§ Motion made, and Question proposed,
(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) Subject to paragraph (3) below, this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(3) Paragraph (2) above does not exclude the making of amendments with respect to value added tax providing for relief on the acquisition from another member State of any goods in relation to which, if they were imported from a place outside the member States, relief would be given by an order under section 37 of the Value Added Tax Act 1994.— [Mr. Gordon Brown.]
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
May I begin by congratulating the Chancellor on delivering his Budget in his usual manner? As ever, what he omitted to tell the House is as instructive as his statement.
I must start by welcoming one announcement: his taking up of a Conservative proposal that he has rubbished over the past two years on a Brit disc for commercial transport. We are always willing to welcome a sinner that repenteth, even if it is at the eleventh hour.
However, there is a real issue here and things in the Red Book that he did not mention. First, this country is now running a deficit for the first time in four years. [Interruption.] Well, Labour Members have not read the Red Book; there is no question but that they do not know what they are talking about. The Chancellor did not mention that public investment dropped by El billion last year compared with his estimate at the time of the pre-Budget report. He promised a lot about manufacturing and said that it would return to growth, but he did not say that manufacturing output is forecast in the Red Book to contract this year—it states thatmanufacturing productivity has fallen backso those were empty comments from the Chancellor. Neither did he mention that, as the Red Book shows, Britain's export performance is falling behind yet again. Whereas in the Red Book world trade is set to grow by 2.25 per cent. this year, the Treasury figures show Britain's exports rising by only 1.75 per cent.
The Chancellor did not bother to tell us any of that. That is why we will have to look very carefully at his proposals for corporation and capital gains tax, and his new research and development credit.
Unlike the markets, the Chancellor's past record is a very good guide to his performance. This is the Chancellor who has turned small print into a fine art. Everyone on the Opposition Benches, and I hope, on the other side of the House, remembers his IR35 tax on the 595 self-employed, which he never announced, and his abolition of the married couples allowance, in respect of which he failed to tell anyone that there would be a year when all married couples received no tax relief at all. It is amazing to hear him criticise the tax system for not recognising children, when he was the one who abolished the last such recognition in earlier Budgets. We will study this Red Book very carefully. [Interruption.] One thing we do know is that the Chancellor— [Interruption.]
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. It is customary that the Leader of the Opposition's reply to the Budget statement is heard with the same respectful silence as that which is given to the Chancellor.
§ Mr. Duncan Smith
After today's Budget, they are scared stiff about what will be reported in tomorrow's papers.
One thing that we learned from the Chancellor today is that he has already broken one major election promise by putting up national insurance, which is a tax on income. He has previously said:National insurance is a tax on ordinary families.Only 10 months ago, during the election, he and the Prime Minister assured the country that they were not going to raise national insurance. [Interruption.] Oh yes they did. At the last election, he denied as smears the charge that he would raise national insurance, but today he has raised £6 billion a year by adding 1 per cent. to national insurance for every employee and employer in Britain. This Government said that they would not raise income taxes at all—they do not like being reminded of that, but it is the truth—but everyone knows that this is a tax on income. The Chancellor has added a penny in the pound to income tax, and he has broken his promise to the British people.
The Chancellor also claims today to have reduced corporation tax, but in fact his increase in national insurance contributions for employers is equivalent to a rise of 3 per cent. in corporation tax. That dwarfs everything else that he has previously done. Now, someone on average earnings will be £15 worse off every month, a nurse-consultant earning £34,000 will be £24 worse off every month, and a police inspector earning £37,000 will be £27 worse off every month. So much for the Chancellor's great help for all those employed in the public services who are trying hard. Frankly, after this no one will ever believe another word that he says.
To listen to the Chancellor, one would think that this is the first time he has ever raised taxes. In fact, he has spent the past five years and six Budgets raising taxes, yet all the time public services are getting worse. He has simply opened people's wallets, while closing his own mind to change and reform. British people and British businesses are already paying £100 billion more a year in tax than they were in 1997, when Labour took over. Each of his first five Budgets raised taxes, save one. That was—surprise, surprise—the Budget before the last election. I wonder why?
Every man, woman and child in this country is paying £1,600 more in tax since the Chancellor delivered his first Budget. He thought nothing of taxing pension savings by £25 billion, and he has hobbled British business with 596 £6 billion a year in extra taxes. Of course, the Labour party does not like hearing about the extra tax on pension savings because it is opposed to savings on pensions and always has been.
Today's measures for business are very small compensation. They are like taking £10 from someone's wallet, giving a pound back and saying, "You should be grateful." Grateful for what? What do people have to show for all these tax increases? The Chancellor says that he needs to tax more and to spend more to make public services better, but violent crime and street crime are reaching epidemic proportions. Teacher vacancies doubled last year and truancy is rising. The trains have descended into chaos. Welfare bills are increasing faster than money is going into schools and hospitals, and they will continue to do so even after today. Perhaps the Prime Minister does not remember his promise to cut the bills of social failure to pay for rises in health and education spending. He has not cut them.
All that is bad enough, but the saddest and most acute failure is the state of our national health service. In the past five years, the Chancellor has increased NHS spending by almost a third, so where has all the money gone? Waiting lists are rising, accident and emergency waits have grown longer and hospital beds are blocked because care home beds have been lost. Regardless of what he announced today, in terms of that loss the real problem is, as we have heard, the extra regulation that he has imposed on care homes.
The odds of surviving cancer in Britain are among the worst in Europe. Worst of all, the Government's failure is forcing patients to go to other countries for treatment. Their health service is letting people down, especially the elderly and the vulnerable.
Last year, as a result of the Chancellor's mismanagement, 250,000 patients had to pay for their operations out of their own pockets. More people than ever before have had to do that under this Government. People should not have to use their life savings—[Interruption.] No, they should not have to use their life savings to save their own lives, regardless of what the Chancellor says. We had hoped for a little humility and, better still, a more imaginative approach to the problems of the NHS, but today his Budget missed that opportunity.
All the right hon. Gentleman is offering is more of the same—more talk, more tax—but that will not save the NHS from failure. He failed to recognise that although Scotland spends as much as Australia and Holland on health and that Wales and Northern Ireland spend as much as France, the treatment of patients here is far worse. Waiting times are increasing and all the Chancellor can suggest is more tax and no change.
Britain is further away from the ideals of the NHS than at any other time in the history of the health service. The NHS should, as we all agree, offer people the best treatment, regardless of their ability to pay. The Chancellor's NHS, however, does not do that. It is a two-tier service, and more people pay for their treatment than ever before.
No other advanced country runs its health service the way we do. If the Chancellor had bothered to visit some other countries, he might have seen that for himself. Germany has no national waiting list and Danish patients have a legal right to treatment within four weeks of seeing 597 their general practitioner. The Chancellor cannot be bothered to go to such countries; we have, and he should read what we have written about the matter.
Britain needs to spend more on the health service, but it is not enough to spend money to keep the NHS running the way it is today. By raising all the money that it will ever need simply from higher and higher taxes will not give this country the standard it has a right to expect. The NHS needs change as much as it needs money. All the people who work in the health service know that and they have told the Chancellor that. The public know that and the Conservative party knows that. The only person who does not know that is the Chancellor.
The right hon. Gentleman has closed his mind to the idea that he could learn anything from those beyond the channel tunnel. He commissioned Derek Wanless—oh yes, the Wanless report—to conduct a study of future health care and the financing of health plans, but he had already told him what to say. The Chancellor has finally seen fit to publish that report today, on precisely the same day that he announces his conclusions. He said, "We must have a national debate on the NHS." Apparently, that opened at 9.30 this morning and closed at 3.30 this afternoon. Perhaps he can tell us whether that debate extended as far as 10 Downing street, which I doubt; or did it exist only in the mirror of his home at 11 Downing street?
There is no third way, only one way—the Chancellor's way—and today we know what that amounts to: more talk, more taxes and more failure. He not only refuses to take lessons from abroad about how to make public services better, but refuses to acknowledge that competitor nations are lowering their taxes at a time when he is raising ours. That is why Budget day is the only day on which Labour MPs really smile, because it lets them do the only thing they enjoy—raising taxes.
Some people will like the Chancellor's Budget, but they are all sitting on the Labour Benches. We can see them loving every minute of it. Countless millions of British people will end up paying for it by using public services that are getting worse and by paying higher taxes. He is planning to spend public money faster than the nation can earn it over the next four years. The fact is that not only has he raised taxes in his first five Budgets and again today, but now taxes will go up next year, the year after that and the year after that. The truth is simple: the sun goes down, the tide goes out, and Labour raises taxes. British people deserve much better. They deserve better than the increase of nearly £300 in council tax that the Chancellor has imposed on them. They deserve far better than his proposals, which add up to more talk, more tax and more failure.
The Chancellor's record speaks more eloquently than his rhetoric ever can. We always know where we are with one of his Budgets. He never listens and he never learns. He centralises everything. Civil servants, administrators and public service workers know that the way to get on is to follow orders from Whitehall rather than to trust their own judgment. That is why they are demoralised and leaving in droves. That is why so much of the money that has been taken in tax over the past five years never gets to where it is meant to go. That is why billions of pounds are wasted and left unspent each year. Through his public service agreements, the Chancellor tries to be the head teacher of every school, the manager of every hospital and the desk sergeant in every police station.
598 Through his complicated tax credits, the Chancellor wants to tell every family how to live their lives. More complication is proposed today. Many children will not get any of his tax credit because of the complicated forms that he insists on making them fill out. That is a further waste of their time.
The Chancellor thinks that life would be so much better if we all lived our lives like he does. That is why his whole agenda of reform begins and ends at his office. As early as March 1998 he promised:Investment and reform go hand in hand."—[Official Report, 17 March 1998; Vol. 308. c. 1097.]But he did not reform; he centralised. In March 2000, he said thatmore resources must mean more reform and modernisation".There is no reform, only centralisation. At the time of his pre-Budget report last November, he said:There will not be one penny more until we get changes to let us make reforms.And today we have had his great soundbite "enterprise and fairness". But no one believes him any more. No one will ever believe him, because saying the words does not make them true.
The Chancellor has centralised our services and closed his mind to all ideas except his own. He will not let anybody else try a different formula or idea. "Investment and reform" has just become old-style tax and spend once more, and, one way or another, everyone in the country will pay the price. They are paying for more talk, more tax and more failure. Even after his announcements today, the corporate tax burden on British business—something that he did not want to tell us about—is among the highest of our industrial competitors, which threatens jobs.
More complicated tax structures are putting up taxes at the very moment when other countries in Europe are reducing theirs. Over the last five years, Britain's ability to compete in the world has slumped, as we will find in the Red Book. What the Chancellor did not say is that our productivity growth used to be faster than that of the United States; now it is slower. Five years after Labour came to power, the USA is overtaking us again.
UK businesses groan under more and more regulations, to the point at which some spend as much as one and a half working days each week filling in forms. What the Chancellor also did not tell us—among myriad other things—is that our share of world exports has fallen. Not only has our balance of trade been in deficit every month for the last four years, but it has actually been widening in 2001.
Over the past five years, this Chancellor has also punished people as they try to prepare for their retirement. He did not want to tell us too much about what he has done, but Conservative Members thought he had a cheek to talk today about occupational pensions, when he is the one who raided them with a tax of £5 billion a year. More than a third of our largest companies have closed their final salary schemes to new members, thanks to the measures that he introduced.
The stakeholder pension is also a mess. Only one in 10 of those whom the Chancellor targeted has taken it up. Millions will therefore be disappointed that he has failed to abolish the annuities rule. They will have absolutely no flexibility in retirement and they will be punished twice.
599 The Chancellor also failed to inform us that the Red Book shows that family income put aside for savings has collapsed since 1997 from 9.5 per cent. to a projected 3.75 per cent. in 2002. Savings are collapsing and people's futures are being destroyed by a Chancellor who does not care. Next year, two out of every five families in Britain will depend on means-tested benefits.
More talk and more tax will not prepare this country for the challenges that lie ahead. Today people are more worried about their prospects for retirement than they have ever been before.
The Chancellor would have us believe that raising taxes is the same as reforming public services. If that is so, why have the Government both raised taxes and reduced the quality of our public services? Our taxes continue to rise, and he is undoing the things on which business success is built. The money to pay for quality public services depends on successful business. Not only will his course of action not work, but it is ultimately self-defeating. In his hands, "investment and reform" has become Labour-speak for old-style tax and spend.
So what is new Labour for? When the history of this Government is written, the dominant theme will be the unprecedented opportunities that they wasted. They had it all: the best economic legacy ever left by a predecessor; massive Commons majorities; the trust of the British people; the promise of reform; and a mandate for change. Yet in the space of five years and six Budgets, they have frittered it all away.
