HC Deb 27 November 2001 vol 375 cc829-56 3.30 pm
The Chancellor of the Exchequer (Mr. Gordon Brown)

The task of this pre-Budget report is to rise to the global economic challenge facing this country and to set out how, upon a foundation of stability and growth, we can and will build a stronger and fairer Britain even in an uncertain world.

I start with the state of the world economy. America is in recession, as are Japan and other Asian economies such as Singapore, Taiwan and Hong Kong. The euro area is slowing rapidly. World trade growth has slowed dramatically, from 12 per cent. last year to only 1 per cent. this year. Growth among the main G7 economies is expected to slow, from 3½ per cent. last year, to just 1 per cent. this year. Indeed, for the first time in three decades, each region of the world has slowed at one and the same time and more sharply than before. Independent forecasters expect the world downturn to be deeper and longer, with economic growth in 2002 of just 1½ per cent. in the euro area, 0.7 per cent. in the USA, and minus 0.6 per cent. in Japan.

No one country can insulate its economy from such a synchronised slowdown. In addition, no one can yet judge the full and final impact of the traumatic and tragic events of 11 September. These testing times demand decisive action. Therefore, in Britain, interest rates have been cut seven times in nine months, and Britain's interest rates are now the lowest for nearly 40 years. With public spending and public investment increasing this year, our fiscal policy is—at the right time of the economic cycle—complementing and supporting monetary policy and thus supporting stability and growth.

In the past, when the main economies of the industrialised world have gone into a downturn, Britain has invariably come off worst. Indeed, in every major global slowdown since 1945, Britain has entered weaker, suffered longer, experienced higher inflation and endured higher unemployment. So it is at a time like this that our new monetary and fiscal regime—Bank of England independence, the symmetrical inflation target, our new fiscal rules and the tough decisions we have taken to reduce debt—is being tested.

When the world turned down in 1998, decisive action by the newly independent Bank of England ensured that the British economy sustained its growth. Throughout 2001 Britain has continued to grow, and monetary policy has played its full part. First, the Bank of England has been able to take pre-emptive action because British inflation has been at or near our target of 2½ per cent. for four years, by contrast with inflation increasing to 10 per cent. when the world economy slowed last, in 1990. In the past two years, Britain has had the lowest annual inflation rate since 1963. Indeed, our average inflation has been lower than that of any comparable country in Europe.

Secondly, the symmetrical inflation target which was set in 1997 at 2½ per cent. means that inflation below that figure is as undesirable as inflation above it. Deflation is as unacceptable as inflation. It is because, in 1997, we put in place a symmetrical target—one that is pro-growth as well as anti-inflation—that, whereas Britain was unable to act decisively or acted too late at every other time since 1945 when the world faced a slowdown, this time the Bank of England has been able to adjust policy at the right time and in the right way to safeguard both economic stability and growth. Consequently, during this world slowdown, our interest rates are now 4 per cent., by contrast with interest rates of 10 per cent—and 15 per cent. for one whole year—during the boom and bust of a decade ago.

I come to the forecasts for growth. At the time of last year's pre-Budget report, independent forecasters said that United States growth in 2001 would be 3.4 per cent.—they now expect it to be just 1 per cent. For Germany, they expected growth of 3 per cent: now actual growth is expected to be 0.7 per cent. For Japan, they expected growth of 2 per cent: now actual growth is expected to be minus 0.5 per cent.

Last year, we forecast that British growth in 2001 would come in at a range from 2¼ per cent. to 2¾ per cent., and we based our public finance projections on 2¼; per cent. I can tell the House that our expected growth figure this year is exactly that—2¼ per cent. So while some pre-Budget representations to me claimed that Britain was worst placed of any country to withstand the global slowdown, in fact the OECD and IMF have both forecast that Britain this year will have the highest growth of any of the G7 countries.

In the period ahead there are of course real risks for both Britain and the world. But it is because of the decisive action taken on monetary and fiscal policy that I remain cautiously optimistic about the prospects for the British economy. While next year independent forecasts expect the United States to grow by less than 1 per cent. and the euro area to grow by just over 1 per cent, we now forecast British growth next year of 2 per cent. to 2½ per cent., and then to rise in 2003 to 2¾ per cent. to 3¼ per cent. as the economy returns to trend in 2004.

While the British economy has been stable, it can and must be stronger. All countries are having to respond to unique economic circumstances: an overshoot and then a collapse in information technology investment in the United States and then in IT production, which are both down 12 per cent., a downturn that contributed to falling industrial production as a whole—it is now down 4.3 per cent. across the G7—and then a dramatic slowdown in world trade in industrial goods from 13 per cent. growth last year to almost zero now, along with the large increase in business uncertainty since 11 September.

With manufacturing output having fallen across the world—by an estimated 5 per cent. in the G7 countries—British manufacturing output has fallen over the same period by 2 per cent., after rising by 2 per cent. in 2000. There are consequent effects for both exports and imports and for business investment, whose share of national income none the less continues near an all-time high. The challenge for Britain—for manufacturing and across the economy—is both to maintain our hard won stability and to accelerate the productivity improvements that will increase output, jobs and wealth.

The global risks which demand continuing vigilance are both cyclical and structural. There are downside risks if America takes longer to recover or if there is a long-term change in oil prices or long-term changes in company or consumer behaviour after 11 September; that would lead to a much more uncertain world economy in which Britain would have to work even harder to make our productivity gains. Further out, there are upside risks of inflationary pressures if, as a result of lower interest rates, consumer spending grows too quickly, but there is also an upside opportunity for growth if world recovery is accompanied here in Britain by productivity improvements.

So—far from deferring our enterprise agenda— this is exactly the right time to press ahead with supply side reforms to encourage new investment and higher productivity, and it is now right that we take forward the measures on enterprise on which we have been consulting. Further statements on manufacturing will be made in the next few days by the Secretary of State for Trade and Industry, and on the reform of our planning laws by the Secretary of State for Transport, Local Government and the Regions, with proposals to increase the flexibility, speed and responsiveness of the planning land use system.

Today, I can tell the House that we will proceed with four tax cuts for enterprise and the abolition of one further tax in its entirety. To help British business, and particularly manufacturers, to invest in the technologies of the future, I have decided following consultation that we will in next year's Finance Bill legislate for a new research and development tax credit for large companies, which is a tax cut to boost innovation. To increase investment and reward entrepreneurship, we will from next April make a second tax cut—a cut in capital gains tax to 20 per cent. for business assets held for more than one year and only 10 per cent. for business assets held for two. Three quarters of taxpayers with business assets will pay only a 10p rate-overall a capital gains tax regime more favourable to enterprise than that of the United States.

To reward managers taking risks in new business ventures, I now propose to double the reach of our share option scheme to all businesses with assets of up to £30 million—a tax incentive that I will introduce immediately.

Because, for small businesses, I want to cut tax bills and red tape, I can confirm that the Budget will extend the lop corporation tax band, cutting taxes for small companies, and that from April a new flat-rate and simplified scheme for payment of value added tax will both cut form filling and save a typical small business up to £1,000 a year. There is a strong case also for cash help for small firms to bring their payroll and tax systems online, and I am publishing today, and consulting on, the Carter review.

In each year since 1997, I have abolished at least one tax, most recently abolishing betting duty. For 54 years since the 1947 Budget, tax has been levied on the football pools. I have agreed that the tax on pool companies will be 15 per cent. on their gross profits but, after an agreement with the industry that guarantees the continuation of its funding of the Football Foundation and the Foundation for Sport and the Arts, I am abolishing football pools tax altogether.

This change will take effect from 1 April and, just as people no longer have to pay tax when they bet, they will no longer have to pay tax when they do the pools. Every charity or local sports club that runs pools based competitions will see its tax liability abolished too. And the details of our consultation on the tax status of amateur sports clubs will be announced by my right hon. Friends the Minister for Sport and the Financial Secretary to the Treasury on Friday.

I turn now to jobs. Today, my right hon. Friend the Secretary of State for Trade and Industry and I are publishing our joint report on regional economic policy and on the work of regional development agencies—set up by my right hon. Friend the Deputy Prime Minister—to tackle regional inequalities and achieve balanced economic growth across the United Kingdom.

The key focus is on local innovation, indigenous investment and improved infrastructure and skills in our regions. And to complement the locally based venture capital funds that we are forming in every region of the country, we are today publishing our prospectus for a new £50 million fund to help small firms in every region to access the risk capital that they need—capital that is often not available from the banks.

