the United Kingdom's productivity. He has nothing to say about that or about what people abroad who are contemplating investing in this country will now think of the Government, who have practically halved the productivity record of their predecessors. Along with the intervention made by the hon. Member for Chatham and Aylesford (Mr. Shaw), that is an eloquent testimony to the complete contempt with which the Labour party treats the real problem in this country: the production of wealth before it can be spent.

Mr. Michael Jack (Fylde)

Clearly, the hon. Member for Corby (Mr. Hope) did not read the inside page of The Sun in which Trevor Kavanagh points out that the Chancellor enjoys spending other people's money and is a true socialist—a position that is rather different from that set out on the front page.

Mr. Heathcoat-Amory

My right hon. Friend has clearly been as assiduous as ever and has read the inside pages of The Sun as well as the headlines. The House will be grateful for that. I never get very far when I read it.

On productivity, I have mentioned the Government document entitled "Productivity in the UK: Progress towards a productive economy". It is a little late to be starting to make progress—the Government should have done so by now. We are grateful for the observations of the Trade and Industry Committee on this subject. During the past four years, a blizzard of White Papers, parliamentary statements and gimmicky measures have been introduced in Budgets, supposedly to try to raise our productivity gain. They have tried hard to do something, but what have they achieved? The Labour-dominated Committee observed that not only has very little been achieved, but we cannot measure what has been done. Its January report states: The result is that it cannot be demonstrated that policies pursued over the past three years intended to narrow the productivity gap have had any measurable outcome. It goes on to state: The set of enterprise society' objectives, targets and measurements is a dog's breakfast. That was the Committee's description of such arrangements even before yesterday's Budget statement. In passing, the report notes that the DTI cannot even pay its bills on time. It slates: It is an indictment of the department's ability to manage its own affairs that, having identified its failure, things should be getting worse rather than better. The report concludes:

The bleak truth is that we cannot tell whether some of the department's crucial objectives over the past three years, such as the promotion of enterprise, innovation and increased productivity, have been achieved". The Department is simply operating in a vacuum; it has no idea whether its actions are doing any good. Meanwhile, figures show the collapse in the savings ratio, business investment and productivity.

Mr. Barry Gardiner (Brent, North)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Atmory

I hope that the hon. Gentleman will forgive me, but I have been generous in giving way and I wish to conclude.

The Government inherited a strong, dynamic and competitive economy, but they undermine it with layer upon layer of new regulations and extra business taxes. They bind themselves to long-term public spending commitments that surpass any conceivable growth rate for the economy. They value spin over substance, and words over deeds. They thus betray the hopes on which they were elected and break the promises that they made to get elected. Such a Government will not survive the scrutiny and verdict of the next general election.

2.40 pm

The Secretary of State for Trade and Industry (Mr. Stephen Byers)

Yesterday, the Chancellor presented a Budget for the future, to build a Britain of opportunity and prosperity for all. It combines wealth creation with social justice, and it supports hard-working people and their families. It invests in reform of our public services, but insists on results in return. It is a forward-looking Budget, which presents change as a bringer of opportunity, not a threat. It builds on the great strengths of the British people. The foundation for the Budget is economic stability; it was our first duty in government to establish that.

The Budget strikes a balance between prudent long-term investment and targeted tax cuts for hard-working people pensioners and savers. It provides new opportunities and incentives for enterprise, and thus helps people with commitment to start and extend businesses. It makes work pay. Our economy is strong because of the decisions and choices that we have made.

For too long, the United Kingdom has suffered from violent swings of the economic cycle. Almost four years ago, we reformed the whole basis of economic policy making. We took tough decisions early to make the Bank of England independent, to establish a proper fiscal framework, and to repay the national debt. Consequently, inflation is now at a 30-year low, and is the lowest in Europe. Long-term UK interest rates are at about their lowest for over 35 years, converging with those of Germany.

Through the new deal, which is the most ambitious welfare-to-work programme in Britain, we have cut youth unemployment. One and a half years early, and at half the planned cost, we have exceeded our goal. Not 250,000, but 270,000 young people have now moved from welfare to work.

In total, 1,100,000 more people are in work now than four years ago. Britain has the lowest unemployment since 1975, the lowest long-term unemployment since 1979, and the lowest youth unemployment since 1975. Employment rates among women are the highest ever, and today, there are 1 million vacancies spread across the country.

That clearly demonstrates that the Government are working in the interests of all our people. The economy is enjoying its longest period of uninterrupted growth since the war. As well as huge improvements in the labour market and the economy, we have put public finances on a sound footing.

In the early 1990s, the national debt doubled. Consequently, we inherited an unacceptable level of debt in 1997. The tight fiscal stance we have adopted means that we have been able to repay some of the national debt. Last year, some —9 billion was repaid, and this year —34 billion is being repaid. As we cut the costs of failure, we are able to provide money for our real priorities and those of the British people.

In 1997, more was spent on debt interest repayments than on schools. We inherited that position. In 2001–02, we will spend —10 billion more on schools than on debt interest. That is not coincidence or luck. It has happened not by chance but through the deliberate choices that the Government have made. However, it can be sustained only if we hold firm to the financial disciplines that we have imposed, and run fiscal and monetary policy in tandem.

Our recent history shows all too clearly what can go wrong when risks are taken with the economy: businesses and people suffer.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

What will happen to interest payments from 2002–03 onwards, when the Government's net borrowing increases by —1 billion, and, successively, —10 billion, —11 billion and —12 billion? What will happen to the interest charges to the Exchequer in those years? Will they go up or down?

Mr. Byers

The figures are clearly stated in the Red Book. We are complying with the fiscal rules that we have established. We are therefore not taking risks with the economy. Yesterday's Budget was prudent. We will not do as the Conservative Government did in the late 1980s.

Let us consider Lord Lawson's Budgets. He had a strong economy, but what did he do with it? He cut taxes irresponsibly. Businesses and people paid the price in the early 1990s. Let us go back 10 years to February and March 1991. This week 10 years ago, inflation was more than 8 per cent; interest rates were more than 13 per cent. That is the Tory record of irresponsibility. Thousands of small business men and women were beginning to feel the consequences. There were more than 47,000 bankruptcies in 1991, and GDP fell by 1.5 per cent.

Businesses and millions of people suffered. At least 1 million hard-pressed home owners suffered negative equity. Approximately 250,000 homes were repossessed between 1990 and 1993. More than 1 million people lost their jobs in manufacturing in the early 1990s. That vicious circle trapped businesses and individuals. It was a traumatic period which must never be repeated.

Those are not just my views. Recently, I found on the internet the "Alan Duncan MP Westminster Zone", which I recommend to hon. Members. The website proclaims various publications and draws attention to "An End to Illusions". Some might say that that was an appropriate title. Of the late 1980s and early 1990s, when I believe a Conservative Government were in office, the book states: In the late 1980s political leaders claimed that Britain was experiencing an economic miracle. The years of decline had come to an end. Instead the 1990s began with unprecedented debt, a deep recession and a credit squeeze that destroyed thousands of businesses and caused hundreds of thousands of repossessions. That Alan Duncan is none other than the hon. Member for Rutland and Melton, who speaks for the Conservative party on trade and industry matters. I have given an example of his being right for a change. In those words, he outlined the true position in the early 1990s.

Mr. Christopher Gill (Ludlow)

During the period to which the Secretary of State refers, Britain was a member of the exchange rate mechanism. The right hon. Gentleman advocates fixed exchange rates. Does not he realise that on both occasions in the 20th century when Britain joined fixed exchange rates, unemployment soared? From 1925 to 1931, unemployment increased from 1.25 million to 2.9 million, and between 1990 and 1992, it increased from 1.65 million to 2.85 million. Does the right hon. Gentleman not realise that that is the effect on employment of going into fixed exchange rates? Does it not register with him that that is a powerful argument why we should never join the single currency?

Mr. Byers

I would like to know whether the right hon. Member for Wells (Mr. Heathcoat-Amory) agrees with that statement.

Mr. Gill

The right hon. Gentleman should answer my question.

Mr. Byers

I will answer the question, but I am interested to know whether the statement that the hon. Gentleman made represents Conservative party thinking on the single European currency. I think that it probably does, as far as the Members sitting on the Opposition Front Bench in this debate are concerned. One can tell; we know what the reality is. These are principled people sitting opposite me, and they believe strongly that the United Kingdom should never join the single European currency. [Interruption.] I am pleased to see the hon. Member for Rutland and Melton (Mr. Duncan) nodding his head in agreement with that.

Mr. Bercow

Will the right hon. Gentleman give way?

Mr. Byers

No, I want to answer the legitimate question raised by the hon. Member for Ludlow (Mr. Gill).

There is a tendency among certain members of the Conservative party to blame the rest of Europe for all the problems that have been created over a number of years.

The difficulties that were created in the early 1990s came about as a direct result of the irresponsibility of the Tory Budgets of 1987 and 1988. The then Chancellor faced a choice. There was a strong economy, as there is today. He chose to act in an irresponsible way, introducing swingeing tax cuts that were applauded at the time. In the Budget of 1988, the basic rate of income tax was reduced by 2p and the higher rates above 40 per cent. were abolished. The problems of the early 1990s were a result of that.

That is why we have chosen prudent tax cuts, which are targeted, and also to invest for the long term. That is the Government's approach. We have built a strong economy and we now have the foundations on which we can invest in the future to create wealth that will benefit all our people.

Mr. Bercow

rose—

Mr. Byers

I will now give way to another anti-European.

Mr. Bercow

My hon. Friend the Member for Rutland and Melton is living proof that size is not everything. He has a distinguished track record in business, unlike the right hon. Gentleman, who has never worked in a company in his life.

Given that the Secretary of State is now auditioning unconvincingly for the role of high priest of prudence, will he tell the House what assessment he has made of the impact of the change in the rules on the use of capital receipts from the sale of council houses on the size of interest repayments on local authority debt?

Mr. Byers

That is a very important question, and I know that the hon. Gentleman will receive a reply from the Paymaster General when she winds up the debate later.

Mr. Alan Duncan (Rutland and Melton)

Will the right hon. Gentleman give way?

Mr. Byers

I want to make some progress, but I will give way to the hon. Gentleman in a minute.

The situation to which I was referring obtained in the early 1990s. We have now managed to move away from the stop/go economy of those days. As a result, living standards are rising for many people. Someone with a —60,000 mortgage now is paying —315 a month less in interest payments than in 1990. Someone with a —100,000 mortgage is now paying —600 a month less than in 1990. That makes a real difference to hard-working people.

As we cut the costs of economic failure by cutting public debt, reducing unemployment and maintaining low inflation, we are freeing up the finance to invest in the infrastructure and high-quality public services that our country so badly needs. That is money that the Conservatives would simply take away.

It was interesting that the right hon. Member for Wells, in opening the debate, confirmed the Conservative position of sticking to investment of just 2.25 per cent. The Budget announced yesterday by the Chancellor means that spending will now grow by 3.7 per cent. a year over the next three years. The Conservatives have stated that their spending is to be capped at 2.25 per cent. or less. We need to know how they intend to fill the spending gap that would clearly result. If 2.25 per cent. were stuck to for all three years, a gap of more than —16 billion would result. If we were to be generous and suggested that they might postpone the 2.25 per cent. restriction in the first year, limiting it to the second and third years only, they would still have to find cuts of a little more than —10 billion. That is the Conservatives' position, and they have not stated where those cuts would come from.

In the election campaign, the British people will know that there is a choice: prudent, long-term investment in high-quality public services, which we support, or long-term cuts in public services that would come about under the Conservatives. Without risking our hard-won stability, we are now investing in public services, increasing opportunities and prosperity for hard-working families and supporting the small firms that are the lifeblood of our economy.

Mr. Duncan

It was eight years ago that I wrote "An End to Illusions", but I am grateful to the Secretary of State for pointing out that it was at least intellectually honest and cogent, and that it covered a difficult time that needed analysis.

Will the right hon. Gentleman in return be equally intellectually honest with the House and admit that the benefits that the Government have enjoyed over the past couple of years have been that receipts have been greater than planned, and a at expenditure on welfare payments has been less? However, we are probably at the top of the economic cycle, and his plans are on schedule to outstrip the growth in the economy as a whole. Will he therefore admit that as soon as the economy turns, he will face a squeeze for which he and his Administration will have to be accountable to the general public?

Mr. Byers

I should like to make a number of points in response to that question. First, the fiscal rules are set in a very cautious way, with an in-built barrier or margin against particular difficulties equivalent to 1 per cent. of GDP. In addition, the hon. Gentleman is right to say that tax receipts have been buoyant; they have been higher owing to a number of factors, the main ones being higher earnings and increased employment. Those are the signs of a successful economy, and we make no apology for them.

Our first ambition must be to secure substantial productivity growth, as the right hon. Member for Wells mentioned in his opening speech. That is why the Budget proposed further reforms to promote competition and innovation, and to support enterprise. Competition has long been recognised as essential to an efficient economy. It creates pressure to innovate, to keep costs down and to improve the quality and choice of products available, and it ensures that resources are allocated to the most efficient firms. Competition is also the most effective way of ensuring that consumers receive a fair deal.

The Government remain anxious to ensure that all sectors of the economy are exposed to competition. The Office of Fair Trading yesterday published its report to the Government on competition in the market for professional services. Today I wish to give the Government's response to that report.

The Director General of Fair Trading concludes that the professions should be fully subject to competition law and that unjustified restrictions on competition should be removed. He raises questions about a number of existing restrictions, including the distinction between Queen's counsel and junior barristers, which is said to have significant effects on competition. He also questions the operation of the system as a quality mark and its value to consumers.

The director general comments on the number of rules of various professional bodies preventing or hindering the establishment of multi-disciplinary practices. Such practices could bring together accountants, lawyers and other professionals such as surveyors and estate agents. Potential benefits such as overhead cost savings, more flexible allocation of resources and more open access to the professions could be gained as a result. That could help smaller businesses in particular.

The director general noted that solicitors employed by non-solicitors can act only for their employers. Removal of that law could allow solicitors working in different business structures to compete on a broader front. He also noted that solicitors and accountants are not allowed to make payment to a third party for work that is referred to them. Such a restriction may be hampering the development of an online market place that would bring clients and professionals together.

The director general states that the Law Society prohibits seeking business by telephone from potential clients and comparative fee advertising. He draws attention to two further restrictions and believes that further implementation of sections 34 to 52 of the Courts and Legal Services Act 1990 would allow banks and building societies to provide conveyancing services. Solicitors have 95 per cent. of the market. Further implementation of sections 54 and 55 could increase competition in the market for probate services. Where lawyers compete for work with non-lawyers, perceptions of legal professional privilege can distort competition. It falls to Ministers to deal with all those restrictions.

We recognise that those are complex areas. We shall therefore consult on the report, and it seems appropriate to consider comments on the director general's analysis before taking further action. The Government will therefore issue a formal consultation paper addressing those issues and inviting comments. However, on one recommendation, I feel that action should be taken now.

Under schedule 4 of the Competition Act 1998, there is an entitlement to request that professional rules be excluded from the provision in that Act that prohibits anti-competitive agreements. The director general believes that the regime weakens the incentives not to engage in anti-competitive activity that exist elsewhere in the economy, as the threat of financial penalties and action for damages does not exist. He recommends that the provision should be removed. The Government agree that the entitlement to exclusion should be removed and that the professions, as a result, should be fully subject to competition law.

We need a tax system that supports companies large and small. We have already reduced corporation tax from 33p to 30p, but in the new, knowledge-based economy we need a tax regime that reflects the nature of that new economy. That is why we propose to introduce a new tax relief for intellectual property and goodwill. We shall consult on the detail on relieving tax when companies sell substantial shareholdings.

Enhanced capital allowances since 1997 and new tax credits to encourage investment and innovation have already saved businesses more than —1 billion, with a third of a billion pounds being saved by manufacturing. We shall now consult on proposals for a new tax credit aimed at boosting research and development and innovation in larger companies. That new credit is designed to complement the R and D tax credit for small companies, which we introduced in April 2000.

Mr. Jack

The Secretary of State mentioned the policy on business tax allowances for capital investment that the Government have been pursuing. How much net extra investment has resulted from those proposals?

Mr. Byers

If the right hon. Gentleman reads the Red Book, he will see that we have record business investment compared to GDP, although that is not how the right hon. Member for Wells portrayed the situation. The figures are based on 1995 prices, so the comparison is good.

Mr. Harry Barnes (North-East Derbyshire)

My right hon. Friend the Chancellor said that, to encourage enterprise, six tax cuts will be targeted on areas that have suffered relative depression, such as coal, textile and steel communities. Presumably, my constituency will be included, as Biwater has closed. Will information be supplied as to which areas will be eligible? Obviously, I have a constituency interest in that. The proposals are distinct from ones to which he referred at a previous Question Time, when he said that tax credit provisions will relate to the best bids for help with economic regeneration. There is sometimes a problem over who has made the best bid, so targeted provision is important, as is knowing whether we are in on it.

Mr. Byers

My hon. Friend makes an important point. The six-point package, which my right hon. Friend the Chancellor mentioned yesterday and which I hope to touch on later, will be available to designated areas and communities. Work on that designation is still going on, but we can expect an announcement in the not-too-distant future as to which areas will qualify for that important package of help with regeneration and job creation in the parts of the country that need it most. The package is part of an active regional industrial policy, which is important to ensuring that our country's economic prosperity is shared round and that we enlarge the winner's circle so that more people can benefit from the success that we are making of the economy.

Extending the R and D tax credit from small companies to larger companies will be an important development resulting from the Chancellor's statement. We want to make sure that we get it right, which is why we want to consult in detail, particularly those industries that will be able to benefit from such a regime.

Since 1997, the number of small businesses has grown by 170,000. That is a response to the tax cuts that we have introduced for the sector. Small company tax has been cut from 23p to 20p and there is a new starting rate of just 10p in the pound. That means an overall cut in the typical small company tax bill of nearly 25 per cent.

We shall continue to improve the environment for smaller firms to create new opportunities for enterprise and to help existing firms to grow, creating new jobs and prosperity. That is why we shall introduce a new regime to simplify VAT for up to 500,000 small businesses, which will include allowing at least 100,000 more businesses to file VAT returns annually instead of quarterly and increasing the VAT threshold in line with inflation, keeping the UK threshold at the highest level in Europe.

We shall also seek views on a new optional flat rate scheme for small firms. It would be simpler to use, with VAT calculated as a percentage of their taxable turnover; and rather than small firms having to wait until they had been registered for a year, they would be allowed to enter the annual accounting regime immediately. That would achieve real practical benefits for small companies.

We are also consulting on a radical new look at the tax treatment of small companies. Those proposals would allow small companies to base their tax calculations on their statutory accounts, which would end the current administrative burden of having to submit to the Inland Revenue a tax calculation in addition to the statutory accounts.

We also intend to improve the enterprise management incentive schemes to make them easier for companies to operate, doubling the limit on the total value of shares that can be offered and removing the limit on the number of employees who can be granted those options.