If the Chancellor had listened to the people, if he had visited other countries and if he had opened his mind to change, as we have, this could have been a very different Budget—one that offered genuine hope to the millions who rely on the NHS and need it to improve. Instead, his closed mind and refusal to change have condemned the British people to second-class public services. They deserve better.
§ Mr. Charles Kennedy (Ross, Skye and Inverness, West)
I begin by congratulating the Chancellor—[Interruption.]
§ Mr. Deputy Speaker
Order. Perhaps the right hon. Gentleman would like to pause for a moment. Will right hon. and hon. Members who are leaving the Chamber please do so quickly and quietly?
§ Mr. Kennedy
I begin by congratulating the Chancellor on his characteristically lucid and commendably brisk presentation of his Budget statement, in contrast to the speech that we just heard. I say unequivocally on behalf of Liberal Democrat Members that there is a great deal in the Budget to welcome, and that we should say so. There is a clarity about its proposals. I was not sure where, if anywhere, the clarity lay in relation to the Conservative party's positioning on these matters.
As we said during Prime Minister's Question Time earlier, we have long argued for increased investment in the health service and in public services generally. It would therefore be churlish not to welcome the progress 600 that has been made. The Chancellor is investing in services that urgently need it; that is a genuine breakthrough. However, we can point out that the Liberal Democrats made the case for that approach in two general election campaigns. We made honest and transparent tax proposals—contrary to the Prime Minister's teasing earlier.
Many authoritative voices in the country, leaving aside those that are party political, say that if some of the investment had been raised honestly since 1997, and the funding had been going in for five years, some of the problems that the Chancellor mentioned today would have been ameliorated much earlier.
Let us be truthful. Of course, the increase in funding for the health service will be welcome, but for many patients it is up to five years too late. Five years of sustained investment would have been better than two years of spin and double and treble counting, following two to three years of sticking to Conservative spending constraints.
The Chancellor said that there was "no free way" of investing in the health service. That reminded me of a phrase that many Liberal Democrat candidates used every hour of the day, every day of the week during the general election campaign last year: "You can't get something for nothing."
Although we welcome the convert to the cause, I have searched in vain for Labour party proposals in the general election campaign for the taxation increases. I examined the Labour manifesto, but no. I watched the launch of the Labour manifesto. [HON. MEMBERS: "No."] I watched the television interviews with the Prime Minister and the Chancellor. [HON. MEMBERS: "No."] I looked at the election rallies. [HON. MEMBERS: "No."] I watched the Labour party election broadcasts. [HON. MEMBERS: "No."] I looked at the morning press conferences. [HON. MEMBERS: "No."] By Jove, they kept it quiet.
The debate on funding for the health service cannot end with the Chancellor's statement this afternoon. He has expressed his professional and intellectual misgivings about specific earmarked taxation for the health service. I believe that that debate should be revisited across the party political spectrum. We cannot take this afternoon's statement as the last word on the matter. I hope that the Conservative party will also embrace the debate, although judging by Conservative Members' current utterances, they seem psychologically incapable of making such a worthwhile contribution to a big national debate.
If we assume that the money will at last go to the health service, what should the priorities be? We need to examine the detail of the statement of the Secretary of State for Health, but the priorities should be set by doctors and nurses. The Chancellor has made a welcome suggestion that he will ensure that the money and the decision making reach local level. Given the Administration's five-year track record, that will take a shift in the culture and mindset of those in and around Whitehall, both elected politicians and their much-vaunted political advisers. We will keep a close eye on that. We need more power locally and more devolution of budgets to go with it.
The response of the leader of the Conservative party was deeply ironic. We got to know each other when the right hon. Gentleman was first elected and we spent many a long night debating the Maastricht treaty. Now he 601 suggests that the Government should go round continental Europe to appreciate how well things are done there. If it had been left to him at the time of the Maastricht process, we would not even be part of the European Union, never mind learning anything from it. We need resources, and the training and recruitment for the doctors and nurses whom we urgently need should start now.
On the social services side of the equation, we also need urgent priority to be given to the haemorrhaging in the residential care homes sector. There is not a Member of any party who cannot cite chapter and verse the problems locally: the lack of funding locally; the insufficient provision locally; and the accompanying human misery for families. Dealing with those problems must be an absolute policy priority.
On health, there is the preventive agenda. I wrote down what the leader of the Conservatives said and, again, they seem to be arguing that there is no point in spending all this money because it will fail. Theirs is a calculated agenda for failure for the national health service, despite the extra funding, and the right hon. Gentleman cites Scotland in that respect. He and I are both Scots. I am not always the best advertisement in lifestyle terms, but we must both acknowledge that the structures of health care delivery in Scotland are not the only providers of discouraging indices—the lifestyle of many Scots cannot be divorced from those. Although we can blame the Chancellor for many things, we cannot necessarily blame him for that reality, as he well knows. [Interruption.] All right, we have been too generous. If in doubt, blame the Chancellor. The Prime Minister does it all the time.
There was one crucial issue on which the Chancellor chose not to dwell. He made only a teasing reference to the euro, rather than displaying leadership on it. As he well knows, the Liberal Democrats have long argued that it is high time we set a proper timetable for getting this country, post-referendum, into the single European currency. The reason why we must do so is precisely that to which the Chancellor and, indeed, the Conservative leader referred—the weakness of the manufacturing base caused by the strength of the pound.
One day we have got to win a referendum, but if we at least lay down clear guidelines and a timetable, that in itself, with the Government expressing an aspiration, would do much to reduce the value of sterling in the interim and stop the haemorrhaging of jobs right across the manufacturing sector.
We are very disappointed with the failure to show leadership and the conflicting smoke signals that the Chancellor and the Prime Minister all too often give out on that issue, but the Conservatives cannot with any intellectual or political rigour decry the decline in our manufacturing base while saying that they will positively deny the people a referendum and not join the euro at all. On that basis and policy prescription, the Conservatives cannot offer anything approaching a solution to the problems that have so badly afflicted the manufacturing sector.
There are modest, but what appear to be welcome, changes for the small business sector, although the burden of bureaucracy on so many of our small businesses remains excessive. Once we have studied in more detail the proposals put before us by the Chancellor, we must see whether more can be done to advance the argument still further in the interests of the small business community.
602 The Chancellor referred to pensions. Many of those who are expert in the field agree that his credits, his innovations and his developments Budget by Budget have produced a fiendishly complicated system. He has added to that complication again today, although the support that he is suggesting may in itself be welcome. Many pensioners find that, because of the sheer complexity, they do not access or take up the help that could otherwise be at their disposal. We shall have to look with great care at what has been suggested this afternoon, because it seems to add further complication to the system.
Had the Chancellor announced, for most pensioners, an extra £5 on the basic pension for the over-75s and an extra £10 for those over 80, that would have been fairer, more effective and less complicated. It would have done more to help those most in need, particularly at the higher end of the age spectrum.
This would have been a really good Budget five years ago. That does not stop it being, in many respects, a welcome Budget now, but the Government have lost a lot of credibility and opportunity in the intervening five years. There have been too many broken promises, too many misleading targets, too much double or treble counting and too much spin, and not enough delivery and investment where the public really wanted it.
Let us welcome what we have so far. This is an extremely significant moment in the history of the last five years of British politics, because we now have a clear recognition by the Government that there should be a more transparent, honest and fairly funded approach to tax policy so that people can see that their priorities are being served as a result. A clear ideological divide has now opened up in British politics between the Government and the Liberal Democrats on one side, and the incoherence of the Conservatives on the other. If there is one issue on which we find ourselves in agreement across the Floor of the House, it is this. The Chancellor talks about Beveridge. It was a Liberal set of ideas, principles and values, which a Labour Government proceeded to implement, that gave us the basis of the welfare state and the health service. We are seeing something similar happening with some of the Chancellor's announcements today. Those of us who do not have the in-built advantages enjoyed by both the other parties in this place and outside it—some of us who were none the less willing, over several elections, to tell the story as we saw it—are right today to claim some of the credit for the progress now being achieved.
§ 5.7 pm
§ Mr. Ken Purchase (Wolverhampton, North-East)
May I start by congratulating the Chancellor on a truly remarkable Budget? His announcements on the national health service, although widely trailed, are none the less breathtaking in their scope and vision. Talk of opportunities wasted is a travesty of the truth. In what must have been the dullest and most inept response to a Budget made in this place for many years, the Leader of the Opposition never really got to grips with the detail, generality and politics of this extremely important Budget.
The Chancellor and the Government deserve our congratulations on their management of macro-economic policy. It is the best report that the House has heard in many years, particularly given the downturn in world trade that has been with us for a considerable time. 603 The Chancellor referred to the difficulties, particularly in the high-tech sector in the United States, which then thread their way through the world.
Inflation is the lowest that we can recall; interest rates are now converging—my hon. Friend the Member for Bolsover (Mr. Skinner) will not be pleased to hear—with European rates; unemployment is now becoming manageable and making a serious contribution, in that we no longer have to meet considerable unemployment benefits; growth is outstripping that of the G7 generally; and we have stability that has not been matched for a long time.
The Chancellor tells us that growth in the G7 was 1 per cent. World trade has been down and manufacturing worldwide is down, and that is the background to the remarkable figures that the Chancellor has presented to us today. On his predictions of 2.25 per cent. to 2.75 per cent. growth, he reports 2.2 per cent. actual growth, against the doom and gloom in all the financial papers.
§ David Taylor (North-West Leicestershire)
Does my hon. Friend agree that it was simplistic in the extreme for the leader of the Liberal Democrats to link the undoubted difficulties of the manufacturing sector to the value of the pound when the great proportion of its problems have been caused by worldwide recession?
§ Mr. Purchase
My hon. Friend may know my position on the question of the euro, and I shall not fall for that silly little trap that he has set for me.
Let me continue in the same vein. The predictions of the financial press, which was filled with doom and gloom, have been exceeded. The Chancellor has been pessimistic and cautious in his predictions, but, none the less, to report actual growth of 2.2 per cent. in this circumstance is truly remarkable. The current forecast for the G7 is 1.6 per cent., and, for the UK, 2.5 per cent., which, again, is cautious. Given the most recent figures from America, where hope of a recovery is rising—with a genuine baseline from which to work and to develop the American economy, notwithstanding its disgraceful decision to increase and raise tariff barriers against steel products—there seems a real possibility that the American economy will pick up. Just as it is true that if America sneezes the world catches a cold, equally, if America is feeling well, the rest of us feel a darned sight better, too. That seems to give real hope.
The return of growth to the manufacturing sector is a most important signal. As someone representing a west midlands seat, I witnessed and was part of the horror of the 1980s, when, in a very short time, 400,000 manufacturing jobs were lost. It has been an increasing worry that, under my party's Government and their policies, which have been more sensitive to manufacturing than those pursued by the early Conservative Government in the 1980s, the manufacturing sector has still been haemorrhaging jobs. It is therefore welcome to see a sign that manufacturing is returning to growth. It must be said that everything that we hope for in public services is clearly predicated on improving our performance in terms of what we can export abroad and how we pay our way. An improving manufacturing output—I mean output, not just productivity—is at the root of being able to finance the improvements that we desperately want.
604 Many of the fiscal results that the Chancellor was telling us were well trailed and well understood, but they are worth repeating to congratulate the Chancellor on his performance. Debt has been reduced massively. Tax receipts are down at the same time, unfortunately, but an underlying strength in our economy has meant that we have continued to deal effectively with the mountain of debt with which this country has been burdened for many years.
In fact, £21 billion of debt has been repaid, bringing the proportion down from 44 per cent. to 31 per cent. of national income. Interest payments are down to £22 billion and, as my right hon. Friend the Chancellor said, that leaves room for improvement in our public services without the need for corresponding increases in taxation. A surplus is predicted, not a deficit, and debt as a percentage of total national income is expected to remain stable. That is worth noting. The Chancellor has presented a set of figures that, in the present circumstances of world trade and economic conditions, amounts to a truly remarkable report.
I turn now to supply-side measures. I have a continuing concern about education. There is no doubt that investment has gone into education, and that our primary schools have improved, according to the measures that were set for them. However, my concern is that we place too much emphasis on the training element of school life, at the expense of education.
It remains my belief that our first and most important duty to the generation of young people in our charge is to ensure that their education—in the English language and in literature, in the sciences and mathematics—is first class. What my right hon. Friend the Chancellor has announced today in respect of instilling more enterprise in schools' ideas needs careful thought, especially with regard to delivery. Teachers already complain—rightly, and with some justification—that there is little room left in the curriculum for yet more new measures, especially when those measures do not directly improve our young people's educational standards. That is especially important in connection with the generation now in secondary schools.