New investment, new businesses and new jobs are also the key to regenerating high-unemployment communities in our country. A new community investment tax credit, on which I am publishing details today, will match every £100 million of private investment with £25 million of additional public investment. And, as a special measure to help the slowest growing and highest unemployment areas of Britain, we will, in 2000 wards in constituencies throughout the country and for all property transactions for homes and business properties worth up to £150,000, abolish stamp duty from Friday. And in the Budget, I propose to legislate to take more business property transactions in these areas out of stamp duty.

The Government will do all they can to fight unemployment in normal times and in times like these. And I can report that Britain's unemployment rate is this year the lowest since the 1970s. For the first time in a century, unemployment in Britain is lower than in Japan, and lower than in America. Compared with Britain, the unemployment rate in the euro area is 50 per cent. higher—the equivalent of 1 million more British people in work.

Because we will not retreat from our commitment to full employment, my right hon. Friend the Secretary of State for Work and Pensions will tomorrow announce in this House new measures to help the newly redundant and to expand the new deal to help the long-term unemployed back to work.

And because a third of the existing work force lacks basic or level 2 qualifications, and because the old voluntaristic approach has not worked, we have been investigating the joint Trades Union Congress and Confederation of British Industry proposals for a tax credit for in-work training. Following today's report from the performance and innovation unit we will, from September next year, pilot a new approach combining direct financial support for business—especially small business—with time off for training, under which employers, employees and Government each accept their responsibilities.

Because the skills of the future start in the schools of today, my right hon. Friend the Secretary of State for Education and Skills will be announcing further projects funded from the capital modernisation fund, as we meet our commitment to raise the share of national income spent on education.

This is also a testing time for our fiscal regime, so I now turn to the public finances. While in past downturns interest rates have come down too little, too late or, because of high inflation, not at all, so, too, excessive levels of debt or deficit can make it difficult for fiscal policy to play its proper role.

When we came to power, debt was too high and debt interest payments ran at 3½ per cent. of national income. So we maintained spending limits, took the necessary tax decisions and cut debt. We also set tough fiscal rules for the long term—rules not just for a year or two but across the economic cycle: rules that demand a tighter approach in the best of times and allow the automatic stabilisers to work fully at a time like this, in both cases fiscal policy supporting monetary policy. And because from 1997 we tightened fiscal policy by 4 per cent. of national income, we have been able to reduce net debt, not just in one year but across the economic cycle.

I said in the Budget in March that we would repay £34 billion of the national debt this year. In fact, by cautious budgeting, we were able to repay in the last year not £34 billion, but a total of £37 billion of debt. In total, since we came to power, we have now repaid £51 billion of the national debt.

In 1996–97, debt was 44 per cent. of our national income. Two years ago we brought it down to 36 per cent. This year it has been brought down to 31 per cent. That is in contrast to nearly 40 per cent. in America, 40 per cent. in Germany, over 40 per cent. in France, over 50 per cent. in the euro area and in Japan, and 95 per cent. in Italy. Britain's debt is now the lowest share of national income of all these G7 countries, and the lowest of all our major European competitors.

We had a choice last year: we could use the mobile phone proceeds from the spectrum auction for current spending. In fact, by using the £22 billion for reducing our debt burden, we achieved a permanent saving of £1 billion a year in debt interest payments—£1 billion that is available, not on a one—off basis, but each year and every year.

Let me give the House the full figures. Debt interest payments were running at £29 billion a year when we came into power, and that was more paid out in debt interest than all the money spent on all our schools in the country. I can report that debt interest, which fell to £26 billion last year, will fall again to £22 billion this year, and we expect it to fall again next year to £21 billion, just 2 per cent of our national income.

Just as, last year, we paid off more debt in one year than previous Governments paid off in all of the previous half century, so this year debt interest payments will consume less of our national income than at any time in a century—since the time of the first world war.

The Government's determination to keep a steady hand on the public finances and the economy is for a purpose. With debt and debt interest payments down, it has been possible, even as corporate and other revenues have declined, to maintain our three-year spending plans for health, schools and public services, respond to the emergencies that have arisen, and now borrow at the right time for the economy to make essential investments in the national interest, while still meeting the fiscal rules that we have set over the economic cycle, even on cautious assumptions and even on our cautious case. Our cautious assumptions include deliberately cautious forecasts for equity prices, oil prices, interest rates and economic growth. And I can report to the House that even while we project significantly lower tax revenues this year and next, we are still well within our first rule this year and every year—the golden rule that we balance the current budget over the economic cycle.

The current budget is projected this year to be in surplus by £10 billion and in future years by £3 billion, £4 billion, £7 billion and £8 billion. Net public borrowing is projected to be £2½ billion and in future years, £12 billion, £15 billion, £13 billion and £13 billion. We are also well within our sustainable investment rule: that debt be at or below 40 per cent. of national income, with debt projected to be 31 per cent. in every one of the next five years.

Taken together, the monetary and fiscal figures I am publishing today show we are also well within the Maastricht criteria. Consistent with our policy on the euro, we are undertaking the preliminary and technical work necessary to allow our assessment of the five economic tests.

Let me turn now to decisions on spending that have resulted from the terrible events of 11 September. I can report that for new equipment and immediate operational requirements an additional £100 million has been made available to the Ministry of Defence. To cut off the supply of finance to terrorists and to fund other anti-terrorism measures, we have set aside extra resources of £20 million for this year alone.

To fund the need for additional policing since 11 September, a further £30 million has been made available to the Met and to other police forces. To fund humanitarian assistance to Afghanistan, and elsewhere, and to meet the new international development obligations since 11 September, Britain is contributing an extra £100 million.

In addition to the extra responsibilities we have assumed since 11 September, we now expect tackling food and mouth disease and supporting the recovery of rural areas to cost £2.7 billion.

In this pre-Budget report we are also preparing for the Budget and for the coming spending round. As the Prime Minister has said, meeting our international development responsibilities is not an option but a duty. Out of the tragedy of 11 September a new sense of our obligations to each other across the world has been born, and a recognition that if globalisation is to work for all the people of the world, including the poor, then—as the Secretary of State for International Development has been urging—a new deal for prosperity must be forged between the richest developed countries and the poorest developing countries.

The UK Government will therefore propose to the financing for development conference of the United Nations that to meet the world's agreed 2015 development goals—every child in primary schooling, a two thirds reduction in child mortality, a halving of world poverty—the international community should now establish a new international fund leveraged up to $50 billion a year to help achieve for the developing countries after 2001 what was achieved for Europe with the Marshall plan after 1945.

I can confirm that in the next spending round we will not only raise significantly the amounts of our own overseas development aid but also raise its share in national income, a measure for which I hope there will be broad all-party support across this House.

This challenge of giving must of course be met by the Government on behalf of the people, but people too, encouraged by Government, should be empowered to give more themselves. For the first time, gift aid is providing a 28 per cent. addition to every donation by taxpayers to recognised charities and thus is now being widely used. Special end-of-year appeals to contribute foreign coins to charities can also receive the 28 per cent. addition. I have also asked the Inland Revenue to consult charities on an innovation that could take gift aid to a new level and allow taxpayers to donate directly to their designated charities on the annual tax form and so gain further tax relief for doing so.

The cause of the environment also reminds us of how closely our lives are bound up with what happens in the world. In the 21st century, as we now know, the global environment is the local environment. To stem the tide of global warming the Deputy Prime Minister is leading the pressure for new international agreements, and because these issues are also central to our Budget and spending review, we are consulting; from today on a total of 10 new environmental measures. They include additional tax relief for businesses investing in environmentally friendly technologies, and new tax incentives to encourage the fuels and the vehicles of the future—all the measures reflecting Britain's commitment to energy efficiency, innovation and conservation and to playing our part in safeguarding the environment.

We are investing £180 billion over the next 10 years in transport; and so that foreign lorries pay some of the environmental and other costs of using British roads, we are also publishing today our consultation document on introducing a charging system under which non-British companies and lorries pay: heir fair share.

I turn to the pre-Budget consultation on measures for families and for pensioners. The old welfare state that we inherited paid out benefits, too often without regard to individual circumstances or personal responsibility. Today, the working families tax credit is making work pay for nearly 1.3 million families—400,000 more than on family credit; 150,000 families are getting help with child care. Since 1997, lone parent employment in this country has risen by 20 per cent. and today 200,000 more lone parents in work are receiving the working families tax credit. Building on this, we will later this week introduce legislation for the next step: extending the principle of the working families tax credit to make work pay for those without children as well.

The children's tax credit, the first recognition of children in the tax system in a generation, provides up to £520 extra a year for 5 million families in this country. Later this week, we will publish the new legislation for that next step: on top of universal child benefit, we will integrate in one seamless payment all income-related support for children, as we advance towards our goal of abolishing child poverty.