As the Chancellor announced yesterday, we accept all the recommendations of Paul Myners' review of institutional finance. We shall change the rules on life insurance companies investing in venture capital so as to provide greater incentives for insurance companies to provide equity finance for small and medium-sized enterprises. We shall also make it easier for small companies to raise equity and long-term finance.

We shall create new opportunities for businesses to support the jobs and growth of the future; but at the beginning of the 21st century, we must also invest in our children—the future of our country. We have already introduced a wide range of reforms that benefit women, families and children in particular. There are more women in work than ever before. We have introduced the national minimum wage, benefiting some 1.5 million workers, more than 70 per cent. of whom are women, and helping to reduce the pay gap between men and women to its narrowest ever.

Last year, we introduced new rights for part-time workers, 80 per cent. of whom are women, and ended discrimination on pay, pensions, training and holidays for the 5 million women and l million men who work part time. We calculate that the changes have benefited part-time workers by about —555 each. Part-time workers will no longer be treated as second-class citizens under the law. They play a valuable role in a flexible labour market, and they should be treated justly.

In introducing these regulations for part-time workers, I have paid particular attention to the needs of families. I have extended the new rights to include all workers and ensured that some of the most vulnerable groups—such as home workers and agency workers—will now receive full protection.

Full-time workers who start working part time will now be able to compare their new terms and conditions to their previous package. That will help women returning to work part time after maternity leave.

We have also introduced a right to time off work to deal with a family emergency, starting from day one of employment. We have introduced statutory rights to decent minimum standards—all of them opposed by the Conservative party.

In the modern economy we need to harness fully the energy and talents of our work force. In a tight labour market, employers find it increasingly difficult to recruit and retain skilled people. In this changing world, it is vital that we recognise the pressures on working parents and business, and that we look at ways to support businesses and parents in meeting the challenges of family life. That is why last December I published a Green Paper setting out proposals to give more help to new parents and greater support to the businesses employing them. Our proposals were based on the most comprehensive review of work and parents ever undertaken by a Government in Britain. In the light of that review, we set out nearly 50 options to give more support for new parents and for the businesses that employ them.

Following an extensive consultation on these options, a range of measures was announced yesterday that will radically improve the lives of working parents with a new baby. We will increase statutory maternity pay and maternity allowance from its current —60.20 a week to —75 a week next year, and to —100 in the following year. That is as big a rise in the next two years as occurred in the previous 40. We will not only improve the rate of maternity pay, but increase the period during which it is paid, raising it from 18 weeks to 26 weeks. For the first time, parents who adopt will qualify for these benefits: paid adoption leave, for the same period and at the same rate, will be available when a child is first placed with a family. To help working fathers, we will introduce a new right to two weeks paid paternity leave—at —100 a week—from 2003.

To help employers, we will increase the support that small businesses receive for the administration of maternity pay. We will double the threshold for small-employer relief, to —40,000. That means that about 60 per cent. of all firms paying maternity pay will be able to reclaim their costs in full, plus compensation.

These measures support a range of further steps in the Budget to support families and children. There will be a further increase in the sure start maternity grant, from —300 to —500, for more than 200,000 low-income families. The value of the children's tax credit will be increased from the previously announced —8.50 a week to —10 a week when it is introduced on 1 April this year—making it worth up to —520 a year for around 5 million taxpaying families.

However, we also recognise the additional costs that are incurred during the first 12 months after a child's birth. We will therefore raise the children's tax credit to —20 a week for a year from the birth of the child.

One of the issues raised in our consultation on work and parents was the need for good, affordable child care. The absence of affordable child care remains one of the main barriers to work for parents. Evidence clearly shows that an increase in the current limits for child care support is crucial in order to help cover the regional variation in costs and the higher child care costs for children under five.

That is why we intend to increase the limit in the child care tax credit component of the working families tax credit and the disabled persons tax credit. That limit will be raised to —135 a week for the cost of child care for one child, and to —200 a week for the cost of child care for two or more children.

In order to claim the child care tax credit, families must use appropriate child care. However, current child care credit rules do not apply to child care provided in a person's own home. This restriction poses particular problems, especially for parents who work irregular hours. I heard that at first hand when I recently discussed these issues with a group of mothers in Bolton. They described the difficulties very clearly. A nurse working irregular hours set out graphically the problems that she encountered in finding affordable child care. The mothers said that support for child care costs in their own homes would be a significant advance.

That support would also benefit families who have a child with a disability. I am therefore pleased to be able to announce that we will now consider how we can help families who need formal child care in their own homes. One possibility being considered is extending the child care tax credit. That is a practical approach that will make a real difference to many working parents.

The changes in the Budget will benefit business, parents and, above all, children. However, we need to ensure that the changes translate into real benefits that increase prosperity in every part of the country. Now that we have economic stability, we have an opportunity to make a real difference for all our people, wherever they might live, and to make sure that all parts of Britain share in rising prosperity.

There are now more people in work in every region than there were in 1997, and average earnings have increased in every region as well. However, too many areas are still underperforming. Some regions are lagging behind in productivity growth and investment in research and development. Our next steps must be to put in place the measures that will allow all regions to fulfil their potential.

Over the past four years, we have made a start in giving the regions the tools that they need. We established regional development agencies and we are increasing their funding substantially. Tomorrow, my right hon. Friends the Chancellor of the Exchequer and the Deputy Prime Minster will announce new financial flexibilities to enable regional development agencies to fulfil their role in delivering higher productivity and balanced growth in every region.

In addition, we will introduce new fiscal incentives to extend the opportunities for enterprise in rundown areas. In total, we are introducing six new tax cuts targeted at enterprise and growth and worth —1 billion over the next five years.

To render tax free the first stages of buying property and bringing land back into use, stamp duty will be abolished in designated areas. To bring disused properties back into use, we will cut VAT on residential property conversions. There will be accelerated tax relief for cleaning up contaminated land, and to help revitalise our high streets, we will provide 100 per cent. first-year capital allowances for bringing empty flats over shops back into the residential market.

Moreover, to cut the cost of small-business borrowing, we will introduce a new community investment tax credit. That was recommended by Sir Ronald Cohen and, with a capitalisation of some —40 million, it will ensure that a partnership between Government, financial institutions and the charitable sector makes a real difference to businesses growing in the designated areas.

To cut the costs of start-ups, the Small Business Service will offer one-stop support and up to —2,000 of help for any start-up company drawing up its business plan. That will make it easier than ever in the designated areas to start and sustain a business. With our active industrial and regional policy, the Government are reaching out to all parts of the country to ensure that they can benefit from our economic prosperity.

The stability that we have achieved means that we can now make the reforms that our country needs. Those reforms include increasing enterprise in every region and supporting hard-working families. The Government can do that because we have made our choice. We have chosen stability, not boom and bust; full employment, not mass unemployment; investment in future prosperity, not cuts in essential services; tax cuts that we can afford; and a commitment to strong communities, not a belief that there is no such thing as society.

This is a Budget to build a Britain of opportunity and prosperity for all. I commend it to the House.

3.19 pm

Mr. Cohn Breed (South-East Cornwall)

First, I welcome the Budget as far as it goes. The Chancellor made a great point of saying that it should be a balanced Budget, but much of that balance is subjective. I welcome the help for low-income families, particularly in rural areas where, as the right hon. Gentleman knows, far too many families—especially those working in agriculture—are on very low incomes.

Small businesses predominate in rural areas. More than 97 per cent. of businesses in Cornwall and in my constituency are small, or even micro-businesses employing fewer than 10 people. The fact that they will have a simplified means of paying VAT and corporation tax—for those that have the good fortune to pay tax—is to be welcomed. The reduction in VAT on the renovation of property is also to be welcomed. There is a significant number of empty properties which could be used for affordable housing. I hope that the measure will be directed at that sector, not at providing even more potential second homes for other people who want to live in Cornwall.

I also welcome the raising of the minimum wage, which, for an area of very low wages, is one of the most significant measures in the Budget. I hope that that increase will help a considerable number of my constituents who take home the minimum wage.

But—and there has to be a but—one sector of our business community has suffered considerably in the past five or six years, not only from the consequences of BSE but, in some places, from the catastrophe of swine fever, from the wet weather and the flooding of much farmland, and now from the disaster of foot and mouth disease. It must have been a bitter blow for many people engaged in that industry when they listened yesterday afternoon for the sort of measure that might give them some hope, but recognised at the end of the speech that what they would get was a free tax disc for their tractor. That will be a bitter blow to many hard-working families—families of the kind who the Chancellor recognised needed assistance.

I suspect that there can be no harder-working sector of the community than those who are engaged 12 or 14 hours a day in trying to make a living on a farm. Their incomes have dropped significantly in a relatively short time, but they have not succeeded in attracting the Chancellor's attention to their plight.

The fact that the Government are going to apply for agrimonetary compensation is welcome, but if they had applied for it six months ago, some of the payments would be coming through now. I welcome the fact that the Government recognise that they must try to get it fast-tracked, but they were already depending on it to deal with the problems that we faced prior to foot and mouth disease. This morning, the Minister of Agriculture, Fisheries and Food said that the present foot and mouth crisis influenced the Government's intention to apply for agrimonetary compensation. It would not, perhaps, be wrong to deduce from that comment that, had the disease not occurred, the Government would not have applied for the compensation.

Mr. Hope

Is the hon. Gentleman aware that, in the lifetime of this Parliament, farmers have received upwards of —500 million in agrimonetary compensation, whereas under the Conservative party, they received not a penny?

Mr. Breed

I agree, although I suspect that the Opposition would say that they were only in power for three or four months during the period when they could have applied for such compensation. Nevertheless, the hon. Gentleman is right. Farmers have benefited over a long period of time. The Government have also recognised that remaining outside the euro at present has a cost not only to farmers but to tourism and manufacturing. The agrimonetary compensation scheme was set up for that purpose. That cost should be provided for.

Mr. John Townend (East Yorkshire)

Does the hon. Gentleman agree that if we went into the euro at the present exchange rate, it would not make the slightest difference? He is assuming that we would go in at a much lower rate. He cannot assume that.

Mr. Breed

If we were going in at today's rate, presumably we would be having a referendum now and deciding to do so. I do not suggest that we would go in at the present rate.

The agrimonetary compensation scheme finishes this year. At present, there is no successor scheme to provide further support while we remain outside the euro.

The timing was right and the compensation is to be welcomed. However, specific support to deal with foot and mouth disease would be unbalanced. The Chancellor's great card was that he wanted the Budget to be balanced. At present, the balance is that farmers who have the misfortune of having foot and mouth disease confirmed on their farms will have their animals slaughtered and receive 100 per cent. of the market value for them, but that many more farmers who will probably be affected by the disease because they are in a restricted area and cannot market their animals will receive nothing.

I accept that the question of consequential loss is a minefield. For some time the Government have said that no Government have provided for consequential loss to be compensated, and that a decision to do so would set a precedent. However, these are unprecedented times for agriculture. We cannot ever have seen such a decline in the industry. There cannot have been a time when farmers have been subjected to so many disasters in such a short time, or when a consequential loss has rippled out to affect such a large area. We should consider measures that would be carefully targeted—a phrase that the Chancellor often uses—on areas affected by foot and mouth disease which will not receive compensation.

Mr. Bercow

The hon. Gentleman makes a lot of sense on foot and mouth disease and assistance to farmers, but was casual in his reference to the experience of this country outside the eurozone. Will he confirm that he does not think that short-term fluctuations in interest rates or the difficulties posed by an over-valuation of the exchange rate in any way constitute an argument for the permanent abolition of our national currency, given that under the terms of the treaty of Amsterdam, the European Central Bank is not merely entitled but obliged to ignore any representations from outside bodies about its conduct of monetary policy, and furthermore, that the treaty goes on to specify in article 108: governments of the Member States undertake to respect this principle and not to seek to influence the … decision-making bodies of the ECB or of the national central banks in the performance of their tasks. Is that not an affront to, and the antithesis of, democracy?

Mr. Breed

I do not agree with virtually any of that, to be honest. The situation is clear. Farmers and many people in my part of the world recognise only too well that being outside the euro has been a disaster. Many of their businesses have been affected. Had we had the opportunity to be in side the euro, they would not have been visited by quite so many disasters.

Support for those affected by foot and mouth disease is unbalanced: the present situation with respect to compensation is at best an anomaly and at worst a real injustice. So many people whose businesses are clearly affected will receive no compensation. To continue that anomaly or injustice would not be right. However difficult it may be—I suspect that it will be very difficult—the Government must decide to assist those businesses which have been affected by foot and mouth but which under the current arrangements will receive no compensation. Many of the good measures in the rural White Paper will be much more difficult to achieve if the economy in rural areas is further weakened.

There is another disappointment. The introduction of an early retirement scheme linked to a new entrants scheme could have assisted the agricultural sector. We have been promoting such an initiative for a long time. It can be no surprise to many hon. Members that a significant number of older farmers—especially tenant farmers—are locked into their business. In the current circumstances, they cannot get out They are making almost no money and have no real assets to provide themselves with a decent pension fund, while other people have the skills, experience and enthusiasm—even at present—to take over some of those agricultural holdings and make a success of them.

It should not be beyond the wit of the Government—nor should it be extremely costly—to develop a scheme whereby those who are locked into a miserable situation can retire with some dignity and those who have the enthusiasm and will to get into the business can do so. Not only will that help to revitalise the industry: it will address a particular hardship, which I am sure the Chancellor wants to do.

Over the past three or four years, although I have heard much talk about venture capital for small businesses, no significant amount has gone into them. Most small businesses are undercapitalised: it is difficult for them to access affordable and sensible amounts of capital. The Government have announced several schemes—regional and national—to which the Secretary of State for Trade and Industry referred again today, but no significant progress has been made.

Small indigenous businesses, especially in rural areas, are still much in need of genuine risk, venture or even development capital, but there is no source for it. In many cases, the costs involved are small I realise that if a business needs capital of —50,000, the costs will be horrendous, but there should be some means of providing the small amounts that businesses want.

Mr. Hope

I wonder whether the hon. Gentleman has bothered to listen to any of the debates that have been held in the House during the past four years. The English rural development programme provides —600 million for rural areas, directly targeted on the small businesses which he claims have no support. Will he offer the House the facts about the support that the Government give to rural areas and small businesses, rather than misleading people by pretending that those programmes are not available?

Mr. Breed

The proof of the pudding is in the eating, and the actual number of investments is extremely low. Many of them are not much more than buy-outs, where there is an opportunity to sell out to a trading investment or to go on to the market. There are pitifully few investments of small amounts—between —50,000 and —200,000 partly because of the costs and partly because of the monitoring and the barriers around such schemes. However, small businesses offer a real opportunity for employment growth.

I want to deal with landfill tax. I support the principle of such a tax, but do the Government realise that the fly tipping that results is beginning to affect the countryside? Many landowners are subjected to indiscriminate tipping of rubble on their land. That is a direct result of landfill tax; people are not prepared to pay it, so they tip their rubbish on someone else's land. That is wholly reprehensible, and we need to ensure that it stops. Increasingly, local authorities are unable either to detect fly tipping or to pick up the rubbish. The problem is growing in rural areas.

Last year, measures were introduced on interest on late payment of debt, in order to improve cash flows for small businesses. Many of us were sceptical about exactly what improvements would result; we felt that many small businesses would not charge their larger customers interest on outstanding debts. Recently, I examined the number of creditor days. It has not decreased; indeed, according to some reports, there has been a marginal increase.

Perhaps we should try another tactic: to name and shame those companies that persistently do not pay their bills—especially to small businesses. One way of doing that would be to insist that audited accounts include a note of debtors of 30 days, 60 days or more. We could then see which large companies persistently make late payments to their suppliers.

Mr. Jack

Is the hon. Gentleman aware that the exercise he describes is already undertaken by the Federation of Small Businesses? That information is already in the public domain.

Mr. Breed

The Federation of Small Businesses has produced the information, but it is not at present included in audited accounts. Accounts are audited for tax purposes, and I see no reason why they cannot provide information to allow us to identify the companies.

A pesticides tax has not yet been introduced, but it is hanging like a sword of Damocles above many people in the agriculture industry and is due to be considered in 2002. No one could possibly suggest that the industry is likely to be in good enough shape to bear a further tax by then. Would it not be more sensible—indeed, humane—to defer the tax for at least a year, or even two, so that the industry had the opportunity to recover?

3.36 pm

Mr. James Wray (Glasgow, Baillieston)

I come from a poor constituency. At one time, we had the highest unemployment in Britain; 40 per cent. of my constituents were recipients of social security.

It really annoys me to listen to Opposition Members in this Chamber talking about fiscal terms and Red Books. The red book that I read did not bother about tax increases as long as they were made in the right place and went in the right direction. Our Chancellor has done a great job on the economy. We must never forget—we must never let the people forget—the fragmentation, the misery and the deprivation left by the previous Government. They raided the coffers; they fell off the Front Bench like snow off a dyke because of corruption and all the consultancies they reached out for. They were not interested in the poor. We are interested in the poor.

The Tories were given plenty of advice from their bible—The Economist—about their short-term strategy and their boom and bust, but they did not heed it. They laid the foundation stones of the economy in sand and it crumbled around them. We do not forget the people who are still out there—thousands of them—who were enticed by the former Prime Minister to take out equity, but who finished up having their houses repossessed, even though wives and husbands were still working to pay the money back. That is why the people of this country will never forget and will never return a Conservative Government.

I come from a family who lived—10 of us—in one room and a kitchen. I saw some of my family die of poverty—from tuberculosis and from sleeping in damp beds. That is why we must give all that we can. The Chancellor made the right decisions; he is laying his foundation stones in concrete and he is spending his money on the right people—those who deserve it.

Is there anything wrong with giving to the poor? Is there anything wrong with a working families tax credit that takes account of the family situation so that children aged between one and 15 are given an extra —15 or —25? A family of four, with children aged 16 and 18, receive a further —26. Families can also receive a child care allowance, which is especially important for lone parents, who need it most. They can receive a grant of 70 per cent. of child care costs. That could be a lot of money for big families.

If that money had been available when I was born, we would have had much better quality of life. That is what a Labour Government are here to do. We are not here to get consultancies; we are here to build the economy to ensure that we decrease the gap between the rich and the poor. Let us not worry too much about taxation, so long as it is against the rich and gives to the poor. We, as a Government, must be a Robin Hood.

Mr. Breed

Does the hon. Gentleman agree that it is reprehensible that many of the families who went through the appalling negative equity and are just getting back on their feet are being chased by the banks, which, although they are making billions of pounds profit, want to try to recoup some of the negative equity with which those families thought they had dispensed?

Mr. Wray

That is why we must pay heed, and why we should write off the debt. We should tax the banks a bit more heavily and give the money back to the poor, who were robbed in the first place. The shadow Secretary of State did not mention or apologise for the previous Government. He never talks about the —28 billion deficit or the fact that 42p in the pound was paid in interest charges because of the economic mess that they left behind. How can the Tories appeal to the nation to be the Government again? I do not think that they will ever be in government this century.