My right hon. Friend the Chancellor stated that 55 per cent. of all jobs—10 million jobs in total—are now in the small and medium-sized enterprise sector. Corporation tax is to be reduced by 1 per cent., and that is a very welcome measure.
Last week, I met a number of clothing manufacturers in my constituency of Wolverhampton. They accept that useful measures have been taken, but they complain that the requirements on employers to implement social legislation are a considerable burden. They claim that meeting those requirements takes them away from producing economically and efficiently, and they are looking for a reduction in that administrative burden.
However, I believe that my right hon. Friend the Chancellor has met those complaints, at least in part, with the new measures that he has announced, and especially with the changes in respect of VAT. The VAT regime has been a nightmare for small companies, especially for those without administrative back up. In such cases, the employer—usually the owner of the company—has to deal with all the administration of tax and VAT, and often has to burn the midnight oil to get the returns in on time.
605 People in that situation will be pleased that the charges for late returns are to be dropped, but the simplification of the VAT regime will be widely welcomed by small companies. My right hon. Friend is to be congratulated on his response to the problems experienced by many small companies.
The new tax credits available for investment in research and development by large companies are clearly to be welcomed. There is no question in my mind but that the beginning of the end for British manufacturing was evident in the 1960s and 1970s—and certainly in the 1980s—when investment in research and development and blue-skies research plummeted.
Our universities were stripped of any incentive to carry on with the vital work of research and development. As a result, there were fewer of the inventions that need to be made before innovations and developed products can be brought to market. In the absence of new ideas, British industry as a whole was failing to compete. As investment in research fell away, we became unable—except in a very few instances—to claim that we had world-class companies.
That is now starting to change. The British have always been good at innovation—at invention, rather. I should not have got those two words mixed up, should I? The British have been very good at invention, but have failed to bring their products to market. Now, however, we are seeing the process involved in innovation more clearly, which will enable us to compete on a much stronger basis in world markets.
It worries me that the British share of export markets is falling, however slightly it may be falling. Imports must be paid for by exports. We can fill a gap with national wealth for a time, but ultimately imports must be balanced by exports, and exporting must be the nation's forte.
I want to say something about the health service in particular. It is surely right that it is receiving record investment, and also right that the Chancellor recognises that attracting and retaining staff is a critical—if not the most critical—element of a good strong health service.
I have experience of my own health authority, and I served on health boards and other such bodies in various capacities for nearly 30 years. I believe that, given the pace of change demanded by health service workers, targets must be set with current working practices very much in mind. People need a period of calm, a period of stability, a period during which they can deal with the enormous changes that we have asked them to make over the past few years. That will help them to settle into a better routine, and to understand their jobs better. It will help us to retain vital staff, and will ultimately attract more people into the health professions.
I hope that the same message, about the provision of time in which people can settle down, will be conveyed to those in education, particularly further education. Good lecturers are leaving because the rate of change, and the amount of intervention in teaching practices, has become more than they can cope with. They feel that they are failing their students by having to deal with so much administration rather than dealing directly with teaching. I think that we are now learning the lessons—we must, if we are to improve our public services.
I applaud the Chancellor's decision to deal with stamp duty. I congratulate him on opting for what I consider to be a far better way of flattening and cooling the hottest 606 parts of the property market than a general increase in interest rates, which would hurt those on the first and second rungs of the housing ladder. I also welcome the lowering of small firms' corporation tax to zero for the first 10,000 of profit, which will be very helpful.
Let me now say something about the working families tax credit, and the general principle of tax credits for those in work. I was among the sternest critics of the 1970–74 Heath Government when they introduced family income supplement. I felt that, in general, it would he seen as a substitute for low pay and would encourage employers to keep workers on low pay, knowing that the state would step in and act as a wage payer. I am still concerned about our system of tax credits. Employers are tending to rely on state intervention to make up wages that should really be paid for by efficient, effective, economic working—smart working, rather than old-fashioned working. The advent of the minimum wage and this week's welcome increase have taken the edge off my reservations, but having nailed our colours to the mast of tax credits, which are generally welcome, we should keep our eye on them.
Overall, this is as good a Budget as the House and I have heard for many years, and my right hon. Friend the Chancellor deserves congratulations from us all.
§ Mr. John Redwood (Wokingham)
I have declared my interests in the register.
I am glad that Government Members like the Budget. We are told that it is billed as an honest Budget, because the present Chancellor for the first time openly confesses to raising taxes. Of course, Labour Members should have liked all his previous Budgets too, because they have all been about raising tax after tax. More than £100 billion of extra taxation is being raised this year compared with the starting point five years ago—that is about £2,000 annually from every man, woman and child in the country. That is a colossal sum.
Quite a bit of that money has gone into public services, but the public are asking how so much money can be taken away from them to so little effect. My constituents ask why there are no more policemen on the beat—indeed, they think that there are fewer now than there were five years ago. They ask why waiting times and waiting lists for the local hospital are often more difficult to negotiate and longer than they were five years ago, and why there are not more beds open in the local hospital. In fact, there are fewer beds open in the local hospital. My constituents ask why local schools find it difficult to recruit and retain teachers, and why teaching morale is so low. The problem is not only all the instructions and directives from the Department for Education and Skills, but one of money, especially in areas such as mine.
The mystery that the British public want resolved is how so much money can be taken off them in Budget after Budget to so little effect. During this year's lengthy Budget debate, we must explore whether any better results might conceivably arise from the forthcoming big surge in spending than have arisen from the colossal increases in taxes and spending of the past five years.
One reason why there has been so little benefit from so much increased spending is the Government's choice of priorities. Had the money been spent on more nurses, doctors, teachers and policemen in my constituency and others, we might have been a little happier; instead, those 607 do not appear to be the priorities that apply when the Budget measures announced are implemented. We read the headline announcements of various extra sums of money, but then we see the money being spent on other things.
The health service has had to announce that there are now more administrators in the NHS than there are beds serving patients. In the education service, more circulars than ever before are being sent out by the Department for Education and Skills, but they do not appear to be resolving problems of teacher morale and pay in hotspots throughout the country.
§ Mr. Tom Harris (Glasgow, Cathcart)
I am surprised to hear the right hon. Gentleman's commitment to raising taxes to spend on the health service. Does he remember writing that the NHS wasa bureaucratic monster that cannot be tamed",and that the principle of charging should be extended tocreate a national health insurance scheme separate from the tax system."?Are those still his views and are they accurately reflected within the shadow Cabinet?
§ Mr. Redwood
I am delighted to be reminded of some sensible remarks I made some years ago. If he has been following the debate, the hon. Gentleman will know that my current view and that of my right hon. and hon. Friends on the Opposition Front Bench is that we must review the whole question because there must be both a better way to spend the considerable sums of public money now committed to the NHS, and a better way to channel in more money from outside.
We think that a great deal of private money can be brought into health care in general by backing choice and giving people more opportunities. We think that health service money could be much better spent by devolving power and authority to those in hospitals and doctors' surgeries who daily have to make difficult decisions when dealing with patients than by spending so much on the army of administrators, many of whom stand well back from the action in the surgery or hospital ward. We therefore need reform. The reforms proposed by Her Majesty's Government will not be nearly big enough to deal with the problem. Indeed, I would go further and say that, from what we have heard today, the problem will be exacerbated.
§ Mr. Redwood
If I can make my point, I will give way. The problem will be exacerbated by the Chancellor's proposals, which may be fleshed out a little tomorrow by the Secretary of State for Health.
We are told that the main reform will be a new army of auditors ticking bits of paper and inspecting forms to see whether every penny and every pound that the doctor or nurse is spending is well spent. I dread to think what the health service will look like if, on top of the 200,000-odd administrators we already have, and all the internal and external auditors, we have a beefed-up audit function, perhaps intervening day by day or hour by hour.
608 That would not be a productive way of spending the money. I suspect that it could even get in the way of patient care. The Government should learn to back off a little, to decentralise a bit, to start to trust some of the people who are running the service. If they do not trust the people running the service, they should get rid of them and appoint people whom they do trust.
§ Mr. Gregory Barker (Bexhill and Battle)
Has my right hon. Friend ever met a nurse, doctor or consultant who said that what their hospital needed was more auditors?
§ Mr. Redwood
My hon. Friend makes a strong point. He is correct. Cuts are sometimes made at the end of the year, even under this Government, because they discover that their hospitals do not have enough money. The cuts always seem to be in patient care. They never seem to be in paper clips, bits of paper and administration, which is perhaps where they should look.
§ Mr. Mark Hendrick (Preston)
Does the right hon. Gentleman accept that the audit process is necessary to establish whether we can get value for money? His party peddles the mythology that the health service and other services are getting worse. Is it not necessary to show the facts, instead of living off the anecdotes that he puts over?
§ Mr. Redwood
I have not been giving anecdotes but describing the day-by-day experience of my constituents as patients, or friends or relatives of patients, and, more importantly, the experience of the nurses and doctors who work under great pressure at the local hospital and the local surgery, who tell me that the problem is a shortage of nurses, doctors and bed spaces, not a shortage of auditors, administrators, paper clips and bits of paper.
Of course, there needs to be audit. I had assumed after five years of a Labour Government that satisfactory audit arrangements were in place. Indeed, I thought that the Conservatives had left satisfactory audit arrangements in place. If they are not satisfactory, they should be revised and changed, but I warn the Government against a massive expansion of the audit function in the belief that that will automatically improve the service on which the money is spent. The reason why money is being badly spent is because the system is top-heavy. It still has too much bureaucracy, too many administrators—more than when the Conservatives left office by quite a large margin. The Government need to allow more local control by a few good managers in each locality.
§ Gareth Thomas (Clwyd, West)
Can we take it therefore that the right hon. Gentleman now regrets the implementation of the internal market, which his Government introduced, which was responsible for a huge mushrooming of unnecessary government, and which this Government have abolished?
§ Mr. Redwood
I liked the idea of GP fundholding. One of the good things about it was that we introduced it in a permissive way. We did not say to every GP on day one, "You must be GP fundholders." We said, "If you would like it, this is extra freedom you can use." We discovered after quiet beginnings, with an awful lot of opposition from Labour, that a lot of GPs signed up and found that it was extremely good for them and their patients. It is a 609 great pity that many of the freedoms that GPs enjoyed have been taken away. They have been put under a much bigger bureaucracy in the new primary care trusts that are emerging.
The hon. Gentleman should not hate choice so much. I want the NHS to offer far more choice to the people who need to use it: we the taxpayers, the patients or potential patients. It would make so much difference to the NHS if people had real choice about which doctor, surgery or consultant they went to, when and where they could have their operation, and proper advice and help about the range of options available.
Because the system is so short of medical and clinical capacity, and because it is so centrally driven by Ministers and their bureaucratic supporters, we do not have that choice and freedom, which I am sure my right hon. Friend the Leader of the Opposition would love to extend to people. It may emerge in one form or another from the policy review that is under way in the Conservative party.
One of the things that this country needs is a big injection of choice, enterprise and private capital into a range of public services. That can be even better illustrated in transport than in health. This Government have proposed a much delayed and over-inflated plan to invest—they call it investment, although a lot of it is spending and not true investment—£180 billion over 10 years in the transport industries. They have of course left out the main way of getting around the country—by motor vehicle—because that is handled by the private sector and there will be massive investment in that industry as people conclude that, given difficulties on parts of the transport system in which there is much more public involvement or public investment, the car is the best way to travel.
Within that £180 billion, the Government are aiming only for some £55 billion of private capital. That is a tiny sum compared with, say, the £180 billion that the British public are likely to spend on new cars alone over the same period. It is a poverty of expectations, but probably realistic, or even a little optimistic, given the way in which the Government are handling the transport industries.
Insisting on putting the main rail-owning company into administration will put people off producing private investment for the rail industry. Insisting on going through four or five years of rows with the Mayor of London and terribly convoluted studies on how we might get private capital into the tube, and coming up in the end with a scheme that lumbers the taxpayer with enormous risks while raising only about £4 billion of private capital, will make it a struggle even to get £55 billion of private capital over 10 years for all the transport industries.
If the Government were prepared to be a little more open and to secure proper private involvement, with some choice and freedom, in the railway and tube system, we could secure many more billions of pounds of capital investment without the same requirement on the taxpayer—estimated in the 10-year plan at more than £120 billion, and likely to spiral well above that given the way in which the Government bungle their handling of the transport industries.
The Government's public spending plans have already been gravely damaged by putting Railtrack into administration. A few hundred million pounds would probably have got the Government through the financing problem that Railtrack brought to their attention, but they 610 decided to put that profitable company into administration. As a result, we have a bill for several billion pounds, and we still have not got to the end of the matter, as we do not know when Railtrack will come out of administration.