For the first time, all support for children will now be paid to the main carer—usually the mother, and that is the best way to strengthen families. I shall return to the subject of children in the Budget next spring, when I hope to have a little more first hand knowledge to talk about these matters.

So our approach in modernising welfare is to seek not narrowly targeted benefits just for those at the bottom, but the right help at the right time for work, for children and for hard-working families, with over 5 million—85 per cent.—now eligible for the children's tax credit or the working families tax credit.

For the first time, through tax credits, the tax system is paying money to families rather than taking it, with tax rates now ranging from 40 per cent. at the top to as low as minus 200 per cent. for low paid families; tax credits, therefore, are modernising the welfare state, encouraging work and helping families without stigmatising them.

Today the Secretary of State for Work and Pensions and I are announcing new measures that will apply the same approach to pensions—more help for every pensioner in Britain, most help going to those who need it most. Next March, the pension will rise, as we have already announced, by £3 a week for individual pensioners and £4.80 for couples. But the long-term guarantees that we are proposing today not only tackle the poverty faced by the poorest, weakest and frailest, but reward, rather than penalise, the modest savings and occupational pensions of the majority. And they are backed up by a tax policy that is fair to those who have provided well for their retirement.

Upon the foundation of the basic state pension, we have already announced our first guarantee—no pensioner will have an income below £98 a week in April 2002, or £100 a week in April 2003, and no couple will receive less than £154 a week—at least £1,000 more a year than in 1997, a 24 per cent. real-terms increase in the minimum income guarantee.

Pensioner poverty is a reproach to us all. And the minimum income guarantee, which is already benefiting 1.8 million households, will rise in line with earnings for the whole of the Parliament.

Today we are also setting aside new funds, £2 billion in total, to provide a second guarantee from 2003. For all pensioners in communities around this country whose hard work has secured a small occupational pension or modest savings but who have, in the past, been penalised for their thrift and savings, I can confirm that any pensioner with income in retirement below £135 a week—and any pensioner couple with income below £200 a week—will see their hard—earned savings and occupational pensions rewarded with extra money, not penalised, as they were in the past, by losing the chance of benefits.

For a single pensioner on the basic state pension, with £1,000 a year in occupational pension, the pension credit will mean an extra £600 a year. For a pensioner couple with the basic state pension and occupational pension credit £1,500 a year, the pension credit will mean an extra £900 a year. Together, the minimum income guarantee and the pension credit will be available to half of all pensioner households, 5.4 million pensioners in total. The Secretary of State for Work and Pensions will set out the full details tomorrow.

For those pensioners who pay tax, we offer a third guarantee: when the new system is introduced in 2003, we will raise the pensioner's tax allowance at least in line with earnings for the rest of this Parliament. For all Britain's 11 million pensioners, I can also announce a fourth guarantee: that the Secretary of State for Work and Pensions and I have decided that the basic state pension will always rise by at least £100 a year for single pensioners and by £160 for couples. In future, the state pension will rise by at least 2.5 per cent., or more if inflation is higher—at least £100 more each year on the basic pension.

I can also confirm that we have set aside sufficient money so that the winter fuel allowance will be paid at £200 pounds for each year of this Parliament.

So these are our guarantees: for every pensioner an increase of at least £100 a year every year in the basic state pension; and for 5.4 million pensioners starting on the pension credit in 2003 up to an additional £1,000 per household; free TV licences for all pensioners over 75; for the poorest pensioners a minimum income guarantee of £100 a week; and for every pensioner household a £200 winter fuel allowance each and every year of this Parliament; every pensioner in Britain better off; meeting our obligations to those who in peace and war have worked for, fought for and served and built our country all their working lives.

I turn now to the long-term funding of the national health service and the decisions that we have to make for the 2002 spending review. Building the 20th-century health service was among the greatest achievements of an earlier generation. Renewing that health service for the 21st century is among the great challenges for our generation.

For decades NHS funding was decided on a year-to-year basis with no certainty for professionals or for patients. Having put the public finances in order and released extra resources in 1997, 1998 and 1999, the 2000 spending review provided an average real-terms increase of around 6 per cent. a year for the NHS to 2004—significantly above the historic average of 3.3 per cent.

Because we knew that money has to be matched with modernisation, the 10-year NHS plan is also implementing significant reforms: devolving 75 per cent. of the NHS budget to primary care trusts; setting national service frameworks for the main diseases and conditions; reforming contracts for family doctors, consultants and nurses; and changing working practices with greater diversity of choice and provision.

Within the framework of the 10-year plan, reporting to the Prime Minister and the Secretary of State for Health, further work is being done on management, accountability and incentives in a reformed NHS.

Today we can further support health service reform. Because of the prudence, debt is lower and debt interest payments are lower. And I am able to announce that, even in these testing times, while meeting all our fiscal rules, we are releasing for next year an extra £1 billion for the NHS. UK health spending in the coming year will now rise by £6 billion—by 9.6 per cent. in cash terms, 7 per cent in real terms. The Secretary of State for Health and his Scottish, Welsh and Northern Ireland counterparts will announce how this extra money will be spent.

But our resolve is to tackle the immediate, medium-term and long-term needs of the health service. The pressures on the NHS, the vital place it has in the fabric of Britain and the critical role it plays for the British people mean that we must plan not just one to three years ahead, but five years, 10 years and even 20 years ahead. So in the Budget in March 2000, 18 months ago, I said that to prepare for the next spending round an independent review should examine long-term NHS funding needs, over the next 20 years.

In the half century of the health service, no such review has ever been carried out. Taking the long-term view means honestly facing the scare of the challenges ahead.

The review is being conducted by Mr. Derek Wanless, formerly of NatWest. Today he is publishing his interim report. It is a 220-page detailed examination of future trends in health care and future funding issues on which he will consult widely. But the first question he said that he had to ask is whether a publicly funded tax-funded health service could itself be a significant pressure on costs and whether a tax-funded health service remained the best way forward.

So he has looked at other European and international methods of funding and finds that all health systems are facing rising pressures. In systems which rely on private medical insurance, he concludes that compared to the NHS, there is less cost control, more uneven coverage, and many left out. And in systems which rely predominantly on social insurance, he has found excessive administrative overheads, insufficient incentives for cost control and, for example in France, large costs for employers and for employees who pay charges for every GP and hospital visit even after their social insurance premiums.

Mr. Wanless's interim report states: my conclusion is that there is tic evidence that any alternative financing method to the UK's would deliver a given quality of healthcare at a lower cost to the economy. Indeed other systems seem likely to prove more costly. Nor do alternative balances of funding appear to offer scope to increase equity". So having examined whether a publicly funded NHS is itself a pressure on costs and thus whether it is sustainable, Mr. Wanless's view is that the principle of an NHS publicly funded through taxation, available on the basis of clinical need and not on ability to pay, remains both the fairest and most efficient system for this country.

Mr. Wanless has also examined in detail the cost pressures facing the service for the future. He concludes that there will be significant pressure both from technological innovation and from rising public expectations, but less pressure than is commonly thought from an ageing population. He highlights the potential long-term gains, building on the reforms of the NHS plan, from a better use of work-force time and of resources generally, including the gains to be had from investment in information technology.

Mr. Wanless emphasises in particular a problem that goes back over decades to the foundation of the NHS—a history of under-investment over 50 years and a long-term lack of capacity. And comparing Britain to other European countries, such as France and Germany, his figures show a decisive difference in the area of finance, despite some significant closing of the gap in the past couple of years: that these countries have, over decades, committed significantly more public resources as a share of national income to health care.

The Wanless report highlights the difference it will make for patients if the NHS is put on a sustainable long-term footing and if we secure the best use of resources. Building on the 100 new hospitals, the 10,000 new doctors, the booked appointments of the 10—year plan, more new beds in single rooms, swift access to the best drugs and treatment, and greater patient choice, the goal is a world-class health service that meets the needs of all people in Britain and puts patients first.

Mr. Wanless will publish his final conclusions next year in time to inform the 2002 spending review, and he will consult in the next few months experts, patient groups, all interested members of the public and the doctors, nurses and all staff who work so hard and give so much of themselves to the NHS every day.

The spending review will be the time for final decisions. What can be done will depend on the economy and the public finances. Indeed, over the past four years, through savings on debt interest, reallocating resources and economic growth, we have been able to do more for the NHS. I believe that as we plan to make our Budget and spending decisions next year and to fulfil all our commitments to economic prosperity and to social justice, it will be right to devote a significantly higher share of national income to the national health service.