Mr. Bercow

The hon. Gentleman talks about the importance of giving help to those who most need it. Will he therefore helpfully explain the justification for the operation of the children's tax credit, whereby two parents, each of whom earns —30,000 a year, are eligible to receive the credit, but where only one parent earns —40,000 a year, he or she is not?

Mr. Wray

Sometimes we do not get the particular economics correct, but if there is any anomaly, and it is brought to our attention, we will make a change and redirect the money if we can. It is difficult to have a universal tax with low-income people, but that will be tackled in the near future. I remind the hon. Gentleman that we will not forget what the previous Government did when they took power. We cannot forgive you for the fact that 3 million people were unemployed. I do not know why you cannot understand that a Government who have created the conditions for the lowest percentage of unemployed people for 35 years must be a success.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The hon. Gentleman is an experienced Member and should remember that he should use the third person when referring to another hon. Member.

Mr. Wray

The Opposition should know that we went through a difficult period, and I am only telling them that unemployment was never worse than when they were in power. Surely they are not against us spending millions of pounds more on the health service. We are talking about spending about —835 million on it in three years. One reason why we are doing so is that everyone knows that 3 per cent. more must be spent on the health service just for it to stand still. We hope to double that figure. That is because of the state that the previous Government left the health service in; they were not interested in nurses or sisters, or whatever. In fact, their White Paper said that they wanted to encourage accountants and business managers. We have to change all that. A lot of nurses left the health service because of that reconstruction, and we must encourage them back. The Government have said that they will spend —135 million on recruiting hospital nurses, which cannot be a bad thing.

Not enough money was spent on education when the previous Government were in power. There was overcrowding and composite classes, and children were sharing books, but things have changed now. We have decided that about —200 million will be invested to recruit extra teachers.

One of the most important things is that the Tories left a legacy of drug abuse, and it has taken millions of pounds to try to get rid of it. All kinds of people tried to attract some of the great financial resources that were put into drug abuse. An organisation called SCODA—the Standing Conference on Drug Abuse—was more interested in starting a federation so that that could control the finances. We must win the battle. I have heard hon. Members talk about harm reduction, but that is a backward step; we should invest the money to encourage all organisations—whether those involving teachers, ministers, priests, of ordinary fathers and mothers or brothers and sisters—to fight the problem. We have to deal with it; we cannot give in. We must be the winners. We must not be beaten by the minority—the drug dealers and peddlers.

I sometimes think that we do not pay enough attention to child abuse. We should do much more. Organisations outside the House know that it takes not only a great deal of time to get the perpetrators to court, but 10 or 20 years to discover the abuse. It should not take that length of time to help those children in care and protection who have been abused by housemasters and the various other workers in homes and other institutions. It is time to put our money into the problem and to change legislation to ensure that no one gets away with child abuse. We should change the legislation so that those who committed abuse before 1964 can be prosecuted. They should be treated in the same way as anyone who commits murder. There should be no restrictions on prosecutions for child abuse; they should be possible regardless of the date.

I want to raise one or two other issues, but I know that other hon. Members want to mention the many ways that people have gained under the Budget. I shall not take too much time because I know that they want to catch their trains and planes home. Once the Chancellor has made his statement, we always find that everything goes dull in the Chamber and people want to get home. I simply say that the Government's direction on the economy is right. I hope that there will be more changes and that pensioners, lone parents and unemployed people will gain. My constituents and I are grateful that the Chancellor gave consideration to the poor in the Budget.

3.49 pm

Mr. Michael Jack (Fylde)

It is interesting to follow the hon. Member for Glasgow, Baillieston (Mr. Wray) and to hear somebody speaking on a platform of compassionate socialism. He is right to speak about his constituency and Scotland, and to remind us of some of the real problems that have beset post-war Governments for a long time. I take issue with his suggestion, however, that the Conservative Government cared nothing for the national health service. Our rate of real-terms increase in health spending was ahead of that of the early years of this Labour Government.

The hon. Gentleman was right to alert the House to the scourge of drugs. As a former Home Office Minister responsible for drugs policy I can tell him that we took that matter just as seriously as do this Government. Our expenditure of —500 million a year was an effort to tackle the problem. I share his concern that Governments of recent times have not yet got to grips with this scourge on society and, more importantly, on the individual. The effect on criminality and crime is there for all to see. I join him in wishing this Government and Ministers well in their endeavours to fight this scourge of modern living.

In the Budget there is some discussion about further measures to help the inner city. I applaud that and support anything that helps to clear up the mess that still exists in some of our great urban centres. I remind the hon. Gentleman that it was the last Conservative Government who maintained a high level of investment in Scotland. That is why Scottish industry is restructured, and Scotland has the benefits of silicon glen and the high levels of employment that go with it. It is fair to criticise the Conservative Government just as we criticise the present Government, but to say that we did not care is utterly to ignore the facts of the matter.

I was delighted to be here to listen to the Secretary of State's opening comments and his announcement of help for working families who work anti-social hours, particularly lone parents. At long last some help will be given through the various tax credit mechanisms. I am sorry that he could not announce today what that help would be. I have letters going back over the past 12 months to the Treasury and the Department for Education and Employment on this very subject. I wish him well, but ask him to speed up the consultation on his announcement. I have constituents working, for example, in the care homes sector who would much appreciate child care help during what are termed anti-social hours and who would be interested to know the outcome of the consultation exercise.

I also welcome the measures to assist families in general and small businesses in particular, especially with reference to the completion of their tax returns. I will return to the theme of tax simplification.

So far much has been made of the contrast between the good economic situation that is seen from the Government Benches and the difficulties that pervaded part of the premiership of my right hon. Friend the Member for Huntingdon (Mr. Major) and his Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). The Secretary of State for Trade and Industry did not pay as much attention as he should have done to the natural economic cycle. All Governments hit difficulties from time to time. I commend to him the historic data in the Red Book which show what a mess previous Labour Governments made of their situation and the problem that the Conservative Government had in clearing up their mess before we could make progress. Yes, we had difficulties in the early 1990s, but prior to that we had got borrowing down to a very low level. We exercised properly fiscal control and imposed monetary disciplines. My right hon. and learned Friend again did that once we had the economy back in hand.

It is interesting that the Financial Times review of the Budget points out the relative luck that this Chancellor has had in having a benevolent economic situation. It points to: A seven-year run of output growth averaging 2.9 per cent a year, combined with low inflation. The Chancellor could not have had the low inflationary levels which he enjoys had it not been for the work done by my right hon. and learned Friend to put in place the foundations to give us a low inflation economy. It is said that interest rate decisions take about 18 months to come through. We hit the inflation target set by my right hon. and learned Friend at 2.5 per cent. on the nail on the month, and it is noteworthy that in this Budget this Chancellor has sustained my right hon. and learned Friend's inflation target. Equally, we have had a seven-year run of output growth, so by definition three of those years were ours. I contend that much of the benefit that the Government have put before the House in the Budget was due to my right hon. and learned Friend's prudence. Part of the benefit that this Government have enjoyed in terms of their record on public expenditure comes from the fact that they took over the former Government's spending plans and went one better: they were even meaner and did not spend the money which we had left in place. Then they turned round and criticised those plans for not providing the resources which should have been spent.

Mr. Andrew Miller (Ellesmere Port and Neston)

I appreciate the honesty and integrity of the right hon. Gentleman's remarks. Is he pressing for a change in the shadow Chancellor to bring back the sanity of the right hon. and learned Member for Rushcliffe (Mr. Clarke)?

Mr. Jack

No, my right hon. Friend the shadow Chancellor has shown in his recent remarks a proper line of intellectual activity to probe the question of the level of the inflation rate. It is right to test existing assumptions, even if at the end of the day one concludes that the existing assumptions are correct. If we are to sustain a low inflation economy, it is right to look at the underlying implications. Now is not the time to have a debate about that, but if the hon. Gentleman cares to have one in Westminster Hall, I would gladly attend.

The Financial Times article goes on to provide a further interesting insight. It states: Mr. Brown has guided the economy well in a sunny period. But he cannot control the weather—even if he would like to imply as much in the euphoria of a pre-election period. That gives us an important perspective on the Budget and the substantial increase in public expenditure which is included in the Red Book. The article reminds us that total departmental expenditure limits are set to rise at an annual rate of 8 per cent a year between 1999–00 and 2003–04. If the sun shines those numbers can be sustained, but the true test of any Chancellor—and of this one if he is lucky enough still to be in office after the general election—is how he deals with the situation when the going gets tough. Any Chancellor can look good with lots of cash coming in, a self-imposed corset on public expenditure and some rather nice numbers on borrowing. Previous Conservative Chancellors have shown their metal in getting the economy back on the rails after a period of difficulty.

The Financial Times is interesting in its analysis. It states: Mr. Brown ducks the question whether such a rate of expansion is sustainable, even assuming steady economic growth. Of course it cannot be over the long term, unless taxes are to be raised. The article then rather teasingly says: That is a problem for another Budget in another parliament. It is not, in the sense that the nation is likely to have to go to the polls before another Budget. Therefore, the question of the sustainability of the Chancellor's much proffered public expenditure position is not for the next Parliament, but for here and now.

Mr. Breed

If the right hon. Gentleman is saying that the last five years of the Conservative Administration and the first four of the Labour Administration are two parts of the same economic cycle, would he have repaid —34 billion of the original debt that was run up during the Conservative period?

Mr. Jack

I counsel the hon. Gentleman to go back through the historic data in the Red Book. He will observe that towards the end of the 1980s we paid back debt because public finances were good. Whether paying back —30 billion odd is the right thing to do with the money is an interesting point. There is some conjecture. It could have been used to do more to help with savings.

The most that the Budget did for savings was to leave in place the current levels in the complex individual savings account system. Instead of examining ways to encourage improvements in the saving ratio in the way that my right hon. Friend the shadow Chancellor has done, the Chancellor ducked the issue. He ducked the issue as to whether he could have used creatively some of the fiscal surplus to encourage more private investment, in particular, in new activity in the economy. That is sad, given the amount of money that the Chancellor had and the things that he could have done with it.

In The Daily Telegraph, Ian Cowie, its personal finance editor, wrote an article under the headline, "Don't be misled, the main winner will be the taxman". He points out the massive increase in tax take that has occurred as a result of the Chancellor's activities. Since the Government took over, they have received a further —43 billion of extra receipts of one sort or another. As my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) said yesterday, that is effectively the equivalent of 10p up and 1p down.

It is a very small people's dividend for the hard work of the hard-working families of Britain to have such a scant reward, because no Chancellor can deliver all that he claims. Given the sum total of the parts of the British economy, the peoples dividend is very limited.

I went back to look at the Red Book that I signed off when I was in the Treasury. In the years 2001–02, we pencilled in Government receipts of —370 billion, but the projection in the current Red Book for the same period is just short of —400 billion. That again shows the increase in the tax take that has occurred.

The result was even more fascinating when I searched for the table in the current Red Book to see how the Government were dealing with the increase in the personal tax burden. 'Put up taxes" are the words that the Chancellor hates to utter. I looked in our Red Book for the figures for the year 2001–02 and I noted that the figure for income tax as a percentage of gross domestic product that we had pencilled in was 9.8 per cent. The current Red Book shows that that figure has gone up to 11.3 per cent. of GDP, but what is missing is the comparator with last year's Red Book. Here the Government look seriously embarrassed. The telling point is that, for the period 2001–02, last year's predicted figure for income tax as a percentage of gross domestic product was 10.8 per cent. The burden of income tax is rising whatever those on the Treasury Bench may say.

Mr. Bercow

All my right hon. Friend's points are telling. Does he not agree that it is now becoming clear that what Labour meant when it said that it would be a people's Government was that people who are married, people who pay mortgages, people who own cars, people who have the temerity to put petrol in them, people who acquire savings, people who possess pensions and people who run businesses would all soon face significantly higher tax burdens as a result of the depredations of this Administration?

Mr. Jack

Indeed, and to build on my hon. Friend's salient point, families with children may have had some recompense, but all the married couples, who have lost the married couples allowance, home owners, who no longer receive mortgage interest relief at source, and anyone who runs a car will all know just how hard they have been hit by the Government.

I commend anyone to examine table C9 in the Red Book and compare last year's projections for the percentage of GDP taken by income tax with the current position. The figures for social security contributions may show a more level picture, but more telling is the rise in all tax receipts when compared with last year's projections for them as a percentage of GDP. The Government are condemned by their own figures as a high-tax Government.

I want also to consider the issue from a personal point of view. One of the arguments that the Government have used to explain the increased tax receipts is that more people are in work. Yes, that may be so, but the 1999 edition of the Inland Revenue statistics contains some interesting facts. In the financial year 1997–98, a fraction over 17 million people were basic rate taxpayers. The Government claim that they have created 1 million extra jobs, so one might assume that there should now be 18 million basic rate taxpayers. However, the projection for 1999–2000 in the document is that there will be 20.8 million taxpayers. Not only are the Government receiving more tax receipts, but they have now put more taxpayers into the tax net.

That is equally true for higher rate taxpayers. I am sure that those on the Treasury Bench will be familiar with the contents of table 3.4 of the Inland Revenue document that points out that we already have 635,000 people paying the higher rate on incomes of only —30,000. Many middle managers pay higher rate tax already.

With the public finances in better order, it is time for the Chancellor to consider how he can take people out of paying tax altogether and to review the total number who are paying higher taxes. Mr. Andy Goracy, the general manager of the Somerfield at Downend near Bristol, was interviewed in the Financial Times and he makes it clear that he, for one, wants that to happen He says that it is time to move the threshold up to about —33,000. Mr. Goracy is not a highly paid man; he is one of Britain's middle managers who work in the engine room of our economy. It is time that we encouraged such people by reviewing the higher rates of tax.

The landfill tax has been briefly mentioned and the House was reminded that it has gone up without any corresponding decrease in national insurance. This issue shows how small increases in little taxes, such as the landfill tax, can suddenly become nice little earners for the Chancellor. The Chancellor enjoys spending other people's money. After all the earlier ballyhoo about extra money going into health and education, it is still clear that he had not got things right, because he had to announce a bit more yesterday.

However, if the Chancellor were engaged in a value-for-money exercise, my constituents in Fylde would seriously question whether he has got it right. We had joy celebrating the decision to build a new cardiothoracic unit at the Blackpool Victoria hospital, but a recent parliamentary answer said that that would happen subject to the availability of capital. It is clear that the job is still tight for money. Those who send their children to Lytham St. Anne's High school have heard about all the money for education, but they will wonder why a school for 1,800 pupils can provide accommodation for only 350 of them for school dinners every day, because no capital is available to expand the school's facilities. My constituents in the ward of Ingot, a part of Preston that is beset by vandalism, will still wonder where the extra police officers are in spite of all the talk about extra money being spent on law and order.

I mentioned a moment ago what the Chancellor might have done with some of his surplus. He said in his Budget statement that he was committed to energy saving and to meeting the Kyoto targets. Why did he not use some of the money to promote further work to assist the development of the new generation of nuclear power plants? A 1,000 MW power station would achieve as much as the climate change levy in the reduction of CO₂ emissions. What could be a better way of investing for the future of our environment than helping in that way?

I have already referred to tax and it is evident that, with the plethora of credits, our tax system is becoming ever more complex. I congratulate the Paymaster General on the way in which she has supported the tax law rewrite exercise, but the Budget missed a great opportunity to go further and form a partnership to develop models of analysis of how we could reduce the complexity of the tax system.

I awoke at an early hour this morning to hear a Mr. John Williams of Progressive Engineering, a midland company, say on Radio 5 Live that he already spends a quarter of his time as a Government agent in dealing with issues such as the working families tax credit. If such people in small engineering companies are spending so much time on the complexities of the tax system, does it not cry out, if entrepreneurship is to be truly set free, for us to get a grip on simplifying the tax system?

I say that against a background of a Chancellor who loves to fiddle and micromanage the economy. That is why I asked the Secretary of State for Trade and Industry if he could say how much extra investment had arisen from the tax credits or small-scale tax measures. He answered that question and the Paymaster General directed me to page 46 of the Red Book. It mentions a total amount of investment, but does not make a specific analysis of those measures. Before the Chancellor introduces any more whizz-bang ideas, he should undertake and publish a cost benefit analysis to establish whether those ideas are capable of delivering.

The hon. Member for South—East Cornwall (Mr. Breed) mentioned farming. That industry has gone through an unprecedented period of difficulty. Foot and mouth caps it all. I should have liked the Budget to include a measure to help with the costs of slaughter and the difficulties faced by abattoirs. Many farmers have—thankfully—been allowed to take some of their animals for slaughter so as to enter the marketplace, but they are deeply worried that the normal market mechanisms are working against them and that the costs of slaughter are likely to rise in these unprecedented times.

If Ministers are involved in discussions with farmers and their representatives and there is any way to assist the industry temporarily, that would be money well spent. Without a well-financed farming industry, farmers' ability to be the stewards of our countryside—to look after our landscape and environment—is much diminished.

Mr. Nicholas Winterton

My right hon. Friend raises an important point which, for a good reason, the Minister of Agriculture, Fisheries and Food was unable to deal with fully today in either of his two appearances before the House. Does my right hon. Friend accept that farmers in general and livestock farmers in particular are having their cash flow dramatically interrupted? Bearing in mind that financially they are on their knees, should not the Government try to intervene with the financial institutions on their behalf? They should at least deliver guidance or an exhortation that the situation should be properly taken into account, otherwise, many people will be lost from the land.

Mr. Jack

My hon. Friend is knowledgeable on such matters and makes an extremely good point. I can give him a crumb of comfort. Yesterday, I received a letter from Mr. Andrew McThomas of Barclays bank advising me that it had given a three-month period of special help to farmers who have borrowed to keep their businesses going. That illustrates my hon. Friend's point.

The Chancellor has led a somewhat charmed life. He has a great deal of money because he has soaked not just the rich but all taxpayers. My right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) gave an idea of how a future Conservative Government would turn the clock back by helping pensioners, savers and hard-pressed taxpayers. Our policies stand in excellent contrast to those of this Chancellor who is a pure exemplification of tax and spend.

4.13 pm

Mr. Tony Worthington (Clydebank and Milngavie)

The right hon. Member for Fylde (Mr. Jack) said that the Chancellor has led a charmed life. I am reminded of Gary Player, the great golfer, who said, "It's funny. The harder I practise, the luckier I get."

The Chancellor has demonstrated sheer competence, which has had a rich reward. I approve of the Budget enormously. In our job, we sometimes have to think about the things that people no longer say to us, one of which is, "It's not worth working." That used to be said over and again when there was no minimum wage, working families tax credit, children's tax credit and so on. The Government's attack on child poverty is superb. It must be encouraged. If we impoverish our children, we later impoverish our society. Thank goodness we are through that phase. The fact that the former chief inspector of schools left his post has meant that we are no longer hearing the nonsense that poverty does not affect educational achievement, because it does, and we are attacking it.