This Budget should have addressed that central problem, but we know that the Chancellor is at loggerheads with the Transport Secretary. He must be deeply embarrassed by the damage that the Transport Secretary has done to relationships with the private sector, the City of London and the people who are likely to produce the investment. We know that the Chancellor has had to keep quiet about that massive area of public-private investment, which is crucial to our country's future. Given how his colleague the Transport Secretary has handled the transport industries, the Chancellor has had to be pessimistic about how much strain the private sector can take.
I urge the Government to put that right and to revisit all their transport plans with a view to aiming for, say, £100 billion of private investment. That is a perfectly realistic target if all the main companies involved are in the private sector, and they are seen to be fairly regulated—not over-regulated—and to have some support and sympathy from a Government who realise that private companies are the best way to get the trains on the move again, the tube sorted out and the transport industries operating much more smoothly.
It is noticeable that where an industry is largely unencumbered by Government ownership or specific Government involvement—the private motor vehicle industry, the vans, cars and lorries—there is massive investment. No one has to debate in this place how we would make good the investment shortfall in that industry. We do not have day-long debates on how we can deal with lorry, car or van shortages for local enterprises. Yet owing to regulation—and, now, public ownership of the main Railtrack enterprise—we must debate how to deal with the shortage of freight wagons and track for them to run on.
The Government should understand the history of the railways. All capital for the rail network in the 19th century was raised in the private markets. The rail industry expanded massively throughout the 19th century, and into the 20th century, on the back of private capital. As soon as it faced serious opposition from the motor vehicle, the Government took it under regulatory control and subsequently nationalised it, and then it was all downhill to the point when it was privatised. There was a massive slide in its use and share of the market, and there have been great difficulties in financing and investing in it. As soon as it was privatised, the trends reversed. We saw a 25 per cent. growth in passenger usage and a. 30 per cent. increase in freight. We saw the beginnings of a big investment revival and then the Government, out of pig-headed ideology, decided that that was not allowed. They now have a big black hole in the middle of their Budget plans.
The Budget should address the central point that if we want, as we surely do, much more investment in health, transport and several other areas where the public sector dominates or has a big influence, we need to relax the controls more. We need to be more inviting to the private sector and allow it to play a bigger part. The difference in health spending between this country and other advanced countries is far more marked in the amount of private money spent than in the amount of public money spent.
611 I am the first to defend the proposition that if people are ill and need free care, that is their right under the pledge of the NHS. They, or other people, pay enough in tax, and I would not wish to take that right away from anybody. If people need care, it should be available free at the point of use. However, why stop people using their own money if they want different types of care to be made available and why not give them some encouragement for that? The Labour party is immensely hostile to the idea that people might wish to spend more of their own money in that way, and to any scheme that might promote or encourage that, albeit at a considerably lower cost to the taxpayer than if those people required all their care to be provided by a completely publicly financed system.
§ Mr. Tom Harris
The right hon. Gentleman sets great store by the need to increase private investment in the NHS. Can he not welcome, in a bipartisan spirit, the huge increase that the Chancellor has announced for the NHS in the next five years, which represents a 100 per cent. increase since 1997? Surely his party would welcome that. Will he take this opportunity to commit his party to matching that increase?
§ Mr. Redwood
I do not welcome sums of money: I welcome results. If, in three or four years' time, there are no waiting lists in my constituency, the local hospital has many more beds and the nurses and doctors tell me that they have a more realistic work load, I am a big enough man to acknowledge that improvement. I might take the precaution of doing so the day after the election rather than the day before, because I am also a politician, but I would not mislead anyone about it. If that is delivered, everyone in my party would feel great about it, but my worry is that it will not happen. We have had five years of promises and it is always jam tomorrow. All we actually get is a traffic jam, not the benefits of better health services or transport.
I will wait. I will welcome results, but not the spending of huge sums of money in itself. I certainly do not welcome the tax increases that it necessitates. If all the money goes on auditors and paper clips, I will not welcome it at all, and the Government have some serious questions to answer about where the money will go and how quickly they can spend the money wisely by recruiting the nurses and doctors and building the bed spaces and wards that are so clearly needed in many parts of the country.
The big issue in the Budget is tax, tax and tax. After five years of huge tax increases, we get the whopper tax increase. It is the tax increase that is so big that not even this Chancellor thinks that he can get away with it without telling people. It is the first tax increase that he has not attempted to introduce by stealth.
The Chancellor's record on tax increases shows that he began by deciding to tax savings, prudence and old age. He put a massive tax increase on pension funds. When we objected to that, we were told by the Chancellor and the Prime Minister that because the stock market was rising, it would not hurt anybody and nobody would notice it. The stock market was making magic money and the Chancellor wanted to take a bit, while leaving people mysteriously better off. In the past two years, the stock 612 market's performance has been very bad, and people's pension funds have fallen in value year by year. The Chancellor did not apologise or say that his argument no longer applied so he was going to take the tax off the pension funds—even if he could not go so far as to rebate the money that he should not have taken in the first place.
That cruel tax on old age, prudence and savings is now doing real damage to people's pension prospects. The Labour party gets angry because companies are closing down final salary schemes, but they are too expensive and do not have enough money left in them. One of the biggest culprits is the robber Chancellor who has taken quite a bit of the money out.
The next big tax from the Chancellor was the huge telecom windfall tax, from the so-called auction of licences, which was another tax that was meant to go unnoticed and inflict no pain on anyone. It cost £22 billion for the mobile phone companies to stay in business. The auction was cleverly designed and I give full credit to the Chancellor and his advisers, who worked out a perfect system under which not enough licences were on offer so the phone companies had to make crazy bids. Of course, disaster followed. The Chancellor now refers to the collapse in the telecom and high-tech industries, but he does not say sorry. He does not admit that taking £22 billion out of the industry had a had impact.
§ Mr. Hendrick
The spectrum that was sold is a finite resource. It was not a form of taxation. A finite resource has to be sold, not given away for free. The state of high-tech and telecom companies is a reflection of America sneezing and industries across the developed world catching a cold, not the sale of the spectrum to British telecom companies.
§ Mr. Redwood
The hon. Gentleman does not understand the magnitude of the sum of £22 billion. It was a prosperous leading industry, but that is a colossal sum of money. The German Government followed the British example and took another £28 billion, making £50 billion of tax. It was a tax. The companies were using the airways free of charge, but the Government saw an easy opportunity to raise some money. Now, of course, the Government do not want to admit that they were part of the cause of the collapse of that industry. I do not claim that the Government were the sole cause, but the hon. Gentleman must concede that taking £22 billion out of the industry had a serious impact. It dried up the cash flows and meant that the companies had to keep prices higher. They could not pay wages, recruit extra staff or expand the networks as quickly as they would have liked. That was the Chancellor's second tax that did a lot of damage.
§ Mr. Chris Bryant (Rhondda)
The right hon. Gentleman is giving away his whole argument. He argues in favour of more private intervention in the health market, but then he says that when auctions were used as a largely market-driven answer to how to allocate a scarce resource—the spectrum—that somehow became a tax. He is confused.
§ Mr. Redwood
I am not confused. The spectrum was available freely until the Labour Government designed a system that was bound to lead to a supertax, because of the bidding rules and the number of licences on offer. If the Government had offered a realistic number of 613 licences, the prices paid in the auction would have been more sensible and affordable. The Chancellor had no understanding of how much damage such a colossal price would do even to a relatively successful industry, which the telecom industry had been until that point.
I come to the Chancellor's third tax. He decided that it would be a good idea, under the cover of greenery, to impose far more taxes on motorists, especially on fuel. He brought the haulage industry to its knees, major bankruptcies were threatened and some haulage companies even decided to give up on Britain and set up on the continent where the tax regimes were more benign. The damage that tax caused got through to the Chancellor, because it led to a mass protest, and—up to a point—he apologised and announced that he would make some reductions in duty after all. He has continued that apology in the Budget by announcing that there will be no immediate further increase in the tax.
I am glad that the Chancellor has learned from that case, but why does he now think it a good idea to impose a tax on jobs? He has tried everything else. He has wrecked the pension funds and the motorists.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)
Has the right hon. Gentleman spotted that yet again the Chancellor is talking the right talk about charging foreign lorries to use our roads? But page 125 of the Red Book shows that such charging will not happen for several years to come. The promise has been made since the protests.
§ Mr. Redwood
The hon. Gentleman is right. The right hon. Gentleman, as a high-taxing Chancellor, could have put equal or higher taxes on foreign competition. He did not even do that to help the domestic haulage industry, which made the protests even more intense.
The Chancellor has tried to wreck several industries. He has been successful in helping to do enormous damage to telecoms, to haulage and to people's savings for pensions. Now, he has decided to tax jobs. That is especially disappointing because he made his reputation in Opposition in campaigning against every job loss that was ever announced under a Conservative Government. Now that we have him in power, he seems to ignore the thousands of redundancies that take place week by week in manufacturing industry under his stewardship of the economy. He is taking the incredible risk of placing an even greater burden upon employers and employees by raising the cost of employment.
I am sure that there are quite a few successful and prosperous parts of the economy that will be able to pay the bill. They will not enjoy paying it but they will manage. However, there will be a serious impact on marginal parts of the economy. The most likely area to be badly damaged is relatively labour intensive and often quite low-wage parts of the economy in manufacturing. That is the area that is most at risk already from all the other Government policies of high tax and high regulation and the current exchange rate. It will now face an additional imposition from the Chancellor. For a Chancellor who has always rightly said that he wants more jobs, more enterprise and more prosperity, it is a great pity that he has now decided to raise so much money in the form of a tax on jobs and enterprise.
There are some clever ideas in the Budget to produce modest relief at the margins for business in response to business lobbying. I agree with these ideas and I am 614 pleased that the Chancellor has introduced them. However, they are swamped by the massive tax on jobs. It is no good for the business community if it receives little pieces of relief here, there and everywhere if it has to pay for them three or four times over because of a massive tax on jobs, which I fear we have.
§ Mr. Howard Flight (Arundel and South Downs)
Has my right hon. Friend noticed that the Red Book, after boasting of the recovery in employment, forecasts that the improvement will not continue?
§ Mr. Redwood
That is a valuable point. I hope that the forecast is wrong, but it is wise of the Chancellor to be cautious. He is placing a considerable imposition upon jobs and job generation.
What would have been a better Budget? It would have been one that recognised the huge contribution that private investment and private money could make to our public services. It would be one that mended fences with the private sector, especially in transport, rather than preserving them in their broken form. It would have been a Budget that contained some humility about what had been achieved so far with large increases in taxation and spending, and one that contained more careful thinking about how we might secure the real improvements that we need in a crucial area such as health.
The Chancellor has gone ahead with the eye-catching headlines on large sums without thinking about how he can find nurses, doctors and other important care workers who so obviously need to be recruited. As a result, we may see more of the same—that is tax and waste—that has characterised the Government's first five years.
§ Mr. John McFall (Dumbarton)
I do not recognise anything that the right hon. Member for Wokingham (Mr. Redwood) was talking about. I have been in this place since 1987, and I was on the Opposition Benches when the right hon. Gentleman was a member of the Cabinet. We then had 3 million unemployed; inflation was in double digits and we had what have been referred to as three booms and busts. They were deep economic troughs. That is the history of the right hon. Gentleman when he was a practitioner in government. He is a clever man, but there is a meanness of spirit in every political utterance that he makes. He offered not one good comment on anything that the Government have done— [Interruption.] Apart from that, he is fine—there is always some good in everyone.
Let us consider what the Government have achieved. We have the lowest unemployment for more than 20 years; since 1997, an extra 1.5 million have been in employment. We have the lowest rate of inflation for 20 or 30 years. For the first time, we are paying back more of our debt than any other British Government since the second world war, as my right hon. Friend the Chancellor of the Exchequer said. There must be something good about what the Government have done. 615 I would like the right hon. Member for Wokingham to intervene to say that a teeny little thing that the Government have done is good; he refuses to do so.
§ Mr. Redwood
The hon. Gentleman did not listen to my speech. I said that I thought that some business tax reliefs were welcome, but that it was a great pity that business had to pay for them several times over.
§ Mr. McFall
That is a right hand and a left hand answer. It seems that there were some good things but they were taken away quickly. Let us pass on that issue.
I judge the Budget on four themes. The first is economic stability, the second is fairness, the third is strengthening public services and the fourth is our presence on the international stage.
Let us take economic stability first. We have that stability because we learned lessons from the past decades. I have mentioned the Tory record in the 1980s and 1990s. Labour Governments had records in the 1960s and 1970s. It could be said that we had jam straight away with Labour Governments, but bread and water for the ensuing few years.