The decisions we will be making will be for a decade and more. And the way we make these decisions—whether we can forge a new consensus across parties and across Britain—will determine not only the long-term future of the NHS, but the character of our country. I believe that out of this debate an enduring national consensus can be built around the two central conclusions at the heart of this report: that a publicly funded national health service is best for Britain and that a modernised national health service will need significantly greater capacity and significantly more long-term investment.

Economic stability is the foundation. A steady and prudent approach to the public finances follows. I believe that we will have the strength to take the right decisions and to build a stronger, fairer Britain, and I commend this statement to the House.

Mr. Michael Howard (Folkestone and Hythe)

I begin by drawing attention to my declaration in the Register of Members' Interests, and by expressing my gratitude to the Chancellor for giving me sight of his statement fully 10 minutes before he got up to speak. Some of the pages, which were completely blank, were especially interesting.

I congratulate the Chancellor on his statement. He delivered it with great fore and he was, as ever, almost completely in command of his material. We welcome many of his announcements. I am sure that these warm words will come as no surprise to him. Praise from his political enemies is nothing new to him. After all, only last week, the Prime Minister let it be known that the Chancellor was probably the best Chancellor in the world. To the Prime Minister, he is the Carlsberg Chancellor. True to form, the Chancellor returned the compliment, saying that the Prime Minister was the best friend that he had had in politics. The Prime Minister knows that with this Chancellor one has to read the small print: the Chancellor used the past tense. It seems to me that his phrase had something of "Goodnight" about it.

The Chancellor laid great emphasis in his statement on what he called the fundamental strength of the United Kingdom economy, and to the extent that it is true, of course we all welcome it. Does he not agree, however, that there were serious concerns about the UK economy before the tragic events of 11 September? Those include concerns about the current account deficit, with Britain spending more than we earn. According to the Chancellor's forecasts today, that deficit is expected to continue, and indeed to grow. There are concerns about the long-term sustainability of spending plans that outstrip the rate at which the economy is growing. There are also concerns about the impact of new taxes and red tape on the ability of British business to win orders and create jobs.

The Chancellor referred to the need to improve Britain's public services, but we have heard all this before. Year after year, we have had promises from this Government. In 1997, they said that there were 24 hours to save the national health service. In 1998, the Prime Minister said, we are delivering on our promises". In 1999, the Chancellor said that the year would be New Labour's year of delivery". Last year, Government advisers said that it would be the year when things really started to happen". Six months ago, the Government said that they would put schools and hospitals first. Now, 2002 is almost upon us and the Chancellor is trying the same trick again. Every year they make these promises, and every year they break them.

Despite all the promises, all the tax increases and all the hype and hyperbole, services such as health, education and transport have got worse over the past four years.] Did the Chancellor read the recent front-page editorial in The Mirror on the state of the NHS? It said: Things haven't got better under Labour, they've got considerably worse. The Mirror's had enough of phoney pledges and promises on the NHS. Labour has been in charge for nearly five years. They can't hide behind the handy 'Tory policies' excuse any longer. It is now Labour's health services policies that are failing. And failing badly. If the Government and the Chancellor can no longer convince The Mirror with their phoney pledges, such as those in today's statement, who on earth do they think that they can convince? They certainly cannot convince the chairman of their own party, the Minister without Portfolio, the right hon. Member for Norwich, South (Mr. Clarke). [HON. MEMBERS: "Where is he?] Indeed. He is certainly not one of the Chancellor's best friends, but he confessed at the weekend that the health service had indeed got worse under Labour. I hope that there will be no more argument about that.

Does the Chancellor agree that morale in all the caring professions and the public sector as a whole is now worse than ever? The chairman of the British Medical Association said, our morale has been driven to distressingly new depths". The new head of Ofsted has warned that schools are facing the worst ever shortage of teachers. The chairman of the Police Federation described police morale as being at an all-time low. The Chancellor must explain why, this year, he is now only managing to spend half the increase in Government investment that he was planning to spend just six months ago.

The Chancellor made great play of the Wanless report which, of course, we shall study carefully. However, he must have forgotten the terms of reference that he set Lord Wanless—I am sorry, I mean Mr. Wanless—which asked him to consider a health service that was exclusively publicly funded. It should not surprise anyone that Mr. Wanless came up with the answer that the Chancellor wanted him to find; that a publicly funded service would be better. If you ask a Labour question, you get a Labour answer.

Twelve days ago, the Chancellor said that the central economic theme of our Pre-Budget Report will be our support for enterprise". We have heard all that before. Year after year, we have had promises front the Chancellor. In his 1997 Budget, he said: This Government will support the small businesses of Britain."—[Official Report, 2 July 1997; Vol. 297, c. 307.] In 1998, he said that his measures would reward enterprise and entrepreneurship throughout the whole economy."—[Official Report, 17 March 1998; Vol. 308, c. 1097.] Two years ago, he said that his Budget would encourage a dynamic Britain of enterprise and fairness"—[Official Report, 9 March 1999; Vol. 327, c. 173.] Last year, he again promised to "reward enterprise and entrepreneurship" and earlier this year, he said that his Budget would "boost enterprise".

What is the result of all that so-called support for enterprise and business? As a result of the Chancellor's Budgets, the director general of the Confederation of British Industry now says: The reputation of the UK as a low tax economy where overseas investors…want to invest is under serious threat". As a result of the Chancellor's Budgets, the British Chambers of Commerce now says: The bottom line is that the sheer quantity of red tape on business is damaging our economy, stifling enterprise, job creation and economic growth. Every year the Chancellor makes promises, and every year he breaks them.

Of course, we welcome any measures to help business, and we will look carefully at the details of what the Chancellor has announced today. However, under his stewardship of the economy, Britain has fallen from ninth to 19th in the world competitiveness league. Is that not the real impediment to new job creation? Is it not the case that 3,865 new regulations were introduced last year alone, the highest figure on record? Why did a survey of 4,000 firms across Europe just last week say that companies run into more problems trading with the UK than anywhere else? Is not that alone a damning indictment of the Government's record? Is it any wonder that the last quarter saw the sharpest fall in manufacturing investment since the 1970s?

Is it any wonder that the burden on business is growing, when the Secretary of State for Trade and Industry says that her Department suffers from lack of focus, confusion for the customer, too many schemes, and inadequate leadership within the Department and by the Department across Whitehall? What a kick in the face for the Secretary of State for Transport, Local Government and the Regions, the Secretary of State for Environment, Food and Rural Affairs and the right hon. Member for Hartlepool (Mr. Mandelson), all of whom held the post of Secretary of State for Trade and Industry in the last Parliament.

Nothing that the Chancellor has said today goes anywhere near addressing the £10 billion a year burden of extra taxes and red tape that he has imposed on business. What about the benchmarks of success that he set up? He is always making promises about productivity. Year after year, we have had promises from him. In his first pre-Budget report four years ago, he said: The first challenge is to increase our productivity."—[Official Report, 25 November 1997; Vol. 301, c. 773.] In his second report a year later, he said that productivity was a fundamental yardstick of economic performance", and that he would set in place measures to improve productivity"—[Official Report, 3 November 1998; Vol. 318, c. 681.] Two years ago the right hon. Gentleman said: Britain can now aspire to a new economic ambition for the next decade: a faster rise in productivity than our main competitors"—[Official Report, 9 November 1999: Vol. 337, c. 883.] Last year he said that Britain had the opportunity to achieve high levels of productivity growth"—[Official Report, 8 November 2000; Vol. 356, c. 315.] All the while, as the Chancellor has been making such statements, Britain's productivity growth has been falling. It has fallen from 2.2 per cent. in the last four years of the Conservative Government to 1.5 per cent. in the first four years of the Labour Government. Under the Conservatives, we had productivity growth above the G7 and Organisation for Economic Co—operation and Development average; under Labour, it has been below the G7 and OECD average. On productivity as well, every year the Chancellor makes promises and every year he breaks them.

Let us look at the growth figures—the Chancellor was rather proud of those. He pointed to UK growth in comparison with the rest of the G7. I very much hope that we will grow more quickly than our competitors, but if that is to be the Chancellor's new indicator of success, he cannot take one year alone. Why has he not mentioned the fact that in the first four years of the Labour Government, the United Kingdom economy grew at a slower rate than that of our competitors, slower than that of the G7, slower than that of the OECD, and slower than the United Kingdom economy itself in the last four years of the Conservative Government?

One of the many problems that the Chancellor faces is the extent to which he has to clear up the mess that he has made. He suggested that he would improve capital gains tax, but who introduced the current complicated structure in the first place? It was the Chancellor himself. He says that payroll services for small firms are to be made more effective and less costly. We all welcome that, but who introduced the additional burdens on small business payrolls in the first place? It was the Chancellor himself, asking them to administer schemes such as the working families tax credit and stakeholder pensions.