It is a fine Budget. However, three matters concern me, two of which I should like the Government to reconsider. I am worried about the regulation of insurance companies. There are public expenditure implications if something goes wrong with them. The hon. Member for Macclesfield (Mr. Winterton) knows what I am going to say because he heard me discuss this matter in an Adjournment debate in Westminster Hall.

The conduct of the insurance industry concerns me in one respect in particular. Chester Street Insurance Holdings, which recently collapsed, carried the bulk of asbestos claims that are covered by employer's liability. The company was restructured, and many people would know it better as lion Trades. It had a concentration of claims with the shipbuilding industry and heavy engineering. The profitable part of the business was sold off in February 2000 to an Australian concern called QBE. The unprofitable part, which involved asbestos claims, was kept by Chester Street. That deal was approved by the Financial Services Authority, which monitors financial services.

By April, Ernst and Young, the accountancy firm, said that it did not know how long Chester Street could keep going with the liabilities that it carried. By January, the company had collapsed. However, the chief executive had not collapsed; he had awarded himself —450,000 extra for what he had achieved that year. He left the company with his performance-related pay and the congratulations of his chairman on his outstanding achievement, but now thousands of asbestos sufferers cannot be compensated through the courts for what has happened to them.

Chester Street has thrown away people's rights to resort to the law. I am worried about the way in which its collapse has been monitored.

Mr. Miller

A constituent of mine has suffered from that outrageous situation. The complaint that he suffers from got worse and worse and he had to take early retirement. The day that he reached terms with his employer, the cheque from that wretched insurance company was withdrawn. That cannot be allowed to continue.

Mr. Worthington

I am glad to have my hon. Friend's support. I am so incensed because my constituency has the highest concentration in the country of people who suffer from asbestos-related diseases. More and more hon. Members will receive representations by people who think that the situation is outrageous.

The Insurance Times says: What is happening to insurance regulation? Chester Street Holdings switched all its assets to Iron Trades and then flogged off Iron Trades to raise cash to pay claims. Indeed, it sold it off for —77 million less than its book valuation. The result, which the regulator should have seen coming, was that the paying ability of the residual lump was not enough to cover its liabilities with regard to long-term claims. Chester Street has gone belly up and the supposed regulator—the FSA—washes its hands of the problem while thousands of seriously ill claimants lose out.

There was much fuss when Equitable Life turned a bit dodgy, but that was because prosperous people had policies with it, including some MPs. However, when asbestos sufferers lose out, the reaction is fairly quiet.

Mr. Nicholas Winterton

The hon. Gentleman spoke eloquently the other day in a Chamber of this House. I was unable to participate in the debate because I was in the Chair. However, I am pleased to be able to tell him that he has proper cross-party support for the campaign that he is leading. In Macclesfield, Mr. McCreery, who is a resident of Bollington, is dying of asbestos poisoning and needs the money to ensure that he has some quality of life in his remaining days. The hon. Gentleman has my full support. What has happened is an abuse by the insurance industry.

Mr. Worthington

I am deeply grateful for that. I am sure that we can make a change. It would be utterly wrong if anyone lost a penny out of the activities of Chester Street. Our aim has to be 100 per cent. restitution of the claimants' civil rights. I hope that the Government will come forward soon with proposals to do that. I believe that the insurance industry should put it right. It should have a collective scheme to prevent its name being blackened in this way. The Government were very active on pensions mis-selling, and all credit to them for that. We cannot allow an insurance company to restructure itself in order to fail. We have to act, and the industry has to act.

Another issue that I want to raise is VAT. My compassion goes out to the poor souls on the Front Bench who have to understand VAT. Many good things were said in the Budget about VAT, such as relaxing VAT rules on refurbishment of derelict property. VAT on repairs to listed buildings has been cut from 17.5 to 5 per cent. There has been a VAT cut for small businesses, for museums, and so on. I welcome all that, and the consideration of VAT relaxations for sports clubs. However, those proposals make even more anomalous the imposition of VAT on hospices.

There are 185 hospices in this country. I have one in my constituency. It is a magnificent institution that is tremendously respected by local people. It is run by the Sisters of Charity, under the dedicated and committed leadership of Sister Rita Dawson. It is the largest hospice in the west of Scotland. It has 60 in-patient places and 60 day care places, and it provides a great deal of home care. It costs about —2.5 million a year to run. It receives about half of that from the Greater Glasgow health board, so it has to raise —1.2 million or —1.3 million a year to tick over to provide a service that would cost millions more to provide ourselves.

I am told that the cost of an NHS acute care bed in that area is about —500 a day, yet the hospice receives only —64 a day. Every time nurses' salaries go up, as they should, more fundraising has to be done. The hospice's costs are mainly staff costs. Hospices are treated in an absurdly hostile way in VAT terms. My local hospice successfully runs a tea room and restaurant for patients, carers, the bereaved and the wider community. It is in no sense a commercial restaurant, but it has to pay VAT. The hospice built a laundry and staff facilities. If it had had the money, it would have built them when the hospice was originally built, but it had to build them separately so it was clobbered for —34,000 of VAT. It built an education centre that is totally non-profit making, for which it was clobbered for —132,000 of VAT. It built a spa pool for the patients, and it was clobbered for —50 000 of VAT.

The cost to the NHS of providing such a service would be huge. The fundraising that has to be done is enormous, and we are not treating our 185 hospices correctly. I appeal to my colleagues on the Front Bench to reconsider the issue. They are considering sports centres and sports clubs and they have done good things in many other areas of VAT. There is no case for putting VAT on hospice activities. I am told by the hospice people that the percentage of funds given by the state to support hospices is falling year by year, so I ask for that to be attended to.

The Myners report came out yesterday. I thoroughly approve of it. It looked at institutional investment in this country. It is immensely important. My interest in this goes back to when I was with Strathclyde regional council. I was chair of the finance committee. On day two of the job, I was told that I was also chair of the pension fund. My knowledge of pension funds was not voluminous. It was the largest local authority pension fund in the United Kingdom. It was responsible for the pensions of all the regional council and the 19 district council employees in Strathclyde. I see that my impact was not too damaging, because the assets of the pension fund are now —6.7 billion—a lot of money.

The Myners report accurately describes trustees. It says that they do not know what they are doing. There is no training for them. There is no guidance on what their role is, and that needs to be looked at. I remember when I started the job of chairman that I asked naive questions. I asked what good the fund did for Strathclyde. The response was silence. That was not the point of the fund. I wanted to know what good all that investment did for the Strathclyde area. It was there simply to provide a guaranteed income for the pensioners. I got a strange look.

The money was being gathered together by the workers of Strathclyde, put in a big bag and shipped down to London. There was a beauty contest between Schroders—Barings in those days—Robert Fleming and so on. We asked the fund managers how they intended to conduct the fund, and they gave their story. I asked the local pension fund controllers what benefits there would be to our investing through them, as they knew the local scene. They said that there would be none at all, because they would invest in just the same way, in equities and so on.

The Myners document is useful because it makes us think about how our pension funds invest. I was astonished to see that in the 1960s more than half of British industry was owned by individual shareholdings. That is now down to about 15 per cent. The great bulk of British industry is in a sense owned by pension funds, insurance companies and so on. If one wants to put it that way, we nationalised the industries. People own companies, but they do not know that they own them.

A key sentence in the Myners report is: Savers' money is too often being invested in ways that do not maximise their interests. It is likely to follow that capital is being inefficiently allocated in the economy. I think that that is so. Pension funds are not creating as much wealth as they could. We have an enormous asset in our pension funds. That is one of the reasons why we will not face the same difficulties as other countries in Europe as people age. They have brought about immense improvement.

The Myners report illustrates that there is too much of the herd instinct in the investment industry. The key thing for people is that they do not slip behind the line in terms of investment performance. It used to be called the Wood Mackenzie line. All the institutions jump the same way at the same time so as to be average. They all go into dotcoms, and they all come out. It is a case of "Do not panic, but panic first". The report illustrates that there has not been much investment in private equity by pension and insurance companies. By private equity, it means unlisted companies that are not on the stock exchange. It says that it is striking that the growth in venture capital has been led by United States companies investing in this country in a given way.

I am aware that others want to speak, so I shall conclude my remarks by saying that although some of the Myners report was implemented immediately, I hope that the House will find time to debate it, because it deals with big money and the future of our country's investment policy. I have not had time to study the report in full, but I hope that many others—including the Select Committee on the Treasury—will do so and that extensive consideration will be given to ways in which we can ensure that money in this country is used more effectively. The subject should not be left merely as a reference in a Budget statement.

4.30 pm

Mr. John Townend (East Yorkshire)

Yesterday's Budget was clearly a Budget for an election, so it is reasonable to ask how the Chancellor has arrived at the current position since taking office.

It is fair to say—one tries to be fair—that the Chancellor inherited a golden legacy from the previous Government: a growing economy, falling interest rates, falling unemployment and a falling deficit. As my right hon. Friend the Member for Wells (Mr. HeathcoatAmory) said, the last Red Book of the Conservative Government, produced by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), showed that by 2001–02 the deficit on the public sector borrowing requirement would be eliminated and we would have a —2 billion surplus. When we ask how the Chancellor has managed to pay off so much debt and applaud his wonderful and clever performance, we should remember how lucky he was in receiving no less than —22.5 billion from the auction for the third generation of mobile phones. That had nothing to do with the Government—it was pure luck for them. The sum was so high because telecommunications companies throughout the world suffered a fit of madness, which they now regret.

From the start, the Labour Administration's cynical use of stealth taxes while pretending to keep taxes down has led to a large increase in the overall burden of taxation, which has risen from 35.2 per cent. of gross domestic product at the last election to 37.5 per cent. That does not take account of the fiddling of the figures whereby family income support was changed from expenditure into a tax credit and treated as though it were a reduction in taxation. If that were taken into account, the taxation burden would rise by a further 0.5 per cent. to 38 per cent. of GDP.

As a result of all that, this country has less and less the low-tax environment of the United States—a country that the Chancellor is supposed to admire—and more the tax environment seen in Europe, which is overtaxed and uncompetitive. It is fair to ask whether that is part of convergence policy, whereby we enable ourselves to join the euro by getting our taxes up to European levels.

The section of the community that bears the burden of that taxation is middle England. Pensioners who have saved and contributed to occupational pension schemes have had —20 billion of extra tax taken from them since the Labour Government came to power. It is inevitable that their future pensions and future contributions will be affected by that. At a time when we have a waiting list to get on a waiting list for hospital treatment and when young people are often given preference, the Government have been mean-minded enough to remove tax relief from pensioners' private health insurance. There is nothing in the Budget for the pensioners of middle England.

No action has been taken in respect of the ridiculous regulation that forces pensioners, on reaching the age of 75, to invest the money in their private pension in an annuity, so that if they drop dead six months later, none of the money goes to their children; it goes to the insurance company instead. I was hoping that the Chancellor would have seen the problem and in this year's Budget either abolished that rule or raised the age threshold to, say, 80.

Motorists have faced massive increases in petrol tax—we have the highest in Europe. Almost 80 per cent. of the pump price is made up of taxes. Such high fuel tax rates hit small businesses and rural areas, such as my constituency, especially hard. Since the election, increases in duty and VAT on those increases amount to no less than 15p per litre, so the 2p that the Chancellor has given back in the Budget is pretty mean compared with what he has taken away.

Another attack on middle England takes the form of the swingeing tax increases on company cars. Whenever the Chancellor increases expenditure or makes a concession to the taxpayer, he announces it and reannounces it and often double-counts, but in this year's Budget statement he did not announce that the next 12 months hold a further swingeing increase in the taxation of company car drivers. That measure was announced last year, but the Chancellor did not announce it again yesterday.

Married couples have borne the brunt of tax increases. Last year, the Chancellor abolished the married couple's allowance. He said that it would be replaced by the children's tax credit, but there was a year-long gap in which even people with children were worse off and paid more tax. Furthermore, the tax credit is means-tested, so there is nothing for couples whose families have grown up, couples with no children, or couples with children if one of them earns about —35,000 a year. Middle England has been hit again.

The home owner has lost his mortgage tax relief and has had higher stamp duty imposed on him. That punishes middle managers—the people who have ambition and on whom we depend for economic expansion. They are hit whenever they change job and move to a different area.

By not uprating the starting thresholds for higher taxes, the Chancellor has put 30 per cent. more people into the higher tax bracket. That does not mean that there are 30 per cent. more wealthy people in this country; it is merely the result of fiscal drag. He has not raised the starting threshold for higher rates even in line with inflation, and certainly not in line with the increase in earnings. Again, the section of the community that suffers is middle England.

It is clear that the Government are no longer new Labour, but old Labour in disguise. They are a high-tax Government. That is the most outrageous breach of promises and commitments that they made at the last election. In August 1996, the right hon. Member for Sedgefield (Mr. Blair) said: Our proposals do not involve raising taxes"; in September 1996, he said: We want people to pay lower taxes"; and in January 1997 he said: The programme of the Labour party does not imply any tax increases". That was systematically dishonest and misleading, for what did the right hon Gentleman say after he became Prime Minister? He said that he had not meant all of that, but had been referring only to the standard rate of income tax.

Two years of Conservative restraint on spending and then large Labour tax increases meant that a large surplus was inevitable. That will rapidly disappear and turn into a deficit as a result of the Chancellor's spending spree, which is set to last for the foreseeable future. The Labour party is reverting to type and it will end its first term as a tax-and-spend Government.

Mr. Miller

We are going to win again.

Mr. Townend

It is arrogant to judge in advance what the public will do. We shall wait and see. If Labour wins, it will do so having built up troubles for itself. The International Monetary Fund—not the Tory party—thinks that the Labour Government's plans are so worrying that it has published a warning that they could eventually push interest rates higher and keep sterling overvalued.

I should like to turn now to public spending and value for money. The Government do not seem to realise that it is not just the amount of spending that matters, but what the spending produces. More does not always mean better. Judged on that criterion, the Government have been a failure in many areas. I want to point out where money is being wasted or is not delivering the goods. In some cases, additional savings that could be made should be added to the list that has already been spelled out by Conservative Front Benchers. I have to say, however, that that list is a little modest.

Take education. At the last election, we heard "education, education, education." We were told that class sizes would be reduced. However, those were just words. Overall, class sizes have increased. I accept that the size of primary school classes has been reduced, but that has been more than offset by the growth in the size of secondary school classes. Examination results may, on the face of it, be better. However, if one talks to any university professor, he will say that grades are easier to achieve and standards are lower. Once again, there is spin and no delivery on education.

Mr. Worthington

The hon. Gentleman said that if one talks to any university professor, he will say that. Can he name some?

Mr. Townend

I am not going to name individuals, but I shall give an example. Only last week, on "Question Time" on television, a university professor said exactly that. To be honest, he blamed the previous Government as well as this one, and said that grants were increased for those universities that gave out more first-class degrees. The pressure in his university—against which he had fought, but failed—was thus to increase the number of first-class degrees so as to get more grants.

Mr. Shaw

Will the hon. Gentleman give way?

Mr. Townend

No, other Members want to speak, and I want to move on to the health service, which is important.

At the last election, the Prime Minister promised that the NHS would improve to the highest standard in the European Union. We are not ever near the average standard. Where waiting lists have gone down, as they have in some cases, they have been replaced by waiting lists to get on waiting lists, which are getting longer and longer. Regrettably, our health service is one of the worst in the EU, but that is not because we spend less. We spend more from the public purse on our health service than practically any other country in Europe. The difference is that, in this country, Governments have discouraged expenditure by the private sector, so far less private sector money goes into our health service than into those of continental countries such as France.

After four years, people know that the Government have not delivered on health. All of us must now look for radical change. One of the problems of the NHS is that it is the largest organisation in Europe; it is the largest employer in Europe. We shall probably have to accept that we will never have as efficient a health service as we need without radical change. In my view, it is unwieldy and too big to manage. We need a radical rethink.

On crime, higher spending does not seem to have produced a safer society. Crime was coming down when we left office and it continued to come down. Now, regrettably, there is a significant increase in violent crime. We were told that the Government would spend more money and that there would be more policemen. In the House, members of the Government said that there were more policemen. Today, I checked with the Library and found that, at the last election, there were 125,051 police in this country; the last time figures were taken, there were 122,230, which is 2,821 fewer police.

The police are spending too much time and money on being politically correct. Since the Macpherson report, many chief constables have become obsessed with race. Take the case of Constable Pentry, a policeman with 13 years' exemplary service, who, in a moment of anger, lost his temper and was then accused of calling another officer a wog—not to his face, but to another policeman in a dispute about shifts. He was suspended and dismissed. He appealed, but the dismissal was approved by the chief constable. There was a public outcry, which was led by many members of the ethnic communities. To the Home Secretary's credit, after a year there was another inquiry and Constable Pentry was reinstated.

If I treated my staff like that—if one of them called somebody a black bastard, which is equally offensive, and I sacked him on the spot—I would be taken to an industrial tribunal. Under the law, I would have to give my employee an oral warning; if he repeated the offence, I would have to give him a written warning and, to be safe, I would have to give him a second written warning too; otherwise, I would be taken to an industrial tribunal, which would probably cost me about —10,000.

One area to which the next Conservative Government must attend—I do not think that this Government will, but they ought to—is the way in which ours is becoming a rights and compensation society. The emphasis on rights, particularly the incorporation of the European convention on human rights in British law, is encouraging a vast increase in compensation mentality and is costing the country billions of pounds. That is happening not only in the private sector, but in the public sector too. Every day one picks up the paper and sees that somebody is asking for compensation. A policeman who was at Hillsborough got—

Mr. Nicholas Winterton

—330,000.

Mr. Townend

Absolutely. Because of psychological problems, he claimed and got —330,000. How many policemen on the beat would that have paid for? People who join the police, the other emergency services or our armed forces do so on the understanding that part of their job is to deal with emergencies and tragedies. They will see people killed and badly injured; if they are not prepared for that, they should not go into those services.

Mr. Winterton

It is important to balance what my hon. Friend said. Although I entirely endorse the views that he expressed about the behaviour of that policeman, an overwhelming majority in the police service deplores the action of that individual, who has deprived the police service and taxpayers of a huge sum that could have been used to much better effect.

Mr. Townend

My hon. Friend makes a good point.

I was brought up in the war. If the present situation had prevailed in 1945 or 1946, practically everyone who had seen service on the front line could have claimed masses of compensation. My hon. Friend says that the case that I described is an exception, but it is not. There was another case of a policewoman, Angela Vento, who suffered taunts and won —258,000, yet a young lady who suffered a terrible attack and head injuries was awarded —22,000. Another policewoman, Sarah Locker, won —1 million from Scotland Yard for racial and sexual harassment.

I have no qualms about people responsible for such behaviour being disciplined, but those large sums paid in compensation must come out of the public purse. The same applies in the health service. A fund should be set up for people who suffer from inefficiency and poor care, but such cases should be taken out of the compensation business. Lawyers are making enormous sums of money. The expense to the public purse arises not just from the compensation, but from the cost of such cases being brought.