My right hon. Friend the Chancellor said in 1997 that that approach would have to be changed. His brave act, against all the odds, was to give the Bank of England independence. Monetary issues have been taken away from politicians and placed with economists. As Chairman of the Treasury Select Committee, I know that Sir Eddie George and his colleagues on the Monetary Policy Committee are accountable to the Chancellor and Parliament through our Committee. That is much healthier than having monthly meetings between a Chancellor and a Governor of the Bank of England.
There is independence for the Bank of England, and a symmetrical inflation target has been set, which has been a guiding principle in the economy. The MPC has met that target consistently since 1997.
I was in Brussels yesterday for a meeting of the European Parliament's chairpersons' budget committee. We are not in the eurozone, but our monetary and fiscal policy framework is delivering towards the stability and growth pact that the EU is setting down. It is striking that we have low and stable inflation compared with many other European countries. We have the fastest growth in the G8. If we go into Europe, after a referendum, we will be well placed; I shall not go into that debate in more detail.
The MPC is well placed to respond quickly to risks to the symmetrical inflation target. We have a sound model with the Bank of England, which I would not like to see jeopardised. We must be careful in the run-up to the referendum in Europe to ensure that the lessons that we have learned in the United Kingdom are taken on board by the rest of Europe.
My right hon. Friend the Chancellor of the Exchequer has adhered to his fiscal policy. Indeed, he announced today a tightening of that policy by a few billion pounds. The code for fiscal stability has ensured that. In the next few months, the Treasury Select Committee will undertake an inquiry into Europe and fiscal policy to evaluate the lessons that can be learned from the monetary 616 and fiscal framework that was established in 1997, and how that can be affected by our entry, or otherwise, into Europe.
There are five characteristics of fiscal stability: transparency, stability, responsibility, fairness and efficiency. These serve us well in the medium and long term. They ensure that spending and tax impact fairly. That is a big issue, especially when it crosses generations. Currently, we have a pensions problem. The problem is not unique to the United Kingdom. Germany, Italy and other countries have enormous problems in that regard. It is important to treat today's pensioners fairly, but we must also treat tomorrow's adults and pensioners fairly. There is an inter-generational aspect to the problem. The framework established by the Chancellor contains a long-term element and will serve present and future generations well.
We must recognise that a large savings gap exists. Various figures have been bandied about and the sum of £27 billion has been mentioned. That means that each individual should be saving an extra 9 to 18 per cent. for his or her pension provision. As a Government, we have a responsibility to ensure that people do that. I am a little concerned about stakeholder pensions. Although the Government say that there has been a good take-up, employers are responsible for making the scheme available to employees, not for ensuring that pensions are taken up, so there are a number of empty schemes, as they are called.
The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), as Chairman of the Select Committee on Work and Pensions, knows much more about the matter than I do, but I recognise that it is a major issue. I would suggest to the Chancellor that if the voluntary method is not working, he should consider the compulsory route. I see the hon. Member for Roxburgh and Berwickshire indicating his approval.
On economic stability, it is important that we stand by the fiscal rules laid down by the Chancellor. The golden rule is to borrow only to invest over the economic cycle. The second rule is to ensure sustainable investment and make sure that our net debt is well below 40 per cent. over the economic cycle. I am pleased to see today that the Chancellor has fulfilled that.
The second element that I mentioned was fairness. I noted the Chancellor's remarks that he would review the rules for residents and domiciles, and I am a little disappointed. There are glaring examples of individuals who live in the country but pay no British tax. That conflicts directly with the fairness agenda of the Labour party. I ask the Chancellor to examine the issue carefully. Last week The Guardian highlighted the case of an individual worth billions upon billions of pounds, yet there were little or no net tax receipts to the Inland Revenue. It would be helpful if the Chancellor's review were speeded up.
I am pleased by the Chancellor's approach to small businesses. As he said, they are responsible for 50 per cent. of output, and we must assist the nurturing of small businesses. In my constituency, when I was elected in 1987, there were a number of large firms. Those were the norm in the 1950s and 1960s. Now, most large firms have departed and the future is for small firms. Particularly in disadvantaged areas, such as mine, it is important that the 617 maximum help is given to small businesses. I welcome the Chancellor's measures on VAT, corporation tax and research and development.
On research and development, the tax credit announced a few weeks ago for large firms is extremely welcome. We experience a phenomenon known as the branch economy, where we have inward investment and companies coming in, but the brain of the company is located elsewhere. A research and development tax credit could help to ensure the stability of such companies in particular areas and the long-term affiliation with those areas.
Reducing red tape and compliance costs for small businesses and exempting some from stamp duty must be welcomed. Competitiveness was mentioned by the Chancellor in passing. The Competition Commission's report on banks was published a few weeks ago. Small businesses feel greatly disadvantaged in that regard. In the next few weeks my Committee will be inviting the banks to tell us what they have done post-Cruickshank to ensure that small businesses get a fair deal. I would say that to date a level playing field has not been established and an awful lot of work remains to be done.
Competition and productivity go hand in hand. The productivity targets that we have set since 1997 have in many cases not been realised. Productivity levels in our country are still disappointing compared with the rest of Europe and especially compared with America. A study of productivity undertaken by McKinsey in America concluded that the driving force for improved productivity was competition. We can learn from that. We must support small businesses through the Competition Commission's proposals. I and my Committee will be doing that.
In accordance with the fairness agenda, we must support families and build a fairer society. I agreed with the Chancellor 100 per cent. when he spoke of the importance of making work pay. The measures introduced by the Chancellor—the child tax credit, the child allowances and the working tax credits for those with and without children—are extremely important. The more people that we get to work, the better for the individuals, communities and society. From April 2003 the working tax credit will guarantee a minimum income of £183 a week for a single-earner couple without children working full-time on the minimum wage, and £237 a week for a family with one earner working full-time on the minimum wage. That is a big increase which is very much to be welcomed.
There has been some criticism from outside bodies, not least the Institute for Fiscal Studies, that tax credits are a disincentive to savings. I hope that the Chancellor will look into the matter. As long as he is providing satisfactory levels of minimum income, some people may not consider it necessary to save. The Government should consider whether their measures create a barrier to savings.
The third issue of the Budget is the strengthening of the public services. The Chancellor and the Prime Minister recognise that a debate on the subject is needed. A number of hon. Members to whom I have spoken since the Chancellor announced his Budget called his statement 618 very brave. In this Budget, what you see is what you get. The Chancellor said explicitly that if we want a good health service, we must pay for it.
§ Mr. McFall
The reason why the health service and other public services are not as good as they should be is that we have had decades and decades of underfunding. The present Chancellor is brave enough to recognise that and say that if we are to have high-quality public services, we must pay for them.
The right hon. Member for Wokingham, like his colleagues, said that he did not agree with the way that the Chancellor was going, but together with most people in this country, I do not know where the Conservative party is going. I have been on platform after platform with Conservatives, from shadow Secretaries of State down, and what do they tell me? They are studying the matter. We are not studying it. We are implementing a new proposal. The extra £4 billion to be provided this year will be very welcome.
My guiding principle is that if we want a health service, we must have one that is for all of the people all of the time. From what I can gather, the Conservatives are looking at other forms, which will be for some of the people some of the time, or for some of the people all of the time, but never for all of the people all of the time. I stick by the maxim that the NHS should be for all of the people all of the time. The Government will be able to challenge all the other proposals that have been put forward and win the ensuing debate, and that is important.
Let me reflect on the figures announced by the Chancellor today. There is to be a 7.4 per cent. average annual real-terms growth in UK NHS spending for five years, putting the NHS on a sustainable long-term financial footing, and a rise in NHS cash spending per household from £2,370 in 2001–02 to £4,060 in 2007–08, a 48 per cent. real-terms increase and a doubling for every household. Who in this Chamber would not welcome that?
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
The hon. Gentleman makes a serious and sensible speech, with much of which I agree, but we must be careful not to increase people's expectations of the spend. The increases are welcome, but the King's Fund has been at pains to say that if politicians are going around rightly saying that the money is coming, the expectations will increase faster than the rate at which the money comes, and there is a problem about that.
§ Mr. McFall
I always agree with my friend and that really worries me. I shall not fall out with him now, because I agree once again. My next point was that the resources that we are putting in must ensure delivery on the ground. At the last election, many people voted for a Labour Government on condition that we would get things right. We said that we had had four years, it had been tough, but we had the proposals in place, and we asked for another term to get it right.
§ Mr. Tom Harris
My hon. Friend said that the Conservatives would not tell him their plans for the health 619 service. Perhaps I can enlighten him, because the shadow Secretary of State for Health has talked about a four-phase plan, the first phase of which is to break the link between the NHS and health care, and the second phase of which is to convince the people that the NHS will not work and cannot work, and will eventually result in self-pay by NHS patients.
§ Mr. McFall
I was coming on to that.
The hon. Member for Roxburgh and Berwickshire referred to the King's Fund. It stated that the NHS has been overwhelmed with well-meaning policy directives, investment targets and structural changes. In many ways that has been the problem. I agree with the hon. Gentleman. First, because of departmental underspends we must find the knack of teaching the civil service how to spend money, and, secondly, we must aim for decentralisation, so that there is no central command. The hon. Gentleman is right and I welcome the Chancellor's announcement today, but it will be a big job to get things right during the next four or five years.
§ Mr. Redwood
Does the hon. Gentleman not see that for people to have to pay £4,000 instead of £2,300 is not an inviting prospect? They want to know what they will have for the money, not how much extra they will have to pay. For example, can he tell us when people in my constituency will not have to wait for a hip replacement operation when they need one? That would be interesting to know.
§ Mr. McFall
I have never been to the right hon. Gentleman's constituency, but I am happy to acknowledge that there has been a problem with waiting lists. However, the Chancellor acknowledges the problems and is putting in place a structure whereby huge changes can be effected. That is the reality of the situation. I well remember the manifold problems under the right hon. Gentleman's Government. The internal market was a disaster and it took the Labour Government their first four years to correct that. The debate in the NHS will go on and will reverberate over the next few years.
As my hon. Friend the Member for Glasgow, Cathcart (Mr. Harris) said, the shadow Secretary of State for Health has four themes and the big issue behind them is to convince people that the NHS cannot and will not work. What a cynical ploy. That adds up to playing about with people's lives. That will not work and we must counter that argument head on. I am delighted that the right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) and his colleagues will join us in doing that.
I come now to the international stage and the important work of the Chancellor and the Secretary of State for International Development. I applaud the Chancellor's Marshall plan speech in Ottawa and his proposal that the international community should provide an extra £50 billion a year. I also applaud the 2015 targets that were agreed. Already, in Uganda, the Government have doubled primary school enrolment and cut class sizes.
However, in other areas we have not been so successful and we must engage in the great debate in the IMF and the World Bank about the future of aid and development. 620 The Treasury Committee was in Washington in January when we met representatives of the IMF and the World Bank. The United States proposes that we give countries grants not loans. Development agency representatives spoke to us on that subject, but we should not get hung up on the issue of loans as opposed to grants. In many ways I agree with the United States that we must have effective change on the ground, but the plan on which we should concentrate is developing a long-term approach to investment in developing countries. That is the big issue to which the Chancellor and the Secretary of State for International Development should turn their minds.
I see one of my colleagues on the Treasury Committee in the Chamber and we have expressed concerns about the effectiveness of the IMF and the World Bank. In the next few months, we will have the opportunity of questioning Horst KÖhler, the managing director of the IMF, on that issue. However, we must remember that those institutions combined have annual expenditure of more than $30 billion. We have a seat at that table and it is important that we should put our point of view across.
One of the big surprises for me in the past four or five years has been how much interest ordinary people have in the subject of writing off international debt. In my constituency I communicate reasonably regularly with about 2,000 people who have written to me on the subject and want to be kept informed. That is a cross-party issue. The work of the Select Committee on International Development and others on that has been good and I look forward to continuing that work with them.
However, the big issue facing the Chancellor and the Secretary of State for International Development is trade. We should be considering using trade as a force for poverty reduction. The rich countries spend $1 billion every day on agriculture subsidies and the resulting surpluses are dumped on world markets, undermining the livelihoods of millions of small farmers in poor countries. When developing countries export to rich countries they face tariff barriers four times higher than those encountered by rich countries.
Those barriers cost the poorer countries $100 billion a year—twice as much as they receive in aid. We are giving with one hand and viciously taking away with the other. The rules of the World Trade Organisation on intellectual property, investment and services which protect the interests of rich countries must be looked at again and I ask the Chancellor to take that matter up when he meets his colleagues in the international forum. Most of us who have travelled abroad in the poorer countries realise that many of them have one commodity that keeps them going, but that the international community has failed to address the problem of low and unstable commodity prices that have consigned millions of people to poverty. For example, coffee prices have fallen by 70 per cent. since 1997, costing exporters in developing countries $8 billion in lost foreign exchange earnings. We must tackle trade if we are to bring everyone into the global economy.