Of course, some of the other measures that the Chancellor outlined today are welcome. We welcome the extra spending for the armed forces and the security services, and the measures that he proposed to help alleviate world poverty. He gave more details of his pension credit, but he did not say much about the employment credit and the integrated child credit. I hope that he will tell us in his reply how much those will cost and how he proposes to pay for them. I hope that the right hon. Gentleman will spell out clearly how he intends to pay for Government spending after 2003–04. After his prevarication during the general election campaign, will he now tell us whether he intends to increase national insurance contributions?

We welcome the increase announced today in the retirement pension and the winter fuel payment, but what about tomorrow's pensioners, cruelly hit by the Chancellor's pensions tax? When he first introduced it in July 1997, he tried to justify it by saying that pension funds were in surplus and companies were enjoying pension holidays. He has helped to destroy the surpluses and put an end to the holidays. How does he now justify his savage attack on pensions?

Last week we challenged the Chancellor to deliver a pre-Budget report with a difference. We said that it was time to acknowledge the serious causes of concern about the UK economy, and the burdens that he has imposed on British business. We said that it was time for the Government to act on the state of crisis in our public services. He has failed those challenges.

The burdens on business remain. Public services will continue to get worse, to the growing distress of patients, passengers and parents. It is not only patients on the waiting list; it is not only passengers and parents on the waiting list; the whole nation is now on the waiting list—waiting in vain for the Government to deliver on their promises.

Mr. Brown

I shall answer in detail every point that the right hon. and learned Gentleman makes, but the country will find it difficult to take lectures from the shadow Chancellor, who quotes his Government's economic record, but was Secretary of State for Employment during the last world downturn, when we had 15 per cent. interest rates, 10 per cent. inflation, a £50 billion borrowing deficit, then 22 tax rises and cuts in public expenditure.

The right hon. and learned Gentleman speaks about regulation. He said that the minimum wage would cost 1 million jobs. We have 1 million more jobs as a result of what we have done. He opposed Bank of England independence and he was wrong. He has said in the past few weeks that we are the worst economy of any when it comes to facing up to the future, and we have the highest growth in the OECD this year—so he is wrong again. Of course, he was the architect of the poll tax, and he was wrong on that as well.

When it comes to the national health service—Mr. Wanless was mentioned—I listened very carefully to what the shadow Chancellor said. He did not welcome the £1 billion that we are putting into the national health service. He did not say that he would join a consensus that the NHS would remain a publicly funded service, that he would support increased investment in the NHS in future years or that he would support a rising share of national income going from public expenditure to the national health service. I sense in the comments made by the Leader of the Opposition and the right hon. and learned Gentleman in the past few months that what was an all—party consensus over the past 50 years that the national health service should be publicly funded and based on the ability to pay is now a consensus that is being abandoned by the Conservative Opposition. Why is that the case? The shadow Chancellor made it his business to start this job by saying that public spending is more than we can afford this year, next year and the year after. That means that he wants to cut public spending.

In a speech made in 1997 about policy for the next Parliament, the shadow Chancellor said that he wanted spending growth at only 1 per cent. a year. He said: I believe our aim should now be to reduce the proportion of national output taken by the state towards 35 per cent…I believe that 35 per cent. is a realistic and attainable long-term goal. That is £50 billion of public spending cuts. He must now tell us which schools and hospitals and how many nurses and doctors will be cut. If the Conservative party is to start this period of opposition by saying that we are spending more than we can afford this year, it has a duty to spell out where the cuts will be made. The Opposition have moved over the past few months from being right, to being far right, to being outright wrong on the issues of public spending.

I shall now turn to each of the points raised by the shadow Chancellor. First, on international competitiveness, as he knows perfectly well, in recent studies by Arthur Andersen and The Economist intelligence unit, we are first and fourth on attractiveness to business. He knows also that when he left power, we were behind France and Italy, the sixth largest economy in the world, and we are now ahead of them, and the fourth largest economy in the world. On the questions on burdens on business, the biggest burden named in the reports is the minimum wage. He must face up to this question: does he now admit that he was wrong on the minimum wage, or is he still prepared to say that, at the next election, the Conservative party will abolish it?

On growth, he knows perfectly well that our growth level in the G7 is the highest this year. It is also the case that, while manufacturing has fallen by 5 per cent. across the major economies, it has, unfortunately, fallen by 2 per cent. in Britain. The difference between him and us is that we are putting money into permanent capital allowances, a research and development tax credit, regional development agencies, a regional venture capital fund and manufacturing apprentices, and it is all public spending—this includes spending on education—that he would not make. Again, if he is going to tell us that we should he doing more, he must spell out which cuts he would make in public spending to get to his 35 per cent. target and which additional expenditures he is prepared to make on other areas.

When the Leader of the Opposition took over, he said that he wanted a fresh approach, new faces, a new beginning and a new start. Instead, we got the right hon. and learned Member for Folkestone and Hythe (Mr. Howard). The torch passed to the last generation.

The Conservative party has shown, by failing to support the basic principles of the national health service and the additional expenditure on it, that it is not fit for government. Even its fitness for opposition is being challenged. It was in government for 18 years; the way it is going, it will be out of government for 18 years.

Matthew Taylor (Truro and St. Austell)

On the economy, this was a complacent statement from an extraordinarily complacent Chancellor. On the NHS, the right hon. Gentleman made an admission of failure. On pensions, he announced the biggest extension of means testing in history. After nearly 500,000 job losses in manufacturing since 1997, falling investment and a runaway trade deficit, will not the Chancellor's tax fiddling simply add more to the crippling burden of red tape and bureaucracy on industry and do nothing to tackle the overvalued pound?

The right hon. Gentleman is confronted with record waiting lists. Only a day after the chairman of the Labour party admitted that parts of the NHS have got worse under Labour, does the Chancellor understand that the implication of the Wanless report is that the Liberal Democrats were right and that the only way in which to tackle the problems of the health service is to accept that, in the long run, the tax burden must increase? Perhaps the Prime Minister has not yet persuaded him.

Another 40,000 pensioners are likely to die through fuel poverty this winter. Does the Chancellor understand that means-testing half of all pensioners is likely to mean that many do not receive the benefits that he announced? Currently, 500,000 the poorest pensioners do not get through the humiliating means tests that they are forced to take for the minimum income guarantee. Why will the new means test for half of all pensioners work when the old means test for the minimum income guarantee continues to fail to deliver to those who need it most?

Does the Chancellor remember that in 1993 he said that the next Labour Government would achieve…the end of the means test for our elderly people"? Instead, so many who have never before faced a means test will be subject to one. Does he remember attacking the Conservative Government in 1996 when he said: Manufacturing output is actually falling…manufacturing investment is 4.5 per cent. lower…And business investment is recovering more slowly in this recovery than in any this century"? Yet, today, manufacturing output is falling. Investment is 15 per cent. lower and business investment is decreasing. Judged on his own words, the Chancellor's statement on the economy is an admission of failure.

In 1997, does the Chancellor remember masterminding a manifesto that promised: We will rebuild the NHS"? Yesterday, the chairman of the Labour party admitted that many parts of the NHS are getting worse.

The Wanless report proves that we were right to say that we cannot buy enough doctors and nurses to turn round the NHS without raising the tax to pay for that. Will the Chancellor give one simple, straight answer? At 6 pm, he intends to publish the national insurance rates. Will they increase today?

Mr. Brown

No to the right hon. Gentleman's last question. I am grateful to the Liberal Democrat shadow Chancellor. The House of Commons is in the unique position of having two shadow Chancellors: one sits in Folkestone and the other in Truro. It is rather like the mediaeval papacy: two hon. Members claim to hold the position of shadow Chancellor. I shall organise a play-off during the year.

The hon. Member for Truro and St. Austell (Matthew Taylor) asked three main questions on the economy, pensions and the NHS. On the economy, he knows, despite his comments, that the economy is growing by 2¼ per cent. this year. That is the highest growth among the G7 countries. He also knows through the forecasts that I have given him that we are cautiously optimistic about what should happen next year.

Of course, it is difficult for manufacturing. Last year, it grew by 2 per cent. and its productivity increased even more despite the weakness of the euro. This year, because of what is happening around the world, it is difficult for manufacturing exporters. I hope that the hon. Gentleman will support our additional measures on research and development, regional development agencies and the new venture capital funds in the regions. I hope that he will support measures that are designed to increase investment and thus long-term productivity.