Mr. Forth

Before my hon. Friend leaves the point, does he agree that where people are genuine victims of crime, in particular, and especially where they suffer physical injury, there is a case for a properly structured compensation scheme? The cases that my hon. Friend mentioned are, in many people's view, frivolous and unnecessary. The longer we allow the situation to continue, the worse it will become.

Mr. Townend

I agree with my right hon. Friend in general. He takes me on to my next point. We are now seeing a growth in claims for compensation from convicted criminals who are in jail. Surely that is nonsense. An IRA bomber—a murderer—was involved in an escape attempt in which a warder was shot. The terrorists who were trying to escape claimed that in the scuffle they were assaulted with rather more force than was necessary. I have no objection to an inquiry being set up to look into the case, and the officers being disciplined if the claim was proved to be correct, but I do not believe that convicted murderers and terrorists who shot an officer while trying to escape have any right to compensation at all.

Compensation claims were made in the forces, too. Ladies who joined the forces signed a contract to the effect that if they became pregnant, they would leave the forces. Using the European convention on human rights, women who had left the forces five or 10 years earlier claimed. The total compensation paid out was between —80 million and —100 million. That money had to come out of the defence budget, or the taxpayers had to find more money.

I come to social security. The Government promised at the last election that they would save billions of pounds by reforming the welfare system and cutting out waste and corruption, and that that money would be spent on the priorities—education and the health service. Once the right hon. Member for Birkenhead (Mr. Field) was given the boot, Labour gave up any thought of radical reform, however. Far from expenditure on the welfare budget being reduced, it has gone up, from —99.5 billion to —108.3 billion. Consequently, the worthy projects that were to have been financed by savings have had to be paid for by massive increases in taxation.

Fraud and waste in the welfare system are growing to a frightening extent. There are 20 million more national insurance numbers in issue than there are people in the country. That is an indication of the extent of fraud. Many people have two insurance numbers—one where they work and one where they claim benefit, because they say that they are not working. The next Conservative Government must grasp that nettle if we are to make meaningful tax reductions.

What are asylum seekers costing us? Their numbers are soaring. I object strongly to Labour Members who say that anyone who raises the issue is racist or xenophobic. Let us be honest: the majority of asylum seekers entering the country illegally are white. This is not a racial issue. The question is whether a country has a right to stop itself being swamped by people who have no right to come.

We know that, this year, 100,000 asylum seekers came here. Those are the ones that we caught, but there are enormous numbers coming in who do not get caught—perhaps another 50,000. If no action is taken, over 10 years that could amount to 2 million people, because those who are allowed to stay or who disappear will eventually bring their families.

What is the cost in housing and education? What are the legal costs? Every time we try to send asylum seekers back, they go to court, appeal and re-appeal. It is no wonder the rest of Europe looks upon the United Kingdom as a soft touch. The costs are enormous. Most want to stay in the south-east, and the number that will have to be accommodated means that much of the green belt will have to be built over during the next 10 years, with environmental consequences.

We could save up to —1 billion a year if we had a system whereby asylum seekers were seen within seven days and, if they wanted to appeal, had to do so within seven days, and those with no right to be here were sent back. The French are good at doing that. They send them across the channel, and when we say we want to send them back, they refuse to have them.

Last year, although the Government decided that 35,000 asylum seekers had no right to be here, they sent back only about 3,500. The courts are now in revolt because the judges say that they will be made to look stupid if they decide that people should be sent back and nothing is done.

Money could also be saved on overseas aid, on which we spend up to —3 billion a year. Between 25 and 30 per cent. of that is not spent by Britain but goes to the EU, which is not noted for its efficiency in spending money, and there are many instances of corruption. One would expect such money to be spent in sub-Saharan Africa and other places where people are starving, but the list of the main recipients includes Morocco, Tunisia, Poland, Egypt and Algeria. I find it strange that so much goes to north Africa. That shows the influence of the French on the Commission. These are francophile countries and the French get most of the trade.

Mr. Bercow

I for one am particularly sorry that my hon. Friend, who always speaks his mind and has powerful conviction, is not seeking re-election to the House. But is he aware that the European Court of Auditors recently denounced the extravagant and inefficient EU aid programme, and that its report was published to coincide with the Nice summit, but the Government, in their feeble, institutionalised wimpishness, did nothing to try to tackle this endemic problem?

Mr. Townend

My hon. Friend makes a good point. I think that he would agree that, if we repatriated and kept all our overseas aid budget and dealt with it ourselves, rather than sending it to Europe, we could get better value, do more good and save the taxpayers' money at the same time.

With regard to whether our money is being well spent, no one today has mentioned the fact that —1 billion provided by the public was spent by the Government on the dome, which, far from being a great advert for the millennium, became an embarrassment.

There has also been an enormous increase in Government expenditure due to the constitutional reforms which resulted in the setting up of the Scottish Parliament and the Welsh and Irish Assemblies, and due also to an increasing number of civil servants, especially political advisers. The majority of that expenditure has been borne by the English, but they have received I no benefit from it. My constituents still have about 25 per cent. less per capita to spend on health, education and local government than Scotland enjoys. That is not fair and it is due to the out-of-date Barnett formula.

From the point of view of equity, all parts of the United Kingdom should be treated the same, and Scotland and Wales should be treated the same as Ireland. It is argued that Scotland is so much poorer, but most of Scotland has a higher GDP than the north of England. If the Barnett formula were phased out, —1 billion a year could be saved.

With regard to alcohol duties, I declare an interest. I was pleased that the Chancellor froze alcohol duties, for the simple reason that, because of the enormous amount of smuggling, there is not a level playing field. But had it not been an election year, it is highly unlikely that he would have done that. However, one anomaly that the Chancellor should have dealt with was the duty on sparkling wine. Sparkling wine is no stronger than ordinary wine, and the extra duty of 58p a bottle is a relic from the past when people used to think of champagne and rich people. Most sparkling wine is now drunk by ordinary people and is not champagne at all.

I had intended to speak on small businesses, but I want to allow others to speak.

Mr. Forth

Before my hon. Friend even thinks about finishing, will he answer a brief question? Does he agree that in his brief resume of potential savings—not least on the sub-state of Scotland—he may already have identified savings well in excess of the modest ones to which my right hon. Friend the shadow Chancellor referred? Has he given his list to my right hon. Friend? If so, will he encourage him to build on it and to produce even greater savings for the people of this country, to be delivered in a few weeks' time?

Mr. Townend

Earlier, I said that I hoped that Conservative Front Benchers would take notice of some of the things that I had said. I have known the shadow Chancellor for some time, so I can assure my right hon. Friend that he became well aware of the views that I have expressed when he was Chief Secretary to the Treasury. Indeed, he was keen for my support as chairman of the Conservative Back-Bench finance committee in trying to persuade other high-spending Ministers to curtail their avarice.

I have spoken in every Budget debate except one since I have been in the House, and this will be my last such speech. I think also that I have a reasonable grasp of finances, since I trained as a chartered accountant. In the past couple of years, however, I have had great difficulty in finding the information that I want from the Budget documents. When we used to have the Red Book and a White Paper on public expenditure, it seemed very easy. Today, I had to get the Library's help to obtain some information that I could not find. I told the chap there, "I think it's a good job I'm retiring. I must be too old, as I can't seem to get a grip of this." He replied, "I have to tell you, sir, that neither can we or most other Members. It takes us far more time to deal with queries than ever before." I appeal to Treasury Ministers to try to bring back a little more simplicity and order into the Budget documents, so that they can be understood not only by chartered accountants, but by ordinary Members.

This is not a Budget for all the people. It is a means-test Budget. There is very little for middle England; the main thing for it is an increase in the 10p band, but taking inflation into account, that is worth only about —40 a year. There is also very little for savers. Certainly, there are nothing like the measures that would have been introduced if the Conservative proposals to exempt tax on savings had been accepted. There is nothing to compensate occupational pensioners for the —20 billion rape of their pension funds. As the Government had such a massive surplus, they could have done something for the pensioners. There is also little for the countryside. The tuppence off petrol sales pales into insignificance when compared with the rise of 15p a litre since the election.

This is a pre-election Budget. The Chancellor has been a very clever politician. He built up his war chest by taxing the hell out of the country and keeping expenditure down for the first three years. He has now started a spending spree, but has given a pittance back to the taxpayer, who has paid more than he should have done. The taxpayer now deserves a significant rebate, but he has not got it.

I believe that the country needs a deregulated and competitive enterprise economy, with low taxes. The most efficient economy in the world is that of the USA, and we should move our tax burden towards USA levels. We should move down towards 30 per cent. of GDP, rather than up to 40 per cent., as we are currently doing. I believe that my party has been too reluctant in recent years to propagate the benefits of lower taxation for the people of this country and I hope that it will take on board some of my suggestions. I would like the Conservative party to have a 10-year programme to reduce the tax burden to 30 per cent. of GDP. That might sound like a large reduction, but such a level would be only 3 per cent. less than when we took over in 1979.

As often happens when a Budget is cheered to the rafters by the Chancellor's supporters, things will turn out differently as time goes on. There are shadows on the horizon. We do not know the extent to which we will be affected by the American downturn or how long it will last. The Chancellor did not mention one of our biggest problems: the growing deficit on our balance of trade. The economy has been growing as a result of the enterprise economy started by Mrs. Thatcher, but the growing burden of regulations and taxes on small and medium-sized businesses will progressively take effect.

The Budget is designed for an election; to please the country now and pay later. It is the Budget of a Chancellor who believes that he can spend people's money better than they can: the Budget of a tax-and-spend Government.

5.4 pm

Mr. Phil Hope (Corby)

The hon. Member for East Yorkshire (Mr. Townend) said that the Budget was a pre-election measure, but he made a pre-election speech, even though he is not standing for re-election. If whistling in the dark was ever a strategy for victory, we have just heard a mournful tune, and had a brief tour d'horizon of the Tory prejudices and failures of the past 20 years.

I welcome the Budget as a boost for families and pensioners in Corby and east Northamptonshire, and for schools, health services and businesses in my constituency. Other speakers have drawn attention to the Budget's help for families and pensioners. In Corby and east Northamptonshire, more than 12,000 families will be significantly better off, and more than 15,000 pensioners will receive a real increase in their incomes.

Motorists, especially those in rural east Northamptonshire, and the distribution industry, which employs so many people in Corby, will welcome the cut in taxes on cleaner petrol and diesel, and the cash help from the reduction in vehicle excise duty for lorries, businesses and cars with engines of up 1500 cc.

I know from my meetings with representatives of local businesses that there will be a genuine welcome for the measures to reduce the impact of VAT on small businesses and for the tax credit for research and development by larger companies.

The measures that the Chancellor set out will build on the record amount of investment in local schools and hospitals. The —3 million Corby education action zone and the —3 million sure start initiative are helping to give children in my constituency a better start in life. The extra cash for schools that the Chancellor announced yesterday will give teachers, head teachers and governors additional resources to buy new equipment such as computers and to invest in new facilities for learning, which will help to raise education standards in the town, thereby reflecting and fulfilling our policy of education, education and, yes, education.

What a contrast yesterday's Budget made with those that we endured for more than 18 years under the previous Government. There were more than 18 Budgets because various rescue Budgets had to be announced in between the annual Budgets. What effect would Tory cuts of —16 billion have on rural areas? How many families and pensioners in rural areas would lose out? What about schools? Three thousand rural schools closed under the Conservative regime; such schools would be under threat again.

Department of Trade and Industry investment in post offices would be threatened, as would rate relief for village shops. The —900,000 subsidy for rural transport that will go to Northamptonshire would also be vulnerable. Let us consider rural policing. The ring-fenced sum of —30 million for Northamptonshire would be under threat, as would support for farmers. Agrimonetary compensation and the pig outgoers and ongoers schemes would be threatened by a Tory Budget.

Earlier, I drew attention to the rural White Paper, which provides a comprehensive strategy for a living, working and sustainable countryside. I do not underestimate the problems. Foot and mouth disease is a genuine crisis, and we must face up to it. However, we have done much to support rural areas. We have to do a great deal more, but there would be a lot to lose from a Tory Budget.

I want to concentrate on the importance of building a long-term, sustainable future for the constituency through a new approach to personal and community assets. Let me begin with physical regeneration. The Budget contains several new measures, which Opposition Members have welcomed, that are targeted on the physical and economic regeneration of run-down areas, especially support for urban regeneration companies. My hon. Friend the Minister knows that Corby launched the first urban regeneration company after the publication of the urban White Paper in December. I was delighted that my right hon. Friend the Deputy Prime Minister was able to visit Corby in February to launch the new partnership for regeneration between local businesses, local authorities, the East Midlands development agency, English Partnerships and local community and voluntary groups.

The Corby regeneration company that will be established over the coming weeks will attract major investment into Corby,and provide an opportunity for the borough to grow and prosper. It will create new jobs in industry and help to create a future of high-skill and high-wage employment in Corby. It will help to bring about the much needed redevelopment of our town centre, improve the leisure and community facilities in the town, restore—we hope—a main-line passenger railway station providing links down to London and up to Sheffield, and build thousands of new homes to attract many more people to what is becoming a successful and dynamic town in the north of Northamptonshire.

I regret that the Conservatives have chosen to oppose the regeneration company. The right hon. Member for Wokingham (Mr. Redwood), a Conservative spokesperson on the environment, has made it clear in our local press that they do not want to see Corby grow, develop and prosper. That is a pity because other right hon. and hon. Members—the right hon. Member for Fylde (Mr. Jack), for example—earlier supported measures for regeneration in run-down areas, and I hope that we shall receive cross-party support for the initiative. Furthermore, the —1 billion package of regeneration measures in the Budget will be of enormous benefit to Corby's regeneration.

I am keen to see further corporation tax relief for firms investing in urban regeneration companies, because that would be a major boost for the company that we have established in Corby. The accelerated tax relief—at 150 per cent.—for the cleaning up of contaminated land will be of particular benefit to Corby, which still has substantial areas of former British Steel land that was quarried for the extraction of iron ore.

We are also keen to make the most of the new community investment tax credit, which is to be introduced alongside the first community development venture fund, itself a partnership between the Government, financial institutions and the charitable sector. As chair of the all-party parliamentary group for charities and the voluntary sector, I am delighted at the various new measures for tax incentives to encourage giving and investment in the sector, which will help to build active communities.

A few weeks ago, the Chancellor announced about —60 million of extra money for investment in the voluntary sector's infrastructure, about —70 million for the children's fund to develop local community projects in the most disadvantaged areas, —50 million for community chests to be developed and —120 million to support volunteering in public services, particularly among older people. A total of —300 million will, therefore, be available over the next three years to support voluntary sector and volunteering activities. That is very important. Those and other Government initiatives will help in the development of the new Corby community trust that we are trying to establish, which will be an endowment fund to provide financial help in the form of small grants for local community groups and voluntary organisations in the town.

I shall move on from the Budget's help in building the physical asset base of our communities to my second theme, that of building the financial asset base of individuals and families to provide greater security and a platform for personal development for individuals.

Measures to encourage personal savings were at the heart of the Chancellor's Budget speech. Policies encouraging financial wealth and the ownership of assets are not new. They have shaped British politics over the past 20 years. I am sure that the Conservatives would want to remind us of their introduction of the right to buy for council tenants, and the various privatisations that tapped into people's aspirations for independence, freedom and ownership. However, I regret to say that those assets policies were in no way egalitarian, and had scant regard for social justice and social inclusion. The number of households with no financial wealth increased from 5 per cent. in 1979 to 10 per cent. in 1996. As much as 50 per cent. of the population are now asset-poor, with less than —500 in savings.

The Government recognise the power of people's aspirations for asset accumulation but, unlike the Conservatives, we believe that aspirations for individual ownership must go hand in hand with social renewal. A progressive asset-based welfare policy can lead to fundamental increases in opportunity for all, allowing everyone to realise their potential. That is why it is right that we are helping pensioners by spending an extra —4.5 billion a year on pensions and, in particular, helping those who have saved hard all their lives, through the pensions tax credit. If a person has worked hard and saved hard all their life, they should enjoy security in retirement.

The Budget also encourages savings by allowing people to save up to —7,000 a year tax free in individual savings accounts. About 8.5 million people have opened ISAs and, by 2006. According to the figures in the Red Book, that will represent a cost to the Exchequler of —2.85 billion, which is —800 million more than was projected if we had stuck with TESSAs and PEPs.

Those two measures represent the asset development that I want to happen, but I have a particular concern for a group of people who are not part of that system—the young. How can we ensure that young people, as they move from childhood to adulthood, have access to the financial help that they need to cope with what I call lumpy items of expenditure, such as setting up on their own, getting a job, gaining qualifications or even setting up a business?

At certain times, young people do not have the financial backing that they need, perhaps because they have just left home. However, middle and higher income families with savings take it for granted that they will help their children out with finding somewhere to live, buying new clothes for a job interview, getting transport or buying furniture.

Why should young people from lower income families not have access to such resources? If young people could develop their own financial asset base as they were growing up, they would be able to draw on it when they needed it most—around the ages of 18 to 25, as they leave home and begin to make their own way in the world.

Asset-based welfare represents a new approach to welfare policy. Such an agenda would build on the popular ISAs by encouraging low-income households to accumulate financial assets for long-term economic security and investment. Such accounts would be based on a contract between the individual and the Government. For example, the state could make matched contributions: for every pound an individual deposited towards the future, they could deposit another.

Targeted incentives to save money would ensure a fairer distribution of assets. The key objective would be to ensure that all people live their lives knowing that they will have a sum of money to invest in their own futures and aspirations. Encouraging saving by low-income groups would be positive for three reasons. First, the process of saving and accumulating financial assets empowers people. It has positive psychological effects and enables them to think and plan for the future while developing financial literacy and confidence.

Secondly, holding financial wealth gives people the benefits of greater economic security. Thirdly, spending that financial wealth opens up a huge range of potential advantages. People could invest in their futures or use their assets to overcome difficult lifetime events that might otherwise trigger their return to poverty.

An assets-based policy could come in several forms. One example would be to build on the development in the United States of individual development accounts, which are a highly targeted version of the policy that concentrate on specific communities. We in the UK could explore that option through credit unions, which could be used as delivery vehicles for highly local policies aimed at developing the financial assets of excluded communities. It might even be possible to pool individual assets in communities so that people could collectively invest in their futures and aspirations.

Another option to which I am especially attracted is a universal child-centred version of the policy. It has been labelled a form of baby bond, although the Institute for Public Policy Research, which has developed the idea in the UK, calls it an opportunity account. Such an account would be universal and inclusive, and one would be opened for every child. The state could deposit an initial capital endowment—perhaps of —250—in every account at birth. All accounts would benefit from favourable tax treatment to encourage saving for all children. If we wanted to reap the benefits earlier, the policy could start with 11-year-olds and an account could be opened for everyone. There are lots of possible variations on the theme.