I shall finish on that issue. It is always said that we have a global economy, but I contend that we do not, as half the people in the world are excluded. Half of them live on less than $2 a day, and a quarter cannot have a glass of clean water. Every minute, a woman dies during childbirth in developing countries. That is the reality that 621 we face. If we are to tackle the issue of globalisation and bring people into the global economy, we must start with the other half of the world population.
We must also recognise that globalisation and terrorism are linked. As ex-president Bill Clinton said in his Dimbleby lecture last year, we can look forward to our children growing up and growing old—say, to 90 years of age—but we do not want them to grow up behind barbed wire. Globalisation has taken the walls down, which means that there will be less security if we do not collectively pursue proper policies. That is our big responsibility, which is why I welcome the Chancellor's statement and urge him to maintain a stable economy, give us high-quality public services, provide fairness to families and increase employment in this country. I urge him to ensure that our voice on the international stage is recognised and that we as a country do a lot for the other half who are not included in the globalisation process.
§ Mr. Andrew Tyrie (Chichester)
I listened with interest to the speech of the hon. Member for Dumbarton (Mr. McFall). At first, I struggled to find anything with which I agreed, but as he got going I started to find common cause on one or two points.
I agreed especially with what the hon. Gentleman said about the Washington institutions, both of which are in a mess. The World Bank is in a dreadful mess, with a huge bureaucracy out of the control of the shareholders, or even senior staff. That is why, as he knows, I believe that there is scope for an Anglo-American parliamentary initiative. Congress knows better than us what a mess those institutions are in and has been looking for allies for a long time to secure fundamental reform, to cut out waste and to ensure that the institutions use more effectively the huge resources that are available to them. I have suggested an initiative in which two committees of the respective Parliaments come together and issue joint proposals. The involvement of America and Britain, possibly with allies from continental Europe, would make a dramatic impact in an area in which there is now great popular interest, not merely among the balaclava-clad brigade but among much more reasonable people who are trying to think how best to deploy resources in the institutions. So there is something on which I can agree with the hon. Gentleman.
The hon. Gentleman asked whether my right hon. Friend the Member for Wokingham (Mr. Redwood) could find anything in the Budget with which he agreed. I can certainly find some things with which I agree, although on the whole, for reasons about which hon. Members will hear in a moment, I think that the Budget is very concerning. I support the reduced small company corporation tax rate; the ending of automatic fines for late payment of VAT and the ending of the requirement for small businesses to write down every VAT transaction in order to reclaim; VAT relief on bad debts; and the backdating of tax relief on charitable giving. I also support the direct payments that are being made to schools, although I am not sure whether the Government have thought through the long-term implications of bypassing local education authorities and increasing such sums—an approach that betokens a profound transformation of the way we fund education. We need to think through the structures more carefully. Incidentally, I welcomed some years ago the granting of independence to the Bank of England. Indeed, I would have liked the Chancellor to go further in those reforms.
622 So, there are some things that the Chancellor has done with which I agree, but I do not think this is a good Budget, although it could become a crucial Budget in the political landscape of Britain. I want to explain why in the remainder of my speech.
Budgets should ultimately be about improving and sustaining the long-term economic performance of the country. Everything should be subordinate to that end, even when we are firefighting in an economic crisis. Distributive aims, including getting money to the poor, are not an alternative policy, because if long-term economic performance is not sustained, there will be no money to distribute.
The background against which all Labour Budgets have so far been announced is the crucial fact that after 19 Conservative Budgets, Britain had been turned from a basket-case economy into one of the leading economies of the world. Every step that the Conservatives took on that road was opposed by Labour. It opposed tax reduction and reform, privatisation, almost all deregulation and the removal of most protection in the economy. The whole lot was opposed. By the early 1990s, even when Britain was in a severe recession, caused partly by a global cyclical downturn and partly by policy mistakes, the British people wanted to stick with those policies and voted the Tories back; they voted to stick with the new economic consensus.
The 1992 shadow Budget was Labour's last great effort to challenge that market-based consensus and get back to tax and spend. It did not succeed in breaking the consensus, but broke itself. That shadow Budget, with its commitment to tax and especially to national insurance contribution rises—not that dissimilar to the Budget proposals announced today—was the main reason why Labour was defeated so decisively in the subsequent election, which took place a few weeks after its announcement. It was at that moment that new Labour was conceived in the minds of the current Chancellor and Prime Minister.
§ Mr. Hendrick
What happened at that time was very different, as there was a proposal to lift the ceiling on national insurance. The hon. Gentleman will know from today's statement that that ceiling has not been lifted.
§ Mr. Tyrie
The Chancellor has raised national insurance contributions, and several rises in NICs have been introduced by Labour in its other Budgets. Is the hon. Gentleman saying now that he has found another way to raise a bit of money from national insurance contributions and that that is all right? Is he implying that if he had made such proposals in 1992, they would have looked any better to the electorate? I very much doubt it. The fact is that it was those commitments to rises in national insurance contributions that broke Labour in 1992 and led to the creation of new Labour.
§ Rob Marris
The hon. Gentleman talks about the political and economic situation in 1992. Does he think that it is better to tax and spend or to do what happened between 1992 and 1997, when the national debt doubled: flog off the family silver, borrow lots of money and spend?
§ Mr. Tyrie
Those comments will lead me into a digression, but I shall try to deal with the hon. Gentleman's point. He suggested that the Conservatives got out of their difficulties in 1992 merely by racking up debt. In fact, they took very tough decisions to bring order back into the public finances in extremely difficult circumstances. As I said, those circumstances were created not only by the global economic downswing—other countries had similar problems—but by policy mistakes, mainly in monetary policy. I agreed that those mistakes were made.
The hon. Gentleman is wrong about the overall debt record; indeed, the Chancellor uses sleight of hand whenever he makes such points. In fact, if he looks at the figures for 1980–1995—they do not vary much from those for 1979–1997—he will see that Britain was the only country of any significance that succeeded in reducing its debt as a proportion of GDP. Every other country experienced a sharp increase in debt as a proportion of GDP: Canada, France, Germany, Italy, the United States, Sweden, Spain, the Netherlands—the lot. One way or another, all were hit by the same kind of crisis, and all racked up debt. Contrary to the impression that the Chancellor gives, we were the only country that coped successfully without racking up debt. Of course, he has been able to reduce debt because the economy is sufficiently strong to enable tax revenues to pour in. Combined with the windfall to which my right hon. Friend the Member for Wokingham referred, that has allowed him to bring down the debt burden.
§ Mr. Tyrie
If the hon. Gentleman will forgive me, I shall not prolong this part of the debate. Otherwise, I will not get around to making the speech that I want to make.
As I was saying, Labour was defeated in 1992 because it said that it would tamper with national insurance contributions. It was elected in 1997 after committing itself to adopting the new economic consensus lock, stock and barrel—even to the extent of accepting Conservative spending plans Department by Department. Until it did so, the country was simply not prepared to trust it with power. The big question now, which will reverberate for the rest of this Parliament, is the extent to which this Budget breaks with that consensus.
Beyond the Chancellor's customary rhetorical fog, I detect that not new Labour but the whole Labour party—including the "borrow, tax and spend" Labour party of yesteryear—is behind this Budget. Perhaps I might illustrate the point with a few words on each of those elements.
On borrowing, the figures might not look too bad, but careful inspection of the Red Book shows that off-balance sheet finance is growing every year. As page 229 shows, if off-balance sheet finance already made is added to planned off-balance sheet finance, we arrive at a figure of £44 billion. According to old accounting principles, in the 1980s and 1990s such expenditure would have scored in the year in which it was incurred. The private finance initiative and public-private partnership are creating huge bills for taxpayers to pay in years to come. Of course, that off-balance sheet finance would have been in the bottom line for borrowing. Borrowing is understated in the Red Book.
624 In any case, borrowing should be all right at this point in the cycle. In fact, it is not that bad, but even so borrowing of £25 billion is proposed over the next two years, and the situation is certainly worse than the figures suggest. Exactly how bad it is I cannot tell, and I do not think that anybody can be sure. I doubt whether anyone in the House—even the Economic Secretary—really has a grip on the numbers in the Red Book. Even as someone who at one time tried to help draft parts of a Red Book, I find it incomprehensible. Changes to definitions of the accounts are mesmerising, and it is impossible to work out what is going on without a degree in Balls-Brown economics.
To ensure clarity, we desperately need to sort out these numbers. We need a fiscal policy committee, independent of the Government, akin to a small version of the congressional budget office. Such a committee, for which I have called for a long time, needs only a dozen people or fewer. Their job should be to draw up truly independent and authoritative accounts, to vet the Government's accounts, to create agreed definitions and to scrutinise the forecast in depth.
§ Tony Baldry (Banbury)
Does my hon. Friend think that we should adjourn each year's Budget debate for a couple of days, to enable us to study the Red Book? Trying to have a public debate is ludicrous when the Government obscure so much bad news by hiding it away in the Red Book.
§ Mr. Tyrie
Parliamentary scrutiny of the Budget is in need of wider reform, and my hon. Friend's idea, which has much to commend it, should perhaps form part of that reform. In the 48 hours after a Budget, the Treasury Committee should engage actively and intensively with it and produce a report in language that parliamentarians can understand, so that they can judge the Budget for themselves. Unfortunately, that is not the way that things are done. I am not even sure that an instant response should be made to a chancellorial statement, which should be treated as a statement. In fact, it is not a statement, even though it is described as such. People should be able to cross-examine the Chancellor on the spot and we should then have a 48-hour delay, after which the debate should begin. I do not feel that strongly about the matter, however, and many might say that that would be a shocking innovation for a process that has been going for some time.
The Government and the Chancellor claim that they are vetting the numbers to which I was referring: after all, they are giving them to the National Audit Office. However, that is little more than baloney. The NAO itself put it on record that it takes little more than a cursory look at the assumptions. It said that, in total, it spends £20,000 on the job. 'When I asked the Bundesbank what it spends to vet assumptions in the German Government's accounts, it said that the resource cost amounts to between £1 million and £2 million. Of course, huge resources are spent on vetting draft American budgets by the congressional budget office. So we should remember that, in saying today that the NAO has concluded that the audited assumptions are reasonable and cautious, the Chancellor said virtually nothing at all.
So much for borrowing and the bottom line, but what of tax and spend? Here, evidence of a change in policy seems overwhelming, with a move away from the 625 previous five Budgets and the economic consensus of the 1980s and 1990s, and towards an earlier position. Taxes are up by 2.5 per cent. of GDP, excluding questionable items such as the working families tax credit, which should be reclassified. Page 216 of the Red Book seems to suggest, at least, that the Government are going to concede ground on how it should be classified. Over the equivalent period in the last two cycles, the Conservative Government managed to reduce the tax burden. Of course, reducing the tax burden is partly a cyclical phenomenon: the Labour Government are putting it up by 2.5 per cent. during an upswing, but we managed to get it down. That is a significant change; in statistical terms, it is quite dramatic.
§ Mr. Tyrie
If the hon. Gentleman will forgive me, I shall make a little more progress. Perhaps he can intervene a little later.
Five years ago, people thought that, under Labour, taxes and the tax burden might at least be stable. They did not hope for tax cuts, but they thought they would not get tax rises. That was when they were listening to new Labour. The Prime Minister told us time and again that he had no plans to raise taxes.
A little over three and a half years ago—just before a Labour party conference—he suggested in an interview that he wanted to get taxes down, not up. That was definitely new Labour speaking, but I do not think that new Labour was speaking today.
Before 1997, the whole of Labour's policy—of which the Chancellor and the Prime Minister were key architects—involved shedding the electoral millstone of a commitment to high taxation and spending. In the Chancellor's earlier Budgets, when taxes came they came by stealth, as my right hon. Friend the Member for Wokingham pointed out. However, this budget is brazen about tax rises. That is certainly not new Labour speaking, but old Labour.
Spending has risen very sharply under Labour—from £341 billion in cash terms to a projected £470 billion in 2005–06. That is a huge increase of £130 billion. Spending is rising so fast that the Government cannot get rid of the money, hence the underspend. Even where it is being spent, much is being wasted in so many areas.
Let me give an example. What happened to the £280 million spent on cancer care in the so-called NHS cancer plan? We have a Select Committee report on that. In evidence to the Committee, Professor McVie said:I think there is still some mystery about where some of the money is and whether the cheque got lost in the post or whether it has been absorbed like creosote into the fence post of the administration of the health service".He went on:I would have thought that seven-eighths of the resource has not yet got out there".The problem is that it is the same story in many other aspects of public spending. Much attention is paid to getting out announcements on increases in spending, but little care is given to thinking how best to deploy and use that money.