On the question of the national health service, I remember the 1997 election. When the Liberals said that we should be spending £500 million a year more on the health service. We ended up spending £5 billion a year more on it. I saw the Liberal manifesto at the last election; I think that it proposed £300 million for the health service for the first year. I have just announced £1 billion for the national health service.

If the Liberal party wishes, as I think it should, to join this new consensus on the national health service—which, unfortunately, those on the Conservative Benches refuse to join because of their dogma—we can win such a new consensus throughout the country on the idea that a significantly higher proportion of public funds should go into funding the health service over the longer term. We have funded the health service to 2004. The debate should now begin as to what happens after that. I hope that the Liberal party will join that debate and be on our side.

On the question about pensions, it is a bit rich for the spokesman for the Liberal party to claim that all his policies have been stolen by the Labour party, because the one that he is now criticising was in the Liberal manifesto in 1997. The move towards the integration of tax and benefits, for dealing with the problems of pensions, was proposed by the Liberals in 1997. I believe that that move is right for the country.

It is wrong that pensioners should be penalised because of their savings. It is wrong that they should get no advantage, and even lose benefits, if they have occupational pensions. It is also wrong—if we are to devise a pension system for the next 20 to 50 years—when many people like me and the hon. Gentleman are going to retire on generous pensions and will be in a position to do without either a pension credit or a substantial rise in the basic pension based on earnings. Sooner or later, we will have to face up to this question. If we are going to do more for those people who deserve to have more done for them by rewarding the pensioner who has an occupational pension and savings, the pension credit is the right way forward. Instead of complaining about means testing, the hon. Gentleman should be saying that a benefit that people claim the minute they retire, then once every five years, and in which the integration of tax and benefits is proceeding apace, is the right way forward for pensions.

I hope that the hon. Gentleman will also welcome the fact that we have underpinned the pension credit by saying today that the basic pension will rise—no matter what the rate of inflation is—by at least £100 a year every year in this Parliament, as long as the Labour party is in power. In my view, that is the right policy for pensions and pensioners. I hope that, in addition to joining the consensus on the national health service, the Liberal party will support us on pensions as well.

Mr. John McFall (Dumbarton)

I congratulate the Chancellor on his judicious statement today, in the light of world economic events. The comments of the shadow Chancellor were unworthy of a former holder of high office. He made no serious attempt to analyse the situation. The Chancellor has, despite the world economic situation, ensured economic stability in this country.

If the Chancellor had been at the Select Committee on the Treasury this morning, he would have heard Sir Eddie George and his colleagues on the Monetary Policy Committee say that one of the joys of maintaining the symmetrical inflation target over the past few years has been that we have ensured the lowest unemployment levels for 40 years. Does the Chancellor agree that economic stability and social justice should be the primary aims of the Government, to ensure that we keep up the level of public spending and have the best health service in the next five to 10 years in this country?

Mr. Brown

I thank my hon. Friend, who is the Chairman of the Treasury Committee, which I look forward to visiting in the next few days. He is right about the importance that we attach to maintaining levels of employment. He is also right to say that the levels of unemployment in this country are still the lowest for 25 years, despite the pressures of the world slowdown.

I should have thought that the shadow Chancellor—whom my hon. Friend mentioned—would want to point out that unemployment in his own constituency has gone down by 61 per cent. since Labour came to power. We have done substantially better than he managed to do when he was Secretary of State for Employment and unemployment was rising.

Mr. Howard

It was the ERM.

Mr. Brown

The shadow Chancellor now blames the exchange rate mechanism, as though he was not part of the Conservative Government who took the country into the ERM.

Mr. Howard

That was the Labour party.

Mr. Brown

The shadow Chancellor blames the Labour party, but it was the Conservative party—if the history books record it properly—that took this country into the ERM at the wrong rate. No matter how the shadow Chancellor tries to deny the record, 1 million manufacturing jobs were lost and unemployment went up by 1 million in the last world slowdown, when he was Secretary of State for Employment. He is not the answer to the Tories' economic problem; he is the problem.

Mr. Kenneth Clarke (Rushcliffe)

I notice that the Chancellor has abandoned poor Prudence and taken up with a Mr. Wanless. May I ask him questions about the future health of the public finances, which are his responsibility and the subject of a Budget? Will he leave the details of national health service policy to other Ministers responsible and accountable to the House who may be able to devote more time to detailed study of it? We do not want the health service run from the Treasury, in my opinion.

Does the Chancellor accept that debt repayment, for which he continually receives half-hearted cheers from those on the Labour Back Benches, is a result of accident, not prudent design? He ha underestimated his revenues; the Departments did not pick up their spending after he ended his freeze; and he had a windfall from the sale of third-generation telephone licences. That has given him debt repayment, but does he accept that the figures can rapidly change in a downturn when, suddenly, all the chances may go in the opposite direction?

Will the Chancellor confirm that departmental estimates as a whole, not just on health and education, are going up by 7 to 8 per cent. per annum, which is unsustainable, particularly when the economy is beginning to run down? Does he therefore accept that, if he does not stop himself and his colleagues expanding the role of the state at such a rate when the economy is turning down, he will before long squeeze out private investment and private consumption, causing great damage to the British economy and our long-term prospects?

Mr. Brown

Much as I admire many of the former Chancellor's achievements, I do not accept his analysis. First, it was right to cut debt. It was not an accident: it was a deliberate decision. The right hon. and learned Gentleman knows that, when he left the Exchequer, debt was 44 per cent. of GDP, which was too high, and the deficit was nearly £30 billion, which was unsustainable. That is what we had to act on with the difficult decisions that he said he announced, but would never have implemented, to impose tight limits on public spending. That is why we had to take tax decisions at that time and why we also made a deliberate decision to cut debt.

On the mobile phone sale, Conservative Front Benchers advised us to use the proceeds not to cut debt but for other things. We decided to cut debt, and did so by £22 billion as a result. That was the right decision for Britain. I do not accept the right hon. and learned Gentleman's analysis in that respect. Of course, there are downside and upside risks for the economy next year, and I hope he agrees that I mentioned both in my statement. Nobody is complacent, but I am cautiously optimistic about the prospects for the British economy. I hope that, in the end, he is too.

On the health service, as a former Chancellor, the right hon. and learned Gentleman knows that funding comes back to the Treasury, so the idea that we should do nothing to plan future funding either from the Treasury or within the decision-making process of Government collectively is wrong. Of course, he made that point to me because he is embarrassed by the policy of Opposition Front Benchers.

All the time that the right hon. and learned Gentleman was Health Secretary, he defended a health service that was publicly funded, paid for by taxation and available to people based on need. Then he found that the new leader of the Conservative party was saying in the leadership election that he favoured private medical charges and was considering private medical insurance tax relief and the French or German system—anything but the existing system of state-provided, tax-funded health care. The right hon. and learned Gentleman said: It is electoral suicide. Five years before the next election, Duncan Smith is saying he will cut spending and force people to pay for NHS treatment. I agree with him.

Alan Howarth (Newport, East)

I congratulate my right hon. Friend on being able to give such an impressive account of the economy and its prospects, and I note that the Government have made clear their view that our competitiveness depends on the knowledge, skills and creativity of our people and intelligent collaboration between business and the universities.

Although I welcome the additional support for business research and development announced today, does my right hon. Friend accept that there is a pressing need to invest more of the resources that he is able to provide in the universities so as to ensure that enough people across a full range of disciplines pursue academic careers and that the universities are thereby able to play their part in sustaining the UK's global economic competitiveness?

Mr. Brown

I am grateful to my right hon. Friend for the work that he did at the Department for Culture, Media and Sport. His long-term interest in universities should be recognised by all Members.

My right hon. Friend's plea for more funds for universities, and, in particular for their research arm, will have to be considered during the public spending round. As for the commercialising of university inventions, I think my right hon. Friend will agree that the university challenge fund and the enterprise institutes that have been created in every region are a means by which universities can capitalise on their inventions. We want to build on that. I hope that over the next few years more university-based inventors will see their ideas being used in small businesses, and as a result will contribute British products to the economy. My right hon. Friend's spending plea, meanwhile, I take as the first representation to the 2002 spending review.

Sir Peter Tapsell (Louth and Horncastle)

Does the Chancellor understand that his statement will be seen as an admission that, far from overcoming boom and bust, the British economy is back at the "bust" stage of its trade cycle, and that the ratio between the pre-election boom that we had and the post-election bust that we are experiencing now is wider than it has been for a good many years?

Mr. Brown

Let me point out that it was the Opposition who raised the question of boom and bust. When the hon. Gentleman compares the last world slowdown with this, he will note that when the economy went into recession in 1990 it was impossible to cut interest rates, because inflation was running at 10 per cent. It was also impossible to take the action that was necessary on the fiscal side when it could have been taken.