There could also be a targeted element whereby the Government would match contributions from individuals on low incomes, using a pound-for-pound ratio. That policy would support savings for all children, but would also give extra help, through a means-test, to people on low incomes. The funds would not be accessed until age 18 and restrictions might have to apply to their use, perhaps alongside the provision of financial advisers and linking the process to the school curriculum.

Public policy could specify how such funds might be used—for example, on education, home ownership or entrepreneurship. That would ensure that every child had a pot of financial capital to invest in opportunities denied them at present. The policy has been researched and there is enthusiasm for it. One respondent summed up the positive reaction by saying that being in a council flat and working every day and coming home and just doing everyday things, you haven't got an asset, you haven't got anything … this is why I think it is a good idea. Given that time is short, I shall not elaborate on that proposal. I hope that it will be developed from the policies on people's savings opportunities that were at the core of yesterday's Budget statement. The Government have established that sound economic policies and social justice are two sides of the same coin. Similarly, personal aspiration and social justice are part of the agenda of opportunity for all.

The Budget's investment in public services and its support for pensioners and families will be greatly welcomed in my constituency. The measures to promote physical regeneration are of huge importance to Corby, and are very welcome. However, I have argued today that that is just the start, and that we need to build on the measures to encourage saving.

When my hon. Friend the Paymaster General winds up the debate, I hope that she will say that the Government agree with me. I believe that adopting a radical assets policy will give us a real opportunity to change fundamentally the lives of ordinary people in the United Kingdom.

5.21 pm

Sir George Young (North-West Hampshire)

I begin by congratulating my hon. Friend the Member for East Yorkshire (Mr. Townend) on what he described as his swan song. It was a typically robust contribution, full of Yorkshire common sense, and one of a long series of such contributions that he has made to Budget debates.

The hon. Member for Corby (Mr. Hope) referred to urban regeneration in the context of his constituency. He will recall that, following British Steel's disappointing decision, the Conservative Administration of the 1980s established an enterprise zone in Corby. That initiative helped the community to come to terms with the loss of jobs and to rebuild itself.

I recall visiting Corby at the time and finding that almost every square foot of the enterprise zone had been taken up. There had been a substantial move towards rebuilding the town, so I hope that the hon. Gentleman will not attribute to the Conservative party any hostility to urban regeneration—nor any hostility to the problems that confront towns such as Corby.

The Budget contains measures that I, too, can welcome, although I shall not be as effusive as the hon. Member for Corby. I am afraid that I cannot bring myself to say that the increases in current expenditure on health and education should be called investment, but the extra money is welcome, and it is a further dividend of some nine years of sustainable growth.

In passing, however, I note that although extra money has been given to the NHS, there is no extra money for social services. That replicates a pattern evident over the past few years, yet the fortunes of the two services are increasingly intertwined. Much of the pressure on the NHS arises from problems backing up from social services. Bed blocking is the best example of that, but it is by no means the only one. I hope that discussions may take place between health trusts and social services at a local level, and that some of the extra NHS money may be nudged sideways towards social services. That would be in the interests of joined-up government.

The Chancellor of the Exchequer has clearly decided to spend more money on the family, and I welcome the decision to rebalance the tax burden more in favour of those confronted with the costs of bringing up children. I also welcome many of the other initiatives in the Budget—those on research and development and help for small businesses, as well as some of the VAT changes.

The Chancellor enjoys referring to the deficit of —28 billion inherited by this Government. The Red Book calls it structural, but I happen to think that it was cyclical. I have two remarks to make in passing. First, whatever the level of the deficit in 1997, it would have been a lot higher had the previous Conservative Government listened to the Labour party in the previous Parliament. The then Opposition objected to decisions to increase the revenue at the same time as they urged us to spend more, so it ill-behoves this Labour Government to criticise the level of the deficit that they inherited.

Secondly, and more importantly, my right hon. Friend the Member for Fylde (Mr. Jack) was correct to say that the previous Government had taken decisions designed to eliminate the deficit within three years. That turned out to be the case—the deficit was eliminated within that period.

I should be letting my constituents down if I did not say that farmers are very disappointed with the Budget—a point that has been made by others. Abolishing vehicle excise duty on tractors is an inadequate response to what is happening in agriculture. An important sector of the economy is on its knees: if the Chancellor can help the betting industry, it is perverse that he cannot help farmers. I hope that the Chancellor has not ruled out some transitional help for agriculture as it recovers from the crisis afflicting it at present.

May I mention in passing the Government's failure after nearly four years to identify the way forward for the London underground? I am no longer a London Member of Parliament, but my commuting constituents use the underground and I feel that it is verging on negligence that there is still no clear strategy and no agreed financial regime to deal with it. During those four years, the costs of catching up have risen. In addition to promoting social and economic reforms on the macro scale, it is legitimate to expect a Chancellor to deal with those bread-and-butter issues in the capital. I have four brief points to make. First, I found paragraph 3.71 the most disappointing in the Red Book. It reads: Reducing red tape in the public sector is an important factor in creating a productive work environment. In itself, that is a serious understatement, but what is the solution? We are told: The Government has a team analysing, assessing and actively reducing red tape and bureaucracy on frontline public sector staff. Projects include work on reducing the burdens faced by General Practitioners, head-teachers, the police and local authorities. That is hardly the sound of the cavalry coming over the hill.

There is a real problem. I was talking to a policeman in my constituency a few days ago. He said that before he makes an arrest he now consciously pauses because of the number of forms that he will have to fill in and the length of time he will be off the pitch. He asserted, and I believe him, that that problem has got worse, and it is the same right across the public sector.

It is bad enough being a Member of Parliament and having to open all the unsolicited mail that we get from the Department for Education and Employment, but imagine what it must be like if one is a teacher. I have no confidence that this Administration will tackle the problem of red tape in the public sector. Indeed, much of the Chancellor's reform agenda will make it worse. There is no sense of urgency or timetable in paragraph 3.71. There are no targets in that section of the document.

Secondly, although the Budget speech had at its heart the theme of sustainability, the strategy is unsustainable. Hon. Members may have heard the Chancellor on the "Today" programme this morning saying that public expenditure was planned to grow at 3.7 per cent. According to paragraph 2.37 of the Red Book, trend growth in output is only 2.5 per cent. In the short term, one can do that, but one cannot go on doing it. In the medium term, one has to either change the policy on borrowing—the Chancellor may have locked himself out of that option—increase taxation or switch off the public expenditure tap.

The Chancellor has rather ingeniously glossed over that matter in paragraph 2.61, with a sentente that some wordsmith in the Treasury must have spent some time crafting: The average surplus since 1999–2000, which on the Government's provisional judgement is the start of the current cycle, also stays positive, remaining above 1 per cent. over the next five years. In other words, one defines the cycle as beginning in the years with a huge unexpected surplus; one averages it over the next five years; and one declares it to be above 1 per cent. That leaves unanswered the question of what one does at the end of the five years, once one has used up one's credit.

My third point is on another structural issue that arises out of the Budget, to which the answer is less than clear. The Government want to bring together the tax and benefit systems. Paragraph 5.53 of the Red Book is a good example of what they want to do. It states: The Pension Credit and associated changes represent a further step in the Government's programme of bringing the tax and benefit systems closer together"— a worthy aim. We would all like to simplify the interface between the citizen and the state, preferably by having one dialogue with one Government Department instead of one with the Revenue and another with the Department of Social Security. Integration has been a gleam in every Chancellor's eye for the past 30 years, although progress has been faltering since the abolition of child tax allowances and family allowances in 1970 and the introduction of child benefits. Now, even part of that simplification is being unpicked.

I found it surprising that there was no attempt in this Budget to align the tax and national insurance systems, which many see as a pre-condition for such integration.

The Budget speech and the documents that I have looked at are silent on some key questions. The tax system takes as its unit of assessment the individual taxpayer, and has done so for more than 10 years, since separate assessment for husband and wife was introduced. The benefit system takes as its unit of assessment the family—broadly defined; a single mother will find that the resources of the live-in boyfriend are taken into account if she claims benefit. The tax system looks at income over a year, whereas the benefit system takes a series of snapshots to assess need when an application is made. Some benefits are contributory and some are means-tested.

The section in the Red Book on the pension credit is silent on how integration will work. What is the unit of assessment to be? Is it to be the individual pensioner or the pensioner couple? Significantly, the example is of a single pensioner, not of a married couple. However, we know about the anomalies that can arise when the two systems are hastily knocked together, because they have recently arisen in connection with the children's tax credit. As other contributors to the debate have pointed out, if a father and mother both work and earn —32,000, they can claim the full amount of the credit——520. However, if one of them earns more than —40,700, no credit is payable. There is no logic in that; it actually encourages both parents to go out to work. Nowhere in the Red Book or in the debate could I find the answer to this question: what are the ground rules that will apply when we try to merge two completely separate regimes in the case of the pensioner credit?

Many differences between the parties have arisen during the debate—the traditional one being the argument on tax and spend. However, there is a more significant difference: the Chancellor wants to use the tax system for what might loosely be called social engineering. He wants to target particular groups and design a tailor-made regime for them. That entails forms, rules and means-testing—more contact between citizen and state. Against that background, it is surprising that, on page 93, the right hon. Gentleman describes means-testing as "intrusive", since what he is actually planning is a massive extension of means-testing.

That is one approach. The alternative, which I favour, is simply to take people out of the tax system—or, if they stay in it, to reduce the burden of tax and then take supply-side measures to allow the market to work better. I have some doubts as to the efficacy of the Chancellor's micromanagement of the economy, based especially on what happened with the new deal. It is clear that what is planned is a huge new and much resented burden on employers and a massive extension of bureaucracy.

What about the citizen? The jury is still out as to which is the best approach in the eyes of the average citizen. The further the Government go down the road they have chosen, the more the public will prefer the simplicity and clarity of the approach proposed by my right hon. and hon. Friends, and the more they will reject the complex, Kafka-esque structure of interrelated benefits that are being introduced by the Labour Administration. The debate will move from the traditional themes—who will spend more and who will tax more—to the question of which party has the best approach towards the interface between the citizen and the state. I infinitely prefer the policies that my hon. Friends propose.

5.33 pm

Mr. Jonathan Shaw (Chatham and Aylesford)

I am pleased to follow the right hon. Member for North-West Hampshire (Sir G. Young) with whom I spent many a day on the armed forces scheme, both in this country and abroad.

The right hon. Gentleman referred to social services. Part of health expenditure goes to social services departments; for example, the winter pressures money. That mechanism is jointly organised locally, in much the way he advocates; there are already many examples of social service expenditure that reflect his suggestions.

Additional money has been allocated for children leaving care, many of whom do so far too early, at the age of 16 or 17. The relevant age is to increase to 21. Such young people make up only 1 per cent. of the general population, yet 30 per cent. of them are in young offender institutions. It is a damning indictment of public policy that such damaged individuals have to leave their home so young. Young people will now be able to leave care at 21. Provided that they stay in education or training, they will be able to stay in care until they are 24. That is a huge departure and a big improvement for a vulnerable group in society, and it is an example of the differences between the Labour party and the Conservative party.

The right hon. Member for North-West Hampshire welcomed the increases in expenditure on health and education, but later in his speech, he said that they were unsustainable. The Conservative party cannot have it both ways.

I welcome the Budget; it builds a strong economic base for my constituents and all constituencies across Britain. Unemployment has fallen in Chatham and Aylesford, and youth unemployment has fallen by more than 80 per cent. Interest rates are down and inflation is firmly under control. We are seeing the benefits of public expenditure and public investment in schools and hospitals throughout my constituency.

I want to talk about industrial matters later, paying particular attention to the paper industry, but I shall make some more general points before doing so. Teacher recruitment is problematic in the south-east. I welcome the announcements made by my right hon. Friend the Chancellor in that regard, because we have to consider creative ways to be more flexible and to entice people back into teaching. There is a pool of teachers out there who choose not to teach, for a variety of reasons. I come from a family full of teachers, so I know that if flexible arrangements and incentives for teachers are introduced and used in the way in which head teachers want, it will provide a plank to overcome that difficulty. The —6,000 grant to teachers who enter college represents further assistance. We have recently heard about more money for people willing to go into the areas of particular shortage in secondary education.

There are more books, more computers and brighter classrooms. Standards are rising thanks to the additional funds and the hard work put in by teachers. I pay tribute to the hard-working teachers and the learning support assistants at the schools in my constituency. I often visit schools and people introduce themselves, saying, "I'm only a learning support assistant." I always take issue with them because they form an important part of the education provided at those schools.

I am a school governor, and our school has employed many more learning assistants to help pupils, especially those with special needs. That is possible because of the additional resources made available by the Labour Government. Before 1997, we used to have to try to find where to make savings in our budgets every October. That simply does not happen any more.

I pay particular tribute to head teachers, whose leadership is central to raising standards and who deserve our gratitude and thanks for the hard work that they do.

I should like to refer to a couple of examples of how the additional expenditure is helping children's education in my constituency. Chatham South is a popular high school, and it was my pleasure to speak at its prize-giving recently. The head teacher was pleased to inform parents that, after vaiting 26 years, the school was to get a hall. Work will begin later next month not only on a new school hall, but on seven additional classrooms and a refurbished canteen—again made possible by —1.24 million of additional money from the Government.

St. Mark's school is a small village school in Eccles. It was built in the 1880s and has slightly more than 100 pupils. Its head teacher, Mrs. Celia Smith, told me that the additional money that it was receiving for resources was fantastic but that the school has no room to store the equipment. Mrs. Smith is not concerned about that, however, because —1.5 million has been allocated to build a brand new school. That money comes from the new deal, which the Conservative party is pledged to scrap. What should I tell my constituents in Eccles? The work should begin in May and the bills will be finalised in March 2002. So if they vote for a Tory Government, there will be no new school, and they will remain in the 1880s, because the Tories have pledged to scrap the new deal. After years of waiting, there is to be a new school. The Tory party has accused us of introducing stealth taxes: their cuts would be certainly be stealth cuts.

I have lived in Kent all my life. I am a Kentish man from the west of the county. The hon. Member for Rutland and Melton (Mr. Duncan) talked about his website and about negative equity. I have no information about negative equity on my website, nor have I written a theoretical piece about that episode in our history, but I experienced it, like housands of others who bought their first house in the late 1980s. Many people in my constituency, in Walderslade, Lordswood, Larkfield and Snodland, who purchased houses at that time aspired to get on to the ladder because they were concerned that, with rocketing house prices, they would not be able to buy a house if they did not move quickly. My wife and I were both local government workers and we purchased a house when we thought that the time was right. We got it completely wrong, as did thousands of my constituents and many more people up and down the country. If only we had waited. Like many of my constituents, we experienced the Tory bust of the 1990s. It hit us. Not only did people lose their jobs and their homes, but when they had to sell their home, it was worth less than they had paid for it. People are still having to carry with them a negative equity millstone of up to —15,000. My constituency is one of the youngest in the United Kingdom, so my constituents were particularly affected by the negative equity problems in the south-east.

My constituents want stability. For most of us a house is our most expensive purchase. Today's Bank of England announcement is a ringing endorsement of my right hon. Friend's stewardship and management of the economy. Not only have interest rates not been increased, despite the increase in public expenditure, but the fact that the decision has been made so early on is a ringing endorsement. We shall not see interest rates held down artificially as we did before.

I welcome the VAT reduction for empty properties. I have been campaigning for that for a long time and have initiated Adjournment debates and introduced 10 minute-rule Bills on it. We will be able to get more out of what we already have. It is crazy for VAT on a run-down property to be charged at 17.5 per cent.

We need to recycle more. The Government have set targets of 25 per cent. for local authorities. Paper is the largest single commodity that we can recycle, yet the three newsprint mills that reprocess paper are full to capacity. If we are to increase recycling, local authorities have to have somewhere to take the waste paper. It is all very well to ship it abroad, and for a period we shipped it to Asia, but now Germany's paper is cheaper and our paper is stored by merchants. Companies do not want to collect it from the local authorities because the price has gone through the floor. We need increased capacity and assisted investment in a large mill that can start to reprocess paper.

I pay tribute to my local authority of Tonbridge and Malling, which has increased its recytling by 16 per cent. with the introduction of a green box system. Every resident across the borough has a green box and there is plenty of information. This is an important issue, and we need to take people with us if we are to increase the amount of recycling.

Members have mentioned manufacturing industry, where gas prices have doubled in the past year: they have risen by —10 million a week. I raised this issue with my hon. Friend the Minister for Energy and Competitiveness in Europe in an Adjournment debate, and I am pleased that the Government have persuaded the European Commission to hold an inquiry into the matter. However, the Office of Fair Trading should also conduct an inquiry here in the United Kingdom.

The Budget will go a long way to assist hard-working families and pensioners in my constituency. It will also help those who have found it difficult to get off benefit and into work. The new deal, the working families tax credit and the children's tax credit Will help the people who need our assistance. They will make a real difference to their lives. Improving the quality of life and creating firm foundations are what the Budget has delivered. I look forward to our building on it in future Labour Budgets.

5.46 pm

Mr. Nicholas Winterton (Macclesfield)

I am pleased to have the opportunity to make a brief contribution to the debate. The House has heard some excellent speeches.

I was particularly taken with the views expressed by the hon. Member for Clydebank and Milngavie (Mr. Worthington), who raised several issues which one would not necessarily have expected to be raised in a Budget debate. The matters are of deep concern to him, to people outside the House and to hon. Members on both sides of the House, not least Conservative Members. He described what I shall call an insurance fraud perpetrated by a company, and explained how people who are dying from asbestos poisoning could be deprived of the compensation to which they are entitled. I hope that the Government will consider the issue carefully and seek to intervene in the industry. Perhaps the industry could produce a life-saving package to help those who have suffered because of the conditions that they experienced at their place of work. Only recently have we realised the long-term damage that asbestos can cause.

My right hon. Friend the Member for North—West Hampshire (Sir G. Young) made, as usual, a thoughtful and positive speech, identifying elements of the Budget that Conservative Members could welcome and, carefully and sensitively, pointing out where he disagreed with the Government and believed that action should be taken.

The speech of my hon. Friend the Member for East Yorkshire (Mr. Townend) was a tour de force. I regret that it is likely to be his last in the House before retirement. He has been a good friend and a good parliamentarian. The House will most certainly miss him.

I know of the interest that the hon. Member for Chatham and Aylesford (Mr. Shaw) takes in the paper and board industry. If he examines some of the steps that the Government have taken, however, he will realise why several industries—not least the paper and board industry—are concerned about the Government's failure to appreciate the impact of their policies on manufacturing.

I congratulate the hon. Member for Corby (Mr. Hope) on his thoughtful speech. He spoke with great clarity and demonstrated his commitment to the points that he made.

This is clearly a Budget for a general election. As always, it was well presented by the Chancellor of the Exchequer, but he simply gave back to the people of this country—I emphasise the term "gave back"—a fraction of what he had already taken from them in the previous four years. Research carried out by the Centre for Policy Studies—not by the Conservative party—shows that the Labour party has imposed 45 stealth taxes since it came to office four years ago. At the last election, the Labour party claimed that there had been 22 tax rises under the previous Conservative Government. So it has more than doubled that number of tax rises.