When the Conservatives increased NHS spending by 6 per cent. in real terms for several years—something that is often forgotten—they allied those increases to radical 626 changes in the structure of the NHS. As a result, there were huge productivity gains, measurable in output terms and available as public statistics. I am prepared to wager that we will see little in the way of productivity gains over the next few years from the new spending increases. I am sure that if we keep a constant series going—I would not mind betting that the Government are trying to find a way to end that series—we will still see a fall in productivity.
So far I have talked about financial policy—getting monetary and fiscal policy right. However, the supply side is at the heart of improving economic performance, and new Labour has never taken on board that part of what is required to make an economy successful.
§ Jim Knight
I question the premise of the hon. Gentleman's argument about breaking the consensus. I put it to him that the Conservatives cut spending dramatically, leaving the Labour Government to inherit an under-resourced and under-invested health system. The Conservative party now seems to agree that we need to increase spending on health, but thinks that the money needs to come from people's pockets in a different way. That is what the debate is now about. If the hon. Gentleman wants to go back to the 1990s, we can talk about boom and bust and the 22 tax rises. Let us instead move the debate on and discuss how to rebuild and reinvest in our NHS.
§ Mr. Tyrie
The hon. Gentleman attempts to make an honourable intervention, but he does not know many of the facts. The NHS saw a real-terms increase of 3.2 per cent. a year on average throughout the time of Conservative government. Health spending grew faster than the increase in gross domestic product for the same period, which was nearly 2.8 per cent. In other words, the NHS absorbed a steadily increasing share of GDP throughout an 18-year period, which is a long time. The hon. Gentleman is wrong about what went on.
The question before us is whether Labour has learned the lesson that increased taxation can easily and dramatically reduce economic performance. That is the heart of the matter. Has it learned that spending alone does not solve problems? Like spending in a business, it is the quality of the investment that counts. That is what determines whether extra spending is translated into better and more services.
Let me return to supply-side reform—I have been slowed down by intelligent distractions from various quarters. Supply-side reform is at the heart of improved economic performance and Labour has never had its heart in that. The plain fact is that the economy is being clogged up with intervention and subsidy everywhere. Over the past five years, subsidies have come from all quarters. There have been subsidies for the coal industry, the airbus, the car industry, for films and much else. There has been a massive increase in regulations on the utilities, financial services and employment bureaux. There is a new body of regulations for everything.
The public sector has been given the same treatment. Hon. Members only have to go to their local schools and ask about the increase in regulations to know that. Indeed, the same story is given by those who run primary schools. I was going to spare the House an anecdote about a school in my constituency, but I am beginning to enjoy myself. A school with an experienced headmaster got no fewer 627 than six questionnaires, each of which he said would take him several hours to complete. They were sent by central Government via the local education authority and came with a note saying, "Congratulations. You've been chosen at random to help us find out more about how to improve the education system." He was sick of filling in forms and worked out that it would take him many man hours to complete them, so he pinned them together and wrote back saying, "Congratulations. You have been chosen at random to receive these unanswered. What I want to do is get on with some teaching." I have every sympathy with him.
The structure of the tax system is crucial to an efficient economy. A huge number of distortions has been put into the system. The hard work of nearly 20 years of simplifying the tax system has been put into reverse. Hon. Members should not take my word for it—the British Chambers of Commerce said a while ago about capital gains tax:The CGT system is now so complex as to be almost unworkable. Many businesses say they and their accountants are just unable to work out their CGT liabilities.That is not a satisfactory state of affairs, but so it goes on. It is the interference with, and distortion of, the millions of micro-economic decisions throughout the economy that will ultimately reduce the economic performance in this country. That is what is so pernicious.
On tax above all else the Chancellor has explicitly abandoned the crucial plank of something to which the public thought Labour was committed. They thought that Labour had learned its lessons on tax and they believed the Prime Minister when he said that he had no intention of increasing taxes. Today, however, the Chancellor made it clear that he is prepared to raise tax, and by large amounts.
New Labour came into existence out of the decision by the Chancellor and the Prime Minister in opposition to abandon tax and spend, but the Chancellor has now put up national insurance contributions, the very tax commitment that sank them exactly 10 years ago. It is almost 10 years to the day since Labour's 1992 election defeat.
It looks as if the Chancellor may have taken the word "new" out of new Labour. It is for that reason above all others that the Budget could come to be seen as a turning point in British politics. This day may come to be perceived as the one when Labour broke with the consensus of the 1980s and the 1990s. It may be the day when new Labour returned again to being just the Labour party.
§ Mr. James Plaskitt (Warwick and Leamington)
The Chancellor referred to the three main challenges that he was aiming to address in the Budget. The first was boosting enterprise, the second was securing family prosperity and the third was improving public services. The enterprise objective was rightly set first. It is, after all, the foundation for achieving progress on the others, and it is on that aspect that I shall focus my comments.
We have spent much time on the Treasury Committee and elsewhere considering the productivity challenge that the British economy faces, and my hon. Friend the 628 Member for Dumbarton (Mr. McFall), who chairs the Committee, mentioned that in his contribution. There certainly is a challenge for our country in terms of the productivity gap. There is also something of a paradox because many of the things that need to be in place to secure a productive economy are already in place in the British economy. We have, for example, a high level of employment. Indeed, that has risen even further since 1997 and now stands at an historic high.
We have a relatively flexible labour market, which is another important precondition for productivity. Our economy is very successful at attracting inward investment—indeed, it is the most attractive centre for such investment in the whole of the European Union. All those important preconditions for productivity are present—they have improved further since 1997—yet there is still a productivity gap between our economy and those of our major competitors.
The important question for us to address in this Budget, as in all Budgets, is what we are going to do to help to close that productivity gap and so boost the prosperity of our economy. The first essential element to have in place is economic stability. Without that, any amount of measures targeted specifically at increasing productivity simply will not do the trick. Economic stability is crucial to business confidence, critical to secure investment and important to secure enterprise.
The fundamentals for economic stability are clearly in place. We put a key one in place when we came into office by giving the Bank of England its operational independence. That has delivered low, stable interest rates, which play a crucial role in delivering a stable economy.
§ Mr. John Hayes (South Holland and The Deepings)
The hon. Gentleman spoke of a paradox. Does not the real paradox involve wanting to stimulate enterprise in the way that he describes—he mentioned inward investment—while at the same time wanting to interfere and to regulate? I shall give him one example, which was also mentioned by my hon. Friend the Member for Chichester (Mr. Tyrie): the ever more complex tax system. Does the hon. Gentleman believe that the tax system for small and medium-sized enterprise in this country will be simpler or more complicated as a result of this Budget?
§ Mr. Plaskitt
The performance of the small and medium-sized business sector speaks for itself, and answers the hon. Gentleman's question. Shortly, I shall cite some surveys that show exactly how the small and medium-sized enterprise sector is performing in our economy, compared to the economies of our main competitors. Those surveys paint a very encouraging picture of the British economy. That simply would not be so if the hon. Gentleman's accusation that the sector was overburdened with regulations were true. I will return to that point shortly.
§ Jim Knight
Prior to being elected, I was the manager of a small business in Wiltshire. I know that the 2,000 small businesses in my constituency will be delighted with the changes in VAT in the Budget. The flat rate for VAT for businesses whose turnover is currently less than £100,000—extending to 750,000 in April—is tremendous news for our small businesses.
§ Mr. Plaskitt
My hon. Friend is right. That proposal will be widely welcomed. As a point of contrast, and to 629 pick up the point made by the hon. Member for South Holland and The Deepings (Mr. Hayes), we could have a debate about the scale of regulation in particular areas, but it all pales into insignificance when we recall the cost to businesses of the 15 per cent. interest rates that they had to endure when the Conservatives were in government.
§ Mr. Hayes
I appreciate the experience of the hon. Member for South Dorset (Jim Knight) in these matters. I was the director of what became a medium-sized business—clearly it was a more successful company than that of the hon. Gentleman—so I have some experience of these matters as well. Speaking of things paling into insignificance, the changes announced today that were positive for small and medium-sized enterprises are greatly outweighed by the increased national insurance contributions that employers in that sector will have to pay as a result of the Budget.
§ Mr. Plaskitt
I do not think that the hon. Gentleman is reflecting sufficiently on the reasons for the national insurance contributions being increased. Is he really saying that there is no return whatever for any business—small, medium or large—from a greatly improved national health service? There most certainly is, and it is perfectly right and proper that businesses can contribute to that just as much as individuals can.
I was in the process of listing the fundamentals that need to be in place to tackle the productivity agenda, and I mentioned monetary policy. Interestingly, there is now very little argument in the House about the positive contribution that has resulted from introducing the independence of the Bank of England, although there was at the time of its introduction. Fiscal discipline has also played a key part, and continues to do so. This has been reinforced by the measures announced by my right hon. Friend the Chancellor today. Low rates of business tax also play an important part, and a combination of all these factors has resulted in an end to the boom and bust cycle. That cycle did more harm to business stability than anything else.
The British economy has now had nearly 10 years without a single quarter showing negative growth. We need to go an awfully long way back into history to find circumstances such as these. The Chancellor's forecasts announced today suggest at least another four years of these economic conditions. This is a platform of stability that British business has not enjoyed for a generation.
§ Mr. Plaskitt
The right hon. Member for Wokingham (Mr. Redwood) stood first, so I shall give way to him.
§ Mr. Redwood
Does the hon. Gentleman see the irony of Labour Members urging the private sector to greater productivity when it is their Government's policy to ensure that there is a massive decline in the political classes by saying that MPs cannot do the job and that we need all sorts of other elected people all round the country to do part of the job for us? Does he also see that lower productivity—or lower output per person—is sometimes desirable, because it is the Government's policy to have 630 much shorter working hours for doctors, which will naturally lead to much lower productivity in the health service, rather than producing better working conditions?
§ Mr. Plaskitt
I would willingly take any point that the right hon. Gentleman made on productivity if his party had had a record, when in office, of being able to turn the magic key on productivity. In all of its 18 years, however, it did not. The right hon. Gentleman should have a little more patience with our measures, and show more understanding of what is resulting from our efforts, given that lamentable record.
§ Mr. Plaskitt
Because the hon. Gentleman serves on the Treasury Committee, I will give way to him, then I want to make some headway.
§ Mr. Plaskitt
No, that does not follow. Many of the other factors that were present at the end of the first four or five years of growth, in 1997 when his Government left office, were threatening the continuation of that growth. Rising inflation and the very high level of debt alone suggested that that growth might well have come to an end unless important measures were implemented, such as those that we introduced when we came into office. There is therefore an error in the hon. Gentleman's logic.
The conditions that I have outlined were necessary to secure an increase in productivity, but they were not in themselves sufficient. It is therefore right that we should do more to promote enterprise, to improve the skill base of the economy and to promote investment and innovation. I was pleased to hear that my right hon. Friend had something to say about all those important areas in his statement. The Budget needs to be judged in part—probably in substantial part—on the basis of the contribution that it makes to those objectives.
I understand, because of the obvious concentration on it, that most of the debate about the Budget may well revolve around the national health service. That is entirely understandable. In acknowledging that, I would like to point out that we should not overlook the question of productivity in relation to the NHS. Productivity is just as important there as it is in other parts of the economy. I would encourage Members to read the section of the Wanless report that debates the issue of productivity in the national health service—it is paragraph 5.31, if Members want to have a look at it. It shows the impact of achieving our health service objectives in terms of getting the productivity question right.
Wanless has as his central case a projection that health spending will rise to 11.1 per cent. of gross domestic product by 2022. He points out, however, that if health service productivity is 1 per cent. per annum worse than his forecast, spending would have to rise to 13.1 per cent. of GDP in 2022 to achieve the same health service output.
631 Conversely, if productivity in the health service is 1 per cent. per annum better than his central case, the same health service output will be achieved with spending having to rise only to 9.4 per cent. of GDP. In other words, over a 20-year period a 1 per cent. fluctuation up or down in productivity inside that important public service amounts to a 3.7 per cent. of GDP differential—at today's prices, £35 billion, all resting on getting the productivity equation right inside the NHS. If that is true of the NHS, one can imagine how true it is of the whole economy, including the private sector. Small alterations and improvements in productivity performance can have a huge impact on the economy's overall performance. It is therefore right to make enterprise the first priority and to do what we can to promote it.
Small companies are very important in this context. There are about 5,000 in my constituency alone, and nationally they contribute about 45 per cent. of total output. The number of small businesses has grown every year over the past five years, and there are now 40,000 more than in 1997. The Government have already taken several measures to help small businesses, including the reductions in small business corporation tax introduced in recent years, the shortening of the capital gains tax asset taper and the introduction of the Small Business Service.