The hon. Gentleman should look at the record of the last Conservative Government when he tries to suggest that there is boom and bust under this Government. It is quite the opposite. The policy we are pursuing is one of stability. This year that policy has yielded a growth rate of, we believe, 2¼ per cent., and we are forecasting a rate of 2 to 22½ per cent. next year. That is not boom and bust; that is an economy which is trying to achieve a degree of stability that we have not had during previous world downturns.

Mr. Peter Pike (Burnley)

I welcome what my right hon. Friend has announced. I also welcome what the Government are doing for the low-paid and pensioners, and the investment that is being made in hospitals and schools in constituencies such as mine. May I make one plea, however?

In Burnley we have 4,000 empty houses, and the number is rising day by day. The position is becoming desperate. We need Government help to demolish at least 2,000 of those houses speedily. When we come to the spending review in a few months' time, can we be sure that the Government will respond positively so that the council—together with the Government—can tackle what is a major local problem?

Mr. Brown

Housing was one of the issues raised during the last spending review, and we provided more additional funds. I agree with my hon. Friend that there are real challenges and real problems in terms of ability to repair the housing stock, which result from not just years but decades of neglect.

I shall put my hon. Friend's representations to the relevant Department—and this, too, is a matter for the spending review.

Sir Michael Spicer (West Worcestershire)

Why has the rate of productivity, which was rising until 1997, been falling since then—and why has a table showing that fact, which appeared in last year's productivity report, been airbrushed out of the current one?

Mr. Brown

The only years in which productivity has been negative were under the Conservative Government. [HON. MEMBERS: "Come on!"] The hon. Gentleman asked about rates of productivity. Is the rate negative, or is it positive? Productivity has been positive under Labour for three years: manufacturing productivity has been positive for two years, and productivity generally for one. It was negative under the Conservatives.

What is happening to the British economy, I believe, is what, in many ways, happened to the American economy in the early 1990s. There has been a large growth in employment—1¼ million—in the British economy. A large growth in employment took place in America in the early 1990s, which made possible the productivity growth that took place later.

Our productivity is rising, not falling. Our manufacturing productivity rose substantially last year. It is ridiculous for the hon. Gentleman to say that productivity is falling.

Sir Michael Spicer

Productivity rates.

Mr. Brown

Productivity is growing, and will continue to grow.

Mr. Martin O'Neill (Ochil)

I congratulate my right hon. Friend on the decision to announce that the winter fuel allowance will be sustained for the next three winters. However, as he knows what the sums will be, will he reconsider the entitlement cut-off date? It is causing great difficulty for those who discover that, by an accident of birth, they will not receive the £200 winter fuel allowance that they may have been anticipating.

I also welcome the R and D tax breaks. As my right hon. Friend will be aware, however, in the past couple of years, some manufacturing companies have not been able

to invest because of the need to compete with the eurozone. Consequently, they have had to spend money on keeping prices down rather than on investment. Is it not time for tax breaks for run-of-the-mill investment rather than just for research and development? Productivity in many smaller companies would be assisted if they received a proper incentive to invest in increasing their productive capabilities.

Mr. Brown

I am grateful for those questions. The research and development tax credit currently goes to small firms, but it will now be extended in a different form to large firms. We are publishing a consultation document on that in the next few days. My hon. Friend also mentioned general allowances for investment. We have created a better regime for small and medium-sized companies so that capital allowances are permanent rather than temporary, as they were before. Allowance levels are also far more generous than they were before. I hope that that will allow companies to make the right decisions to invest even in a period of world slowdown.

Equally, we are trying to do more for start-up businesses by providing them with access to capital at a cheaper rate, which is the purpose of regional venture capital funds. There will be a fund in Scotland, a fund in Wales and a fund in Northern Ireland, as well as one in each region of Britain. I believe that the public and private contributions to the funds will make access to them possible for businesses that might otherwise not have that opportunity.

The winter allowance is available to people at 60 and it is difficult to say that it should be available to people at 59. We are, however, trying to be as fair as possible in implementing the allowance. If my hon. Friend would like to draw our attention to a set of anomalies, we will clearly examine it.

Mr. Jonathan Sayeed (Mid-Bedfordshire)

I trust that by the time of the next Budget the Chancellor is experiencing the joys of fatherhood and the cost of parenthood under a Labour Government. In every year in which this Labour Government have been in power, the nation has spent more than it has earned. Is that sustainable?

Mr. Brown

That is not the case. We have been paying off debt for the past four years, and we have paid off £51 billion of debt. As for children and families, the hon. Gentleman knows that under this Government child benefit has increased from £11.05 to £15.50, which is a 30 per cent. increase. It is a far larger increase than was ever made under the previous Conservative Government. It is also our contribution to families and to relieving child poverty. The right hon. Gentleman will also know that 5 million families—including many in his own constituency—are now receiving the children's tax credit, which is worth £10 per week more. In other words, in the previous Parliament, child support doubled for 5 million families. That could not happen if the public spending plans supported by the shadow Chancellor were ever pursued.

Kali Mountford (Colne Valley)

I should have thought that today the whole House would want to congratulate the Chancellor on steering a very steady course in a major world economic slowdown. He announced that manufacturing was growing at 2 per cent. Does he accept that that disguises a slowdown in some sectors and some regions? Is he confident that low interest rates and low inflation, regional development strategies—particularly to address the issue of the north versus the south-east—and the tax measures that he has announced today and previously will be sufficient to assist, for example, the textile sector—which particularly affects my own area—and to ensure that there is growth in all areas?

Mr. Brown

I am grateful to my hon. Friend and I know that she is a major campaigner on behalf of the textile industry in her constituency. At the end of the last Parliament, the Secretary of State for Trade and Industry made provision on that issue, given all the difficulties that redundancies had caused for communities in which textile employment was falling. We can create a more balanced economy between the regions and we can tackle regional inequalities. My hon. Friend's region now has a regional development agency, like every other region, and those agencies are making a substantial contribution to planning a better future for the regions, based more on indigenous investment than ever in the past and on support for innovation and skills. I look forward to seeing the latest plan from the RDA in her region so that we can consider what more we can do there. Unfortunately, the Conservative party would abolish the RDAs.

Mr. Alex Salmond (Banff and Buchan)

The SNP and Plaid Cymru are delighted to join the Chancellor's consensus on the NHS, but—confidentially—is the Prime Minister with us or is he still hankering after the greatly enhanced private sector role that he was talking about only a few months ago? Has the Chancellor seen the Institute for Fiscal Studies report released this week, which says that total gross public investment has fallen continuously since the mid-1970s and, even allowing for the private finance initiative, the figure for 2000 will be half the 1985 level? Does he accept those figures? How does he reconcile them with his boasts of enhanced public spending in Budget after Budget and autumn statement after autumn statement, and what—if anything—does he intend to do about it?

Mr. Brown

We stood as a party and a Government on a manifesto that said that the NHS should be publicly funded, based on tax revenue, to meet the needs of all people in the country. That is the manifesto on which we stood and that is the manifesto that we are implementing. It is the right manifesto for all parts of the UK. Out support for greater investment in the health service is now shared by the Liberal Democrats, the Scottish National party and Plaid Cymru, but unfortunately it is not shared by the Conservative party which believes that private provision is the way forward. We wish to increase public investment from £7 billion net at the beginning of our term in office to £18 billion, so we wish to double public investment. We have set in place moneys for transport, health, education and the various public services, and the private finance initiative is sponsoring projects worth £12 billion. It is not fair for the hon. Gentleman to say either that public spending is not rising or that it is not the Government's intention to increase public investment because that is what we are trying to do. Public investment in the economy is rising this year.

Mr. Dennis Skinner (Bolsover)

Is the Chancellor aware that some of us on the Labour Benches heaved a sigh of relief when he announced that he was not going to do what previous Tory Governments—and some others—have traditionally done in handing out money before an election and then taking it back straight after? This announcement is characterised by the Chancellor deciding, after four years of handing out money, to hand out even more. The people in the coal fields, in particular the miners who retired before 1975 on a paltry occupational pension, will be considerably relieved. Can I ask my right hon. Friend to wave his Harry Potter wand in the direction of pensions for sacked miners, equality of treatment for the canteen workers and speedier payments for chest conditions?