I was somewhat confused by the Chancellor's statement. His Budgets appear to get more complicated as the years go by. It is not what he says that is important, but what he leaves unsaid. Figures in the Budget's small print show that the tax burden in the United Kingdom has risen from 35.2 per cent. of gross domestic product when the Labour party took office, to 38.2 per cent. of GDP this year. Therefore, we have a Government who have increased the amount of taxation that they raise from our people. They have raised, as part of the tax burden, about —28 billion, which is equivalent to 10p on the basic rate of tax. Even if the measures that were announced yesterday are equivalent to 1p off income tax, the right hon. Gentleman has turned out to be a 10p up, 1p down Chancellor. Other people have said that, and I am sure that it will be repeated many times between now and the election.

Labour's stealth tax strategy has led it to impose a disproportionately heavy tax burden on the business community. The hon. Member for Chatham and Aylesford talked about business and industry. I know of his commitment to the paper and board industry, which is the major employer in his area. For some years, I was a non-executive director of a paper company, so I know the industry well and I am aware how important energy is to it. The industry is vulnerable to any increase in energy prices, whether they are introduced by the energy providers—the hon. Gentleman mentioned gas—or as a result of any climate change levies, which tax energy. Such price rises or impost from Government make it less competitive in a highly competitive worldwide industry.

Labour has imposed a disproportionately heavy tax on the business community while trying to conceal its tax rises from the general electorate, who will vote on election day. According to the Confederation of British Industry, businesses are struggling to cope with paying —5 billion a year in extra taxes. In addition, the Institute of Directors believes that there is an extra —5 billion of regulatory costs. Both bodies represent industry, business and commerce in this country.

The small businesses forum, which represents many smaller companies, has made a number of criticisms of the Government. The Chancellor and other Labour Members have expressed considerable concern about such businesses. However, the proof of the pudding is in the eating, and business is carrying a bigger tax and social cost burden, which makes it less competitive. If the Government were serious about helping business, they would repeal the —1 billion energy tax which will hit businesses, especially manufacturers, from 1 April. I refer of course to the climate change levy.

In an intervention, I mentioned a textile company that I know well, which employs some 300 people. It is highly successful in what is perhaps the most competitive of all industries in the world because so many companies have set themselves up in developing countries, where labour and social costs are much less than in the United Kingdom. That company has spent —1 million on energy conservation and introducing energy generation and production methods that will emit less and less pollution in the form of carbon dioxide into the environment, yet it advises me that it could well face a bill for between —60,000 and —80,000 a year from 1 April as a result of the climate change levy.

I have been in touch with the British Apparel and Textile Confederation. There are about 4,000 companies in the United Kingdom in that sector of our economy. Only 150 of those will benefit from the climate change levy rebate. One of my disappointments is that yesterday, faced with growing evidence from industry of the damage that the energy tax will have, the Chancellor did not decide that it should be cancelled. There are other, better ways of reducing pollution in the environment than the one that the Chancellor has adopted, which is making industry less competitive in the global market in which we operate.

Under the Labour Government, petrol and diesel taxes are the highest in Europe, but has that money been invested in better roads and transport infrastructure? No. Since May 1997, the price of a litre of petrol has increased by 20p, but more than 15p of that rise is directly due to the Government's fuel tax increases. The balance is due to the rise in crude oil prices. More Labour stealth taxes will soon hit our towns and cities, with Labour perhaps taxing people who park at work or drive into town centres.

It seems that the Government have got things the wrong way round. Let them first improve public transport. Let them put in systems whereby people can get to work efficiently, quickly, securely and at a reasonable price. When they have done that, they can by all means introduce some penalty for driving, although I believe that it is wrong to deny people mobility. The Government will learn the lesson, as they did in the autumn, that people want mobility, and the car provides them with it.

In return for all the taxes that they have raised from the driver, the Labour Government have delivered what some people call a standstill Britain. They have slashed roads programmes. One of the first things that they did in my constituency was to remove from the priority roads programme the Poynton bypass and the Manchester airport east and west link roads, which are vital if my constituency is not to be submerged in traffic and people are to be able to get to Manchester international airport. The airport is now blessed with a second runway, which I supported because of its economic benefits to the country and the north-west.

Mr. Andrew Stunell (Hazel Grove)

The hon. Gentleman mentions a subject that is close to my heart. He and I have worked together to ensure that roads schemes in the south-east of Greater Manchester are developed. Does he agree that the sooner we have the report from the Government consultants and get some cheques signed, the better it will be for all of us?

Mr. Winterton

I am delighted by that intervention. The hon. Gentleman is right to say that we have worked together. Not only do we both want the roads that are vital to the economic progress and prosperity of the area in which both our constituencies lie, we strongly support the extension of another part of the transport infrastructure: the metrolink.

This country often boasts that the headquarters of about 240 of the top public limited companies are located in London or elsewhere in the United Kingdom, but I do not regard that as an advantage. It is not something of which I should boast. All those companies are wholly in the gift of the City, because they move their accounts and produce reports based on how they believe the City will receive them. To my mind, we need more private companies, because investment in those companies is made in the right way and at the right time—not to decorate annual reports, but to provide progress and new jobs and to pay for the investment required to keep them in the vanguard of their industrial sector.

I hope that the Paymaster General will accept my following remarks as coming from one who represents an area of extremely low—in fact, negative—unemployment: our unemployment rate is 1.3 per cant. None the less, much of my local industry is deeply concerned about increases in the business rate. It is all right that industry is given some incentives, but if the Government ignore the business rate and heavy local costs—dictated and decided by Government—they make industry less and less competitive.

Although I am happy with the modest changes that the Government have made to capital gains tax, when will a Government reduce tax paid on capital gains from the marginal rate to, say, no more than the standard rate? The Conservative Government failed to do it. If we want people to invest in this countrys companies and manufacturing industry, it is crazy to make them pay so high a rate on capital gains. I concede that there is an element of disregard—about —7,200 in the last year. In addition, there are benefits for those who hold shares in the company for which they have worked, but they comprise only a small percentage of those who are prepared to invest in stocks and shares and in the equity market. To have the marginal rate as the standard rate of tax on capital gains is grossly unfair.

The Financial Secretary to the Treasury (Mr. Stephen Timms)

Will the hon. Gentleman give way?

Mr. Winterton

Certainly—I am pleased to have provoked the Minister into rising to his feet.

Mr. Timms

I remind the hon. Gentleman that the rate of capital gains tax on all unquoted shareholdings is 10 per cent. after four years.

Mr. Winterton

The market in unquoted shares is somewhat limited. I should like all shares that people buy to be taxed at the standard, not the higher, marginal rate of tax.

Farming is vital to my constituency, but I fear that farmers are being driven off the land. In a recent article in The Daily Telegraph, Bill Deedes warned that the current foot and mouth epidemic could bring about further urbanisation of the United Kingdom. To my mind, that would be a disaster. We want farmers to be able to earn an income on the land by producing the food that we need, and to do so without experiencing the desperate problems that have affected them in recent years.

I accept that the Government are drawing down agrimonetary compensation, but that is to compensate for the value of the pound against the euro and does not provide farmers with compensation for the unique problems that they have recently iced. May I tell the Treasury Ministers that that is extremely important? My right hon. Friend the Member for Fylde (Mr. Jack), in answer to my intervention, said that Barclays bank was allowing farmers to have credit for longer. However, we need a rather bigger package of aid and assistance from the complete range of financial institutions. If farmers are not on the land creating work for themselves and those whom they employ, producing goods that the country needs, who will maintain the country side?

There is a crisis, and the Government must produce more answers than they have so far I have great regard for the Minister of Agriculture, Fisheries and Food; he has been outstanding in his handling of the foot and mouth outbreak and he has received strong support from the Opposition. He will continue to do so, but the farming industry, because of the crisis that it faces, deserves greater support, understanding and action from the Government.

To conclude, this is an election Budget. It will become rather less attractive as we look at the nitty-gritty of the Red Book; its results will be less appealing. However, my right hon. Friend the shadow Chancellor has introduced sound proposals, which will be well received by the electorate.

6.6 pm

Mr. Jon Trickett (Hemsworth)

The hon. Member for Macclesfield (Mr. Winterton) said that this was an election Budget. If that is the case, I am happy to fight the election on the Budget.

This afternoon, I have sat through the whole debate without a single break, and it has been interesting that not a single Tory Back Bencher could be bothered to discuss the —24 million worth of cuts which, if the Conservatives were elected, would be imposed on every constituency, including their own. In talking about the election and the budgetary strategies of the two parties, it is fascinating that the Conservatives were happy to concentrate their fire on alleged misdeeds on our part, but failed to mention the cuts that they intend to impose.

I welcome many of the measures in the Budget; indeed, I welcome all of them. In doing so, I speak not only for myself, but on behalf of 16,000 pensioners in Hemsworth, who will benefit from the —5 increase for single pensioners and the —8 increase for pensioner couples. Changes in the tax regime will also help those who have been saving to have a modest additional income. I welcome the Budget on behalf of the 2,500 families who will receive the working families tax credit introduced by the Chancellor.

I welcome the Budget also on behalf of my 150,000 fellow citizens in Yorkshire and the Humber who will benefit from the announcement about the minimum wage. It was noticeable that the Tories failed to say that they supported the increase; they said that they would not oppose it, but they did not say that they supported it. When the election comes, 150,000 people in Yorkshire will no doubt remember that. I reckon that one in 10 working people in my constituency is on an income of less than —4.10 an hour. No doubt, they will all welcome the Budget and the Government's strategy and, whenever the election, they will want to turn out to vote for the Government to continue their strategy.

Everyone with children at school will welcome the additional money that the Chancellor allocated to schools. He has also allocated —100,000 a year for four years to larger secondary schools, which is an extremely significant allowance. Doubtless, teachers, head teachers and governors will welcome that. Above all, parents and children themselves will see the benefits of changes and increases in education funding, which add up to —1 billion.

May I tell my hon. Friends on the Front Bench that, in relation to school funding, the Chancellor seems to be falling into the habit of making money available directly to schools? I do not object to the sums of money going to the schools, but I do object to the fact that the money is distributed through the standard spending assessment mechanism because the system is unequal. In my constituency, there has been major progress on school funding, but there is a differential of —1,400 per child between Wakefield schools and schools in Kensington and Chelsea, which is surely unjustifiable. One understands why the Chancellor is making money available directly to schools: that introduces an element of egalitarianism.

Fundamentally, the problem lies in the inheritance that we gained from the Tories—the unequal formula which unevenly distributes money to schools not only in my area, but throughout the country. We feel strongly about that. I know that the Government are looking into the matter, and want to make progress if not before the election, then shortly afterwards. It would be better if a more equitable formula were drawn up, so that local education authorities could be supported directly. Wakefield is a good LEA and has just received an excellent Ofsted report.

I shall touch briefly on the regeneration of communities such as mine, which consists of about 15 pit villages and small townships, which the Tories destroyed during their tenure of office and which the Government are beginning to regenerate. In my constituency there has been a reduction of 70 per cent. in the number of long-term unemployed. That is a phenomenal achievement for our Government, of which we should be proud. I know many people in my area who never thought that they would have a job again, and who now have a job—a job with a minimum wage, which is beginning to give them a decent, civilised living and, above all, self-respect.

I worry, though, about the definition of unemployment and the statistics that define so many people as economically inactive. Altogether in this country, about 2.5 million people of working age are, for one reason or another, regarded as economically inactive. In my constituency, it is staggering to discover that 27 per cent. of those who are of working age are disregarded because they are considered economically inactive. That is a huge number of people. For every three people who are regarded as available for work, one is said to be economically inactive.

Again, that is a legacy of the Tory Government. During the days of the pit closures, many of my constituents were told by civil servants on Government instructions that if they wanted to avoid having to sign on every two weeks and the dole queue, they should register for invalidity and disability benefit. Many of them are invalided in some way or another, but many would like to work. It is important that we tackle the issue. The Government have done a great deal to intervene in the labour market, but more intervention is needed in the next term, if we win the support of the people in the general election.

I worry slightly about the transformation of training and enterprise councils into learning and skills councils. In my area, we find that our labour market is being directed, in so far as that is done by the learning and skills councils, from Bradford, by a board that is dominated by people in the Leeds and Bradford area.

I have the best will in the world towards Leeds and Bradford—after all, I spent all my life there until I became the Member of Parliament for Hemsworth—but the Leeds and Bradford economy has nothing whatever to do with the Wakefield economy, especially my constituency, which consists of the most deprived communities, as a consequence of the vindictive closure of the pits by the previous Government.

I worry about whether a board dominated by Leeds and Bradford representatives and located in Bradford has the capacity to understand, let alone to come to terms with, the problems faced by people in my area. We have a distinct local micro-economy within the west Yorkshire economy. Leeds is booming; Hemsworth is still on its knees. We need to know that the learning and skills council based in Bradford will understand the problems and reach out to help the communities that I represent.

I welcome the Chancellor's announcement, reiterated today by my right hon. Friend the Secretary of State for Trade and Industry, of tax cuts for certain geographical areas, which I understand amount to —1 billion. I want to look at the details, hut I hope that former colliery areas, such as mine, will be included within the geographical definitions. It would be unthinkable for us to be excluded. At least, I hope that it would be unthinkable.

There are two former pit sites in my constituency, which is no doubt representative of many other former coalfield areas, one at Green lane in Featherstone, and the other at the South Kirkby colliery site. The land there has been cleaned and there has been investment in the infrastructure. We have been promised a new road up to the Al(M), which will unlock the development potential. We are waiting for developers to come, and the loyal and flexible work force there is desperate for work. We need investment and tax breaks and other incentives to attract private industry into our area so that people can realise their full potential, as all decent people in Britain should be allowed to do.

Elsewhere in my constituency is the small industrial estate of Langthwaite Grange, created by a previous Labour Government as an enterprise zone. We have some good companies there, such as Berwin and Berwin, a long-established textile manufacturer which does high quality tailoring, whose suits I frequently wear with pride in the House. Such firms need buttressing. I do not suggest that they are likely to go, but we understand the pressures, particularly on the textile industry. But were they to go, the consequences would be devastating. In that part of my constituency, the only employers of any size, other than those on that trading estate, are the schools. The high schools are the largest employers in that part of my constituency and we cannot afford any further loss.

When I approached Yorkshire Forward, our local regional development agency, about the possibility of helping a local firm on that industrial estate, I was told that no money was available to ensure that such firms became competitive, rather that the RDA stood ready to intervene to help anyone who was made redundant. It is bizarre that an agency that we are proud to have established should say that it cannot help a company to survive, perhaps by ie-tooling and re-equipping itself, but that it will find money should redundancies occur. That is entirely wrong.

I understand that one other hon. Member wishes to speak, so I simply say that I am fully behind the Budget. The Government need at least one more term, and probably more, so that we can advance faster and farther in the direction laid out by the Chancellor.

6.17 pm

Mr. Andrew Miller (Ellesmere Port and Neston)

I am grateful to my hon. Friend the Member for Hemsworth (Mr. Trickett) for his courtesy.

I want to make four points about the Budget, thinking ahead to the next term and the term after that, to which my hon. Friend has just referred, and I do so against the background of incredibly positive events in my constituency.

For example, the hon. Member for Macclesfield (Mr. Winterton), who knows my area well, will know the Cheshire Oaks complex. When that was granted planning consent under the previous Government, no one in the House or outside would have believed that it would attract 7 million day visitors a year. That is a sign of the economy's success and of the free capital that there is in the community to be spent on quality goods in companies that are supplied by many of the qt ality firms to which my hon. Friend referred.

Alongside that are other successes. Despite all the difficulties of General Motors internationally, Vauxhall created 1,000 new jobs last year. Hon. Members might want to go into the Tea Room and have a weightwatchers sandwich made by Gibsons, a bakery in my constituency, which now employs 300 people to supply a national market that was not there a few yers ago.

More importantly, hon. Members should consider the success of Brookside school, which I visited the other day. The school is situated inside an education action zone and has brilliant architecture, excited and enthused teachers and well-equipped information technology facilities. That all happened because of our policy on education action zones.

As for my four points, first, although the proposed research and development tax allowances for larger businesses are a superb idea, I remind Ministers that we must use them in our discussions with businesses to attract R and D back to our shores. For far too long, we have lost laboratories and research centres involved in the production of pharmaceuticals, vehicle building and other industries. We have the expertise; ane only has to look around the M25 belt to see the fantastic support in Formula 1 and at the top end of the vehicle-building industry. However, most of the R and D in the manufacturing sector has disappeared from this country. That has begun to happen in the pharmaceutical industry also and we must make the new policy work for such industries.

Secondly, we must deal with vehicle taxation in its broadest sense. I made rather belated representations to my hon. Friend the Financial Secretary about liquid petroleum gas, as it struck me that it would have been nice to introduce LPG incentives to create some encouragement for companies that are equipping their car fleets. A tax deduction could be made for drivers, who are currently carrying the extra —1,500 capital value of LPG vehicles. That is a disincentive for people whose company offers them a choice. Unless we tweak that regime, they are unlikely to opt for LPG.

I should like to go a little further. I want the Treasury to take a long-term look at what is happening to vehicle engines. Within five years, fuel cell technology and better quality electrically powered vehicles will be on our roads and there will be more use of gas, so we need a much longer-term vision of how to tax vehicles in their entirety and not merely in respect of purchase, excise duty or fuel. The matter has to be considered in the long term, so I suggest that we develop some serious modelling, and work with the industry and consumers to consider the best way of creating the positive incentives that are needed to encourage people to use more environmentally friendly vehicles. Of course, we should also not forget that the Treasury needs to raise funds for all the good things that the Government do with their money. An earlier speaker seemed almost to suggest that the Chancellor raises funds for himself. It is not his money, but that of the nation, and it is the Government's job to ensure that it is spent wisely and in the nation's interests. That is why we should take a long-term look at the very complicated issues involved in vehicle taxation.

Thirdly, I have a more specific point for my hon. Friend the Paymaster General about an anomaly of which she is already aware. As far as I can see, there is not yet a solution in terms of the various child credits and child support mechanisms. Hon. Members on both sides of the House have demanded an increase in the number of nurses in our hospitals. If nurses who are going to Chester college on a —6,000 bursary decide instead to work for Sainsbury's down the road—I say this with the greatest respect to nurses—they will be considerably better off, as the bursary is not considered to be a wage.

If an apprentice goes to work while training, we would not expect him to do so without pay or without being treated as a normal employee by the taxation system. Trainee nurses have to go on the wards, where they undertake proper work while learning how to be nurses. Like apprentices, they are under a lot of supervision, but not treating them as employees is anomalous. I urge my hon. Friend the Paymaster General to consider that carefully. A single parent in my constituency launched herself on a nursing career through sheer determination. She is at a significant disadvantage, especially as she has three small children.