Mr. Brown

I am grateful to my hon. Friend. On pensions, we will announce new commitments on pensions that we were not able to announce in the period before the general election. Those will include commitments for the length of the Parliament on the winter allowance; increases in the basic state pension in line with inflation or the Government's 2½ per cent. target, even if the index of inflation is lower, which will mean £100 a year; and the new pension credit, which will cost £2 billion. I also agree that we have to do more to speed up the money that miners should receive as a result of the lung diseases that they contracted working for this country in the national coal mining industry. We have set aside more than £1 billion for that provision. I understand that 170,000 miners have applied. Because of the nature of the court judgment, they will have to face legal and medical difficulties that must be resolved before the money gets to them. I am as anxious as my hon. Friend that they should get the money as quickly as possible, and we are considering new measures to ensure that. We are also considering mineworkers' pension funds, as my hon. Friend requested.

Mr. Nicholas Soames (Mid-Sussex)

Despite the Chancellor's near-hysterical rant at my right hon. and learned Friend the shadow Chancellor, I join my right hon. and learned Friend in warmly welcoming much of what the right hon. Gentleman has said. However, what advice would he give my constituents, who remain extremely anxious about a Treasury-run health service? The Treasury must of course have a hand in health service planning, but 21 people in the Princess Royal hospital in Haywards Heath had to spend last night on trolleys in the accident and emergency department. Moreover, 31 beds there are blocked by people who cannot get places in old people's homes. Does the Chancellor understand that, despite the huge sums of additional money that he is pouring into the NHS, PR stunts that imply that the health service is somehow getting better just do not wash in Sussex?

Mr. Brown

Clearly, the hon. Gentleman does not agree with the new policy on private health being propounded by Conservative Front-Bench Members, although I understand what he says about waiting lists at individual hospitals and about accident and emergency departments. We want to do more, but hon. Members of all parties must face up to the fact that a health service that delivers the operations and service that we all want has to be paid for. That means that the amount of money available to the NHS has to be increased, and that is what we are doing. The hon. Gentleman must face up to the fact that Conservative Front-Bench Members do not want to spend that money. That is the dividing line between the parties.

Roger Casale (Wimbledon)

I welcome my right hon. Friend's statement today. I especially welcome the renewed commitment to investing in our health service, to tackling poverty at home and abroad, and to further incentivising investment in small and medium businesses. However, the outstanding element in the statement was the prediction that forecasts of UK economic growth would remain unchanged, even against a backdrop of world-wide economic recession. Does my right hon. Friend agree that stripping £50 billion out of public spending, as the shadow Chancellor would like, would have a disastrous effect on public services and mean that we would have to revise forecasts of UK economic growth substantially downwards? Does not that show that the Opposition are committed to dogmatic economics, and that they are losing their reputation for economic competence?

Mr. Brown

I am grateful to my hon. Friend for that question, and I agree with him that it is very important that we meet our international responsibilities with respect to overseas aid. I sense that the shadow Chancellor supports our policy of devoting a higher share of national income to overseas aid, and of significantly increasing the overseas aid budget. We are proposing a $50 billion international development fund, to which all the major countries will have to contribute. An element of private finance could be injected into that fund, as well as the public finance that will be contributed. However, if we are to have the sort of reconstruction in the poorest countries and developing areas of the world—and especially in Africa—that came after the second world war, a new bargain will have to be struck. That bargain will mean that, in return for stability, the liberation of those economies from corruption and the opening up of trade, there will have to be a transfer of resources to enable the development of health, education and anti-poverty programmes.

The problem facing the Conservative party is that, right at the beginning of its period in opposition, it has a shadow Chancellor who is committed to making cuts worth £50 billion in public spending. That is more extreme than the Letwin plan at the general election.

Mr. David Laws (Yeovil)

Will the Chancellor acknowledge that an important part of the Government's health policy went missing from his statement today? I refer in particular to the announcement made on the Chancellor's behalf by the Prime Minister on the "Breakfast with Frost" television programme on 16 December 2000, when he said that he would bring the average level of spending on the NHS up to the European average by 2005. That commitment seems to be missing from the Chancellor's statement today. Will the Chancellor confirm that that remains the firm commitment of the Government, or is it still a mere aspiration, as the Treasury has wanted?

Mr. Brown

I think that I read out in the previous Budget statement the figures for national health service and general health service spending as a share of national income. I think that the figures went up from 6.4 per cent. to 6.8 per cent., 7 per cent., 7.2 per cent. and 7.4 per cent. I said today that we want to see a significantly rising share of that national income for the national health service.

Mr. Peter Mandelson (Hartlepool)

May I congratulate the Chancellor on his pre-Budget report and the measures that he has announced today, and on his unrivalled stewardship of the economy'? As we all seem to agree that the problems affecting all our public services, including the transport system, have their roots in decades of underfunding, does he agree that this historic deficit will take years of consistently high investment to put right within a framework of clear policy and determined management? The public must be prepared, as I believe they will be, to back that investment for years to come and to make the personal financial sacrifices that may be necessary at some stage in the future if we are to get the quality of public services in this country that will match the best of those in Europe.

Mr. Brown

I am grateful to my right hon. Friend. He is absolutely right that there is significant public demand for the investment that we are making in transport, health and education. We are committed to a £180 billion programme of private and public financing for transport. It is a 10-year plan which is moving ahead and will continue to move ahead. As we have seen over the past few weeks, the important thing is that the money is not wasted but goes on improving our rail track and our rail and transport services. Equally, we are committed to significantly higher levels of investment in the health service and education.

As my right hon. Friend has taken a great interest in the regions, may I add that we are committed to ensuring that our investment secures greater regional economic balance in the country? When he was at the Department of Trade and Industry, his work in improving the country's regional policy and the continuing work of the Secretary of State for Trade and Industry and the Deputy Prime Minister are crucial. The investment will be crucial in bridging the regional gaps in our country.

Mr. Michael Jack (Fylde)

The spectre of unemployment is creeping inexorably across the face of north-west England. BAE Systems announced further job losses today, and there have been announcements from Rolls-Royce, Baxi, Cammell-Laird and Marconi. In addition to the welcome measures for small business, will the Chancellor look again at the point made by my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) that business is bearing an additional cost of doing business of anything up to £10 billion? Will the right hon. Gentleman look again between now and the Budget at ways in which some of those costs can be relieved?

In the light of the Chancellor's previous answer, may I ask him to give a commitment to business in the north-west that there will be investment in the M6 motorway and the west coast main line so that our transport infrastructure can assist at least the north-west to communicate with the rest of the United Kingdom and Europe?

Mr. Brown

On the right hon. Gentleman's first point, any redundancy is to be regretted. The men and women who are losing jobs in these highly sophisticated industries, which face huge world pressures, have my sympathies as well as those of the right hon. Gentleman. It is one of the reasons why tomorrow the Secretary of State for Work and Pensions will announce new measures that will help, including rapid response teams, which will be in place where there are redundancies and people need advice on training to help them get the jobs that are available. A large number of vacancies exist in every region of the country, and we are determined to help people looking for new jobs to get these vacancies as quickly as possible.

On the right hon. Gentleman's second point about cutting red tape, I have announced today that we mean to go ahead with a small business measure that will make it far easier for businesses to do their VAT and save money at the same time. We are also considering—and we want this to happen—a means by which tax accounts and company accounts can be reconciled in a way that involves firms in far less bureaucracy. We abolished the audit requirement for many small firms, saving them a great deal of money, so we are doing our best.

The right hon. Gentleman really must look at where the £10 billion that he mentioned comes from. A great deal of it comes from the minimum wage. He must ask himself, as we must all ask ourselves, whether the minimum wage is the right policy or the wrong policy. I believe that even most of the employers who were sceptical at the time of its introduction believe that the minimum wage is fair and has been properly implemented. Unfortunately, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) opposed the minimum wage at the time. He said that it would cost 1 million jobs. He was absolutely wrong—1 million new jobs have been created, even with the minimum wage. I hope that we will have some clarity from the Conservative party regarding what they will do with the minimum wage in the future.

Mrs. Claire Curtis-Thomas (Crosby)

I welcome the announcements made this afternoon in connection with manufacturing industry, especially the announcement of further tax breaks for capital investment. Will my right hon. Friend consider possible tax breaks for the services that allow that capital investment asset to be realised? Capital assets are sometimes enormously complex and although small businesses want to take on the new technology they lack the internal intelligence and experience to utilise it fully. If we can afford them some tax breaks in that area, we will increase our productivity rates accordingly.

Mr. Brown

Perhaps my hon. Friend would write to me on the specifics—that seems to be a second Budget representation. There are considerable tax advantages and reliefs at present for businesses adopting information technology—going online and adopting e-commerce. Perhaps she could advise the small businesses in her community that those advantages are available.

Several hon. Members


Mr. Speaker

Order. I regret that we must move on. The statement has run for an hour and 40 minutes—I regret that hon. Members are still rising to speak.

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