My fourth point deals with the six welcome tax measures that are aimed at deprived areas. The selection of those areas should be linked to associated Government policies. For example, areas that have education action zones, or benefit from the single regeneration budget, sure start and so on should be considered. We should try to ensure that the support systems that are being introduced are managed under a unified structure. I am worried about multiple management of the new initiatives in some parts of the community.

A special set of circumstances pertains in my constituency. Many people live in the deprived part of the community, in five wards that are cheek by jowl with the petrochemical industry. A large piece of brownfield land, which is currently owned by Shell, would be ideal for attracting support under the new mechanism. The Treasury can count my comments as an early bid. I hope that Ministers will listen carefully.

There are important considerations in petrochemical areas. No one who moves into the area would choose to live in the housing adjacent to the industry, yet those houses were built because of it. That phenomenon occurs in petrochemical towns throughout the western world. How do we balance the interests of industry with that of communities? The Treasury has found a potentially wonderful solution through the combination of its policies on tax support and on VAT on empty properties.

How do we create an incentive to attract modern industry to those sites? The six tax proposals do that. How do we create uplift in areas where there are large numbers of vacant private sector properties? The VAT regime and proposals for flats above shops might create a viable package. I hope that my hon. Friend the Paymaster General will consider joined-up schemes. It is vital that we do not simply establish another industrial development site in deprived housing areas: we must ensure that our actions raise the standard of living of those who live cheek by jowl with the chemical sector. People need to get something out of that relationship, which is important and well understood in the community. The Budget presents ideal opportunities to find imaginative solutions.

I had no premonition of the Budget's contents, but I contacted the Government office of the north-west and Shell last week and told them that it was time for people to get their heads together to devise imaginative proposals for using the waste land productively, while ensuring that we work with the community to improve housing in that area.

This Budget presents the possibility of real solutions to the long-term endemic problems that my constituents have faced. I welcome the Chancellor's Budget proposals and I know that the people of Ellesmere Port and Neston will also do so.

6.30 pm

Mr. Howard Flight (Arundel and South Downs)

The Secretary of State for Trade and Industry began by echoing the Chancellor's boastful claims of achievement over the past four years, seeking to take credit for the positive economic up-cycle that has, in reality, been in place since 1992. Indeed, as my right hon. Friend the Member for Fylde (Mr. Jack) pointed out, economic growth in the past four years has been almost exactly in line with the projections in the 1996 Budget, except that inflation has been slightly higher and the tax take has been —28 billion per annum higher.

The United Kingdom has under-performed over the past four years on almost all counts. Growth has averaged about 2.4 per cent. a year, compared with 3.1 per cent. a year during the last five years of the previous Conservative Government and 4.6 per cent. a year in the United States. We have even under-performed in comparison to euroland. Investment in new ventures has run at only about 27 per cent. of the level of the United States, pro rata to the size of the economy. There are 14 economies in the Organisation for Economic Co-operation and Development with lower unemployment than us, and there has been a marked slow down in the rate of new jobs over the past four years.

As my right hon. Friend the Member for Wells (Mr. Heathcoat—Amory) pointed out, the productivity growth figures have been disastrous: down to 1.4 per cent. a year in the past three years, compared with 2.4 per cent. between 1992 and 1997, and less than half the level in the US. Those figures are some 60 per cent. worse than they were under the previous Conservative Government.

Savings have collapsed from 11 per cent. to 4.75 per cent. The Chancellor boasts that he has reduced Government debt by —30 billion, but I must remind him that he has created a rise in personal debt of more than double that amount—about —60 billion. Part of the reason for that has been the disastrous decline in the rise of disposable incomes. Growth is down to 1.6 per cent. a year, compared with 2.75 per cent. a year until 1997. Disposable income growth is now approximately zero.

There is similarly bad news on investment, which has fallen from an increse of 7.75 per cent. in 1997 to only 2 per cent. now. The Chancellor also forgot to mention that the trade deficit has doubled to —29 billion in the past four years, reflecting the vulnerable position of many manufacturers in this country. My hon. Friend the Member for Macclesfield (Mr. Winterton) pointed out that we have standstill Britain as far as transport is concerned. In agriculture, as the hon. Member for South-East Cornwall (Mr. Breed) pointed out, the Government are presiding over the worst depression for the past 70 years, and all that they have to offer are free tax discs for tractors.

Further bad news is that the tax take has increased by about 3 per cent. of GDP, up from 35.2 per cent. to 38.2 per cent. As my hon. Friend the Member for East Yorkshire (Mr. Townend) pointed out, that is, in principle, bad for an economy. Our economy needs to get closer to the US tax take of 30 per cent., rather than rise to 40 per cent., if we are to have the growth that will pay for the health care and education that we all want.

There is a further crucial point, on which I am not sure where the Government stand. If they think that they are going to maintain the increase in public spending at a rate of 3.7 per cent. a year—which they are proud to boast that they are now planning—it must result in higher taxation and the squeezing out of growth in the private sector. They also run a severe risk of increasing inflation, as the International Monetary Fund has warned the Chancellor, much to his displeasure. Alternatively, there could be a massive increase in Government borrowing. Indeed, a —58 billion increase in Government borrowing is already projected. Interestingly, the IMF recommends that the Government prune back their plans for extra spending by about —10 billion, which is very much in line with Conservative policy.

My right hon. Friend the Member for Wells drew attention to a practice that is becoming increasingly objectionable to the country as a whole, which is the use of propagandist and devious tactics in presenting figures. We have got used to projections that deliberately lead us to think that taxation will not go up as much as it does. Now we see that forecast spending turns out to be much higher than the reality. Often, it is the poorer members of society who do not get the benefits that the Government claim to be laying on for them.

Right across the I board, such misrepresentations rear their head. Yesterday, my right hon. Friend the Member for Richmond, Yorks (Mr. Hague), the leader of the Conservative party, pointed out the failure to mention VAT being imposed on spectacles and other optical aids. Indeed, Customs and Excise has been told to advise opticians very quietly of that, because the Government do not want the embarrassment of making an announcement.

Perhaps no one noticed that the Red Book shows no increase in the threshold levels of corporation tax. Indeed, that follows several years of no increase in such thresholds, which, over time, is one of the main causes of rising taxation on companies. As my hon. Friend the Member for East Yorkshire pointed out, middle England is being hit in all manner of ways. Income tax is now paid by 20.8 million people. The rise in the national insurance ceiling to —575 a week means that nany people at that marginal income level will pay out a lot more than the 75p a week they will get as a result of the wider band of lower taxation. Those who have to move for their jobs will be hit with double the level of stamp. As we all know, the alleged substitution of means-tested child care for the universal married allowance has left a gap of a year with nothing.

The hon. Member for Corby (Mr. Hope) said that, because the —7,000 limit is being retaoed, the ISA regime will be more tax generous than the old PEP and TESSA regime, referring to its costs. However, —10,500 a year could be saved in a mixture of PEPs and TESSAs, so the ISA regime is significantly less generous. The landfill tax is being increased without any national insurance compensation, which will increase illegal tipping. The Government have accepted sonie of our proposals for making the enterprise management incentive scheme slightly less inflexible, but the Chancellor failed to mention that the Government have imposed taxation of 47.32 per cent. on all unapproved options when employees exercise those options, making them completely unattractive and useless as a mechanism for smaller businesses to attract talent.

What about annuities? There is some guff in the notes about further consultation, but the reality is that people who retire with money purchase pension schemes are being exploited by the Government. They are being forced to lend too cheaply when they buy their annuities, which have to invest in gilts. The Governor of the Bank of England said last week that he is deeply concerned that these distortions in our economy will result in long-term interest rates being artificially low because of the reduction in supply and the increase in demand from annuity purchases.

We all welcome the Myners report and the ending of the minimum funding requirement nrgime, but what have the Government to say about the European Union proposal to put in place a measure hat will be infinitely worse?

Mr. Worthington

The hon. Gentleman wrote those remarks beforehand. When will he reply to the debate?

Mr. Flight

The hon. Gentleman clearly was not looking as I was scribbling away, taking notes. I have deliberately woven into my speech the remarks of various Members and I shall get to his comments, for which I have considerable support, in a moment.

For business, the little string of positive measures will not do much to reduce the —10 billion of extra costs and red tape. As my right hon. Friend the Member for Wells pointed out, the Confederation of British Industry and the whole of manufacturing industry are disgusted with the Government for proceeding with the foolish climate change levy. The levy will damage agriculture, horticulture and manufacturing in particular—the most vulnerable sections of our economy.

Really worrying is the worsening of the country's underlying competitive position. Much of what has been introduced and what has happened over the past four years has chipped away at that position. Sadly, our reputation internationally is no longer substantiated domestically.

The fuel tax reductions are welcome, but our hauliers are in a poor position, and they have serious problems with foreign competition.

I shall deal now with charities and VAT. We welcome the fact that the Chancellor has honoured by means of rebates what he had promised to churches in respect of repairs. The hon. Member for Clydebank and Milngavie (Mr. Worthington) asked about hospices and charities such as the Leonard Cheshire Foundation. Charities are burdened with a gamut of arbitrary and unfair VAT liabilities that need to be redressed and corrected. I also support what the hon. Gentleman said about Chester Street Insurance Holdings, and I trust that the Government and the FSA will address that matter.

The Government have imposed higher taxation on charities than any Government in the past. When the advance corporation tax recovery on dividend incomes runs out in 2004, charities will be hit with increased taxation of —500 million a year. That used to trickle down to all other charitable activities, so more than pension funds will suffer from the loss of ACT recovery.

My right hon. Friend the Member for North—West Hampshire (Sir G. Young) correctly said that nothing has been done to increase funding for social services. They have been starved of funds for the four years of this Government.

In summary, the Chancellor has performed the oldest trick in the book. He increased tax in the first three years of the Parliament, then aimed to bribe the electorate in election year. He was very successful in achieving his first target, but more lacklustre when it came to his second target. His proposals are far too complicated and pernickety. They wrap us in red tape—as my right hon. Friend the Member for North-West Hampshire said, a Kafkaesque system of benefits is developing in this country. A psychiatrist friend of mine told me that such obsession with complication reflects the mentality of the anally retentive. As a nation, we are being tied up in an unnecessarily complicated system of taxation.

It has been said: The fact is that, in terms of manipulating the Budget to boost Government popularity, he"— the Chancellor— has done exactly what he claimed he would never do. In his first two years, he controlled spending and put up taxes and so moved the public finances into surplus. By contrast, in the 18 months leading up to the General Election, he has announced big increases in spending and an expensive assortment of tax cuts. The lurch from puritan fiscal restraint to cavalier tax-and-spend abandon is far more pronounced than under the Conservatives in their 18 years of rule up to 1997. Mr. Brown may be able to kid himself his fiscal policies have been impressively stable and prudent, but it would be a shame if he is also able to kid the electorate. Those are not my words, but the words of the country's leading monetary economist.

6.44 pm

The Paymaster General (Dawn Primarolo)

Yesterday's Budget was a Budget for the future. It set out the best economic conditions for a generation and built on them. It was a Budget for growth and stability. It is our commitment to stability that gives us the lowest inflation for 30 years, the lowest long-term interest rates for 35 years and the lowest unemployment rate since 1975, with more people in work than ever before, as well as sound public finances.

The hon. Member for Macclesfield (Mr. Winterton), who cannot be in the Chamber for the closing speeches, pointed out that many excellent speeches have been made in the Budget debate of the past two days. Those speeches have come from both sides of the House and some have been extremely considered.

Before I deal with the speeches, however, I must point out one thing to the hon. Member for Arundel and South Downs (Mr. Flight), who repeated an allegation that was made in the Chamber yesterday by the Leader of the Opposition about the imposition of value added tax on spectacles. I make it clear to the House that that measure is not a result of this or any previous Budget. In fact, it is the consequence of a decision that was taken in 1990, under the previous Government, to pursue a highly complex and long-running insurance court case, which eventually led to a House of Lords appeal hearing in January that was lost. I will be more than happy to write to the hon. Gentleman about that issue so that he can understand its consequences.

Mr. Flight

Will the Paymaster General confirm the Opposition view that the House of Lords decision results from a European Union judgment that pertains to the imposition of VAT, which takes us into wholly different territory? Why did the Government not announce the fact that VAT would increase? I did not say that the increase was in the Budget; I said that the Government had failed to announce it.

Dawn Primarolo

I have explained that the increase was the result of a court judgment following action taken by the previous Government. It is not connected with this Budget and I will be happy to write to the hon. Gentleman with the details.

The hon. Member for East Yorkshire (Mr. Townend) made a spirited and wide-ranging speech. There was much in it with which I did not agree, but the hon. Member for Buckingham (Mr. Bercow) pointed out that the hon. Gentleman would not be seeking re-election to the House. I believe that he was first elected in 1970. I presume that his contribution was a final "getting everything off his chest" on every subject under the sun. I wish him a happy retirement. I think that I can say without fear of contradiction that we will all miss him—even hon. Members who did not agree with what he said.

The hon. Member for South-East Cornwall (Mr. Breed) mentioned a tax on pesticides in 2002. He, too, offered his apologies as he could not be here for the closing speeches—I do not know what I have done to offend all these hon. Gentlemen. The Government have welcomed the crop protection industry's voluntary package of about 20 measures aimed at reducing the environmental impact of pesticide use. We are pleased that the measures have the support of the National Farmers Union. We hope that the package will be implemented in full from 1 April and that it will deliver the environmental benefits that have been identified.

I am sure that hon. Members would agree that it is sensible to review the package as soon as possible—preferably in the run-up to the next Budget.

Mr. Lembit Öpilk (Montgomeryshire)

On behalf of my hon. Friend the Member for SouthEast Cornwall (Mr. Breed), may I ask the hon. Lady about the time scale for that review? Will it take place within one year or within a few years?

Dawn Primarolo

I thought that I said that the review would take place before the next Budget. I assume that there will be another Budget within a year—as is normal.

The hon. Member for South—East Cornwall also said that landfill tax causes fly tipping. However, there is no evidence of that. A survey carried out by the Tidy Britain Group in 1999 she wed that most fly tipping is of household waste, and of course households do not directly pay the landfill tax However, I am sure that every Member of the Houst would agree with his comments on fly tipping. The illegal disposal of waste is taken seriously by the Government; a number of penalties can be and are imposed on those who are prosecuted for such offences. I understand that the Environment Agency has a 24-hour hotline that people can use to report fly tipping.

Like other hon. Members, the hon. Gentleman referred to the pressures curently experienced by the farming industry. The House will continue to discuss many aspects of that matter over the coming months. I remind the House that the Government have paid farmers —750 million more during this Parliament—on top of existing subsidies. I certainly do not want to tell the House that we do not take the position of the farming industry extremely seriously. Clearly, the work of my right hon. Friend the Minister of Agriculture, Fisheries and Food in dealing with the current pressures will inform our future decisions.

My hon. Friend the Member for Glasgow, Baillieston (Mr. Wray), who is also no longer in the Chamber, made a spirited speech on unemployment and house repossession. He concentrated on the scourge of poverty and his experience in his constituency. He made some policy suggestions that are not immediately attractive to the Government, but he made them with great sincerity and conviction and I promise to read them carefully.

The right hon. Member for Fylde (Mr. Jack), who is an experienced Member of the House and a former Financial Secretary, raised several issues. He made suggestions as to what the Government should be doing to tackle and reduce compliance costs for business. I agree with him about setting objectives, but I am sure that we shall probably disagree on the measures for their achievement. In the press releases on the Budget, we announced that there would be consultation on a radical new look at the treatment of tax for small businesses—aimed at reducing the regulatory burde is, through, for instance, broadly aligning their profits for tax purposes with those reported in the accounts.

I know that the right hon. Gentleman continues to take an active interest, both inside and outside the House, in tax simplification questions. I am sure that he will want to participate actively in that consultation with business. I shall ensure that he receives the documentation and that he is kept informed of developments. The Budget announced a range of measures on VAT; that will be of specific help in the reduction of burdens on small businesses. There is a commitment to consider a flat rate of VAT for small businesses, although he will appreciate that such a scheme would be incredibly complicated. That is why we need to consult businesses on its design and operation, in order to avoid what the right hon. Gentleman described—starting off with good intentions but ending up by making matters worse, without giving them proper consideration. I am sure that he will welcome that.

The right hon. Gentleman commented on the Government's intention, announced in the Budget press releases, to extend child care provision, so that carers can look after children in their own homes. He must understand that the child care industry was not regulated before. We must ensure the quality and safety of the care provided to those children and make sure that it is regulated properly. I am talking not about a massive scheme, but about Government money being used to support a home child carers regime. We are consulting on that matter and if he is actively interet ted in it, I am happy to keep him informed. If I fail to do so, I am sure that he will jog my memory.

The right hon. Gentleman suggested that we should increase the basic tax rate threshold to —33,000. That would cost an estimated —1.4 billion, and it is the Government's judgment that it would not benefit those in most need. As he will see from our Budget, targeting tax cuts and investing in public services represents the way forward. I shall not add that sum to the running total of all the commitments that the Conservative party has made this evening to cutting tax while increasing expenditure, because the right hon. Gentleman ofi ered that suggestion to explore how our tax limits operate.

My hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington)—who is here—started with a succinctly and well-made point, with which I cannot believe any hon. Member would disk gree. He said that if we impoverish our children, we are impoverished as a community. Our children, their skills and the contribution that they make to our future society are important. He will see from the Budget that we are attempting to provide such help with the children's tax credit, the introduction of the new baby credit, the increases in the working families tax credit and in the child care element.

My hon. Friend made some important points about the Government's regeneration package. Unfortunately for me, he settled on the vexed problem VAT. I absolutely share his admiration for the hospice movement, as all hon. Members would. I am sure that even the right hon. Member for Bromley and Chislehurst (Mr. Forth) would not disagree with that. My hon. Friend will understand that the Government have carried out a charity review, in which we considered the imposition of VAT on some of the activities that charities undertake. The cost of relieving the charities of that VAT would be —400 million, which the hon. Member for Arundel and South Downs committed the Conservative party to spending.

I need to look very carefully at the issues that my hon. Friend raises about the hospice in his constituency. Clearly, we need to balance the independence of the hospice movement, which wants to be independent from the national health service, and its charitable status with the sensible operation of the tax system.

My hon. Friend the Member for Clydebank and Milngavie, and several other hon. Members, referred to Chester Street Insurance Holdings. Of course the Government understand the position of those involved. I am sure that he is aware that, as a consequence of the insolvency of Chester Street, provisional liquidators were appointed on 9 January this year. At a meeting on 5 February, a scheme of arrangement was agreed with the creditors. The Government expect the Policyholders Protection Board to work closely with the provisional liquidators to ensure that claims are processed promptly. The PPB will ensure that the provisions of the Policy Holders Protection Act 1975 are implemented fully. Her Majesty's Treasury is monitoring the position by keeping in close touch with other Departments and the Financial Services Authority, and my hon. Friend the Economic Secretary is pursuing the matter—

It being Seven o'clock, the debate stood adjourned.

Debate to be resumed on Monday next.