In 2000, when the Economist Intelligence Unit surveyed the 60 largest economies in the world to assess how good they were as a place to do business, the United Kingdom economy came second. Another survey by the Fraser Institute ranks the UK second overall in terms of business freedoms. I urge Conservative Members, who are fond of raising concerns about so-called over-regulation, to ponder the conclusions of those surveys. The Fraser Institute puts the UK economy third out of the world's 22 largest in terms of its use of markets and first in terms of property rights. All those factors are vital in delivering improved productivity. Such findings belie the charges that are made with monotonous regularity about an over-regulated business sector.
Given that those are important targets to aim for, my right hon. Friend's Budget contains some very welcome measures, including the extension of the research and development tax credit, further exemptions on capital gains tax, intellectual property recognition, further reductions in corporation tax, especially targeted at the small business sector—the basic rate goes down from 20 per cent. to 19 per cent. and the starting rate goes down all the way to zero—the simplification of VAT and help with payroll. All those measures will he warmly welcomed by small businesses in my constituency and throughout the country.
To make further progress on productivity, it is vital to do something about the skill base in the economy. It is a knowledge-driven economy; increasingly, the ability of people in work to perform effectively is the determinant in improving productivity.
I welcome the further announcements on education investment, which is a capital investment in tomorrow's economy. We have made good progress in primary and secondary schools on literacy, numeracy and increased standards, but a big challenge remains as regards the existing work force. The report by the Organisation for Economic Co-operation and Development reminds us that the UK has a higher proportion of low-skilled workers 632 than any of our major competitors. Reskilling those currently in work plays an important part in developing the skill base that we should not overlook. I therefore welcome the measures to increase the scope for learning provision for employees by giving financial support to employers who release members of staff to take up training opportunities. It will be interesting to see the outcome of the employer training pilots in different parts of the country. They could make a significant contribution to increasing the skill base in the economy.
The whole question of investment is crucially linked to meeting the productivity challenge. The UK has a history of under-investment, although that is improving. In 1997, investment as a share of gross domestic product was 17.2 per cent. It is now about 19 per cent., so it is moving in the right direction, but it must go further if we are to meet the productivity challenge. Much has already been done to help to stimulate investment, including the research and development credits for small business—now extended—the planning reforms, which were particularly welcome in areas in need of regeneration, the stamp duty exemptions and the single pot funding for the regional development agencies that was introduced earlier this month.
It is important to deal with the innovation gap. A paper by the Institute for Fiscal Studies largely attributes the UK's productivity gap to the greater levels of innovation secured by our competitors. Promoting research and innovation is vital to meeting the productivity challenge. I was pleased to hear my right hon. Friend announce additional investment in universities and colleges, because they are often crucial centres for securing innovation, which flows out into industry and is taken up and turned into investment, in turn boosting productivity. It is therefore vital for the Government to invest in the research base in our universities.
I sound a note of warning to the Treasury about that, and I shall listen with care when the detailed announcement is made. How evenly spread will the additional money be? There has been a tendency to concentrate additional investment for university research on the top 20 or so universities, which, although they are the top universities for academic attainment, are not always the most appropriately placed geographically for spinning off innovation into industry. I enter a plea for colleges and universities in the west midlands, many of which—including Coventry university and, in my constituency, Warwickshire college—have developed strong links with the automotive industry. They have a considerable record on innovation that has been picked up by that industry and used to help it to promote its products and win markets, to the benefit of the whole economy. Nevertheless, they, and others like them, find that their research funding is declining. I hope that that process can be reversed. Will the Minister take that on board and talk to his colleagues about how the welcome increase in overall funding for innovation will be spread around? We will get a better return on it if it is directed towards educational centres that have already established proven, close links with manufacturing industry in particular.
Of course, higher taxes were announced in today's Budget—higher levels of national insurance to fund the national health service—but set against that is the contribution made by the sound fundamentals of the economy, which play a much more significant part than the increase in one tax. Total spending on the NHS, which 633 is currently £65 billion a year, is scheduled to rise to £105 billion by 2007. A rise of that scale would be nowhere near possible if we had not put in place the sound fundamentals of the economy. Most of that additional investment is delivered by the strong performance of the economy, not by the one particular tax increase that was announced today. It is only possible and can only continue if we go on putting the enterprise objective first.
The Budget does that. It helps us to meet the productivity challenge and thereby to deliver greater fairness. Enterprise and fairness have gone hand in hand under previous Labour Budgets since 1997. Together they have taken a further step forwards today, and that should be broadly welcomed.
§ 7.9 pm
§ Tony Baldry (Banbury)
I have entered my various interests in the Register of Members' Interests. I suspect that the Budget will be remembered as the bingo Budget; the Chancellor probably hopes that it will mean, "No. 10, Tony's den." However, it will require more than fiddling around with bingo prizes and reducing tax on beer in time for the World cup to persuade the country that the Chancellor has its best interests at heart.
Let us consider the Chancellor's intentions for small brewers. They are a classic example of giving the impression of helping a specific sector on Budget day when the small print shows that it is not being helped. The Hook Norton brewery is based in my constituency. It is an excellent, small, independent family brewery. I predict that the Budget proposals for brewers will not help it at all.
I suspect that the Chancellor told his policy advisers to go away and think the unthinkable for the Budget. Indeed, for many small and medium-sized businesses, the Budget is unthinkable not least because of the substantial extra tax burdens that they will have to bear. I shall examine with interest the unemployment figures in the constituencies of Labour Members who spoke in the debate. It will be interesting to watch unemployment increase there year after year through the impact of the burdens on business.
The problem is not so much what the Chancellor does as what he persistently fails to do. He said repeatedly that he supported an enterprise economy. I was struck by recent statements from the Treasury and Downing street. Last month, in an interview with the Financial Times, the Chancellor claimed that he would actby encouraging people not just to make the most of their opportunities in education and employment but helping start businesses and being on the side of people as they strive to become self-employed or create a business".To whom was the Chancellor referring? I am afraid that his affirmation does not chime with the experience of most business people in north Oxfordshire. Indeed, they are struggling with mounting piles of red tape and ever more detailed micro-regulation of their companies.
I recently conducted a survey of every small and medium-sized business in my constituency. Almost all businesses complained to me about the excessive amounts of red tape that they have to tackle. Almost all believed that their businesses would be better off without the Treasury's burdensome intrusiveness. I commend to hon. Members three comments by business men in the Cherwell valley.
634 A well known international food manufacturer and an important local employer commented thatred tape impacts on every employee. Approximately 5 to 10 per cent. of work time is spent on red tape.No wonder our competitiveness is falling behind that of other countries in the European Union and elsewhere.
Another employer finds the forest of bureaucracy so daunting that he asserted:If I tried to understand all the legislation it would take all my time. I therefore ignore it all and run my business in a professional, fair and honest way and hope that we work within the law".How can the Chancellor claim after today's Budget that the Government are encouraging enterprise? The comments of another director of a small business in my constituency show the stranglehold and constraint of red tape. He said:at least two thirds of my time is wasted dealing with this. Without it I could be a much bigger company, generating significantly more taxable revenue".Surely that is the sort of entrepreneur that the Government claim they are out to encourage: a good, caring employer.
I have cited the comments of employers from the Cherwell valley and north Oxfordshire, one of the most successful economic areas in the United Kingdom. If employers and businesses in my constituency are experiencing such difficulties, what must it be like in other parts of the country where there are greater problems for industry?
Notwithstanding the simplification of VAT forms for small businesses that the Chancellor announced, a massive void gapes between the fact of running businesses under the Government and the fantasy of the Chancellor's wild claims of help for employers.
Although I welcome the incentives that the Chancellor announced for employers who allow employees time off for training, they will sound hollow to many employers and people involved in training when they reflect on the experience of individual learning accounts. We have been here before, and not long ago. Individual learning accounts were scrapped because they were so successful and the Treasury discovered that they were costing more than they thought.
§ Tony Baldry
No. I want to make progress and many hon. Members wish to speak.
The Chancellor presents a load of gimmicks, which resemble baubles on a Christmas tree. He hopes that they will appear attractive, but also that they will not be used or that they will prove so complicated that no one will work out how to use them a few days after the Budget statement. I suspect that they are intended to look good only in one of those little boxes in a newspaper. Like the hon. Member for Warwick and Leamington (Mr. Plaskitt), they give the impression that the Government are doing something. The hon. Gentleman's local newspaper will be able to say that the Government are doing something for Warwick university. It is not clear what they will do for universities, but that will not matter in a week because the right Budget headline and soundbite have been obtained.
One has only to glance at the latest growth rates for the UK to realise how sorely stimulus for business is needed. I understand that when the Chancellor took over at the 635 Treasury, overall growth in the UK was, at 3 per cent., second only to that of America. It was twice that of the eurozone's slightly dismal 1.5 per cent. It has now fallen by a significant 0.5 per cent. The UK has failed to keep up with America and the average growth of prosperous Organisation for Economic Co-operation and Development countries. We have even been overtaken by that notorious shire horse of an economy, France.
The gulf that has grown between financial services and the manufacturing sector is especially worrying for businesses in north Oxfordshire and elsewhere in the country. Financial services have prospered better under the Chancellor's Budgets than manufacturing, but neither has prospered much.
Little in today's Budget will alter the decline in manufacturing industry. That is especially worrying for all businesses in the Cherwell valley and elsewhere for two reasons. First, it proves what they already know: not all parts of the UK economy have been doing well. Despite the Chancellor's mantra of no more boom and bust, there has been bust in manufacturing.
The Government produce their Red Book only on the day of the Budget. It is a pity that we do not have time to study it for longer. However, those who have had the opportunity to give it the most cursory glance know that the Government's Budget forecast makes it clear that even they expect manufacturing output to continue to contract and exports to continue to fall. We are a global trading nation; we have traditionally exported more per head of population than any other country in the world with the recent exception of Japan. If UK exports continue to decline, that is bad news for employment and all our constituencies, but especially for marginal seats represented by Labour Members. Those hon. Members may find that their seats become more marginal as a consequence of the Budget, which does not contain significant initiatives to redress the decline properly.
The second and more significant reason for manufacturing industry's poor performance under the Chancellor is that manufacturing businesses have too often borne the brunt of the Treasury's increasing burden of tax and bureaucracy.
May I give a simple example? One of the larger employers in my constituency is General Foods, which makes Maxwell House coffee. Over the years, it has probably invested millions of pounds in making its plant energy efficient. Notwithstanding that, it is still hit by the climate change levy, which is simply a tax on business and competitiveness.
We must read the small print, but the Chancellor announced that there will be help for those who invest in energy efficiency equipment. However, he must know that most major energy users have already invested substantially in such equipment. The policy sounds good, but take-up will be minimal because businesses such as General Foods have already invested in energy efficiency. Again, the contribution to their competitiveness is meaningless.
A recent Sunday Business article points out that legislation relating simply to taxation runs to more than 6,000 printed pages, and I sense that the north Oxfordshire business community is deeply concerned that financial services will suffer under the same burden of bureaucracy 636 as manufacturing. I ask the House to consider a letter from a financial services director, which responds to my pre-Budget survey by saying thatthe entire financial services industry is about to suffer further regulation … this action is going to cause massive upheaval, with vast sums of money being wasted for regulation's sake. This action will inevitably cause more confusion for the consumer … at a time when the Government is meant to be encouraging free trade and the expansion of small businesses, this legislation is totally contradictory.Again, the difference between the fact of running a business and Government fantasy is striking.
Independent forecasters such as the Institute for Fiscal Studies have said that productivity is down, investment is down and competitiveness is down. Thus, consider three other concerns of the Cherwell valley business community: corporation tax and capital gains tax, petrol tax, and stamp duty and national insurance contributions. I shall deal briefly with them, as they were dealt with by the Chancellor.
Candidly, corporation tax and capital gains tax have not recovered from the decisions taken by the Chancellor in previous Budgets, and clearly businesses needed a significant cut in both in this Budget. On the face of it, employers got that, but we see that it is not all that it seems if we look more closely. I am particularly concerned that the tapered system for capital gains tax introduced by the Treasury, rather than encouraging enterprise as intended, has stifled it with yet another convoluted and complicated tax system. So, while I welcome today's capital gains tax cut, the complicated resource-sapping system remains.
On corporation tax, advance corporation tax is perhaps the most recent concern, as the Government ended the tax credit system in a previous Budget. Clearly, the effect is "profound", as the Financial Times observed:For a start, the hit to pension funds will be serious … those with personal or deferred contribution pensions will have to accept lower pensions or contribute more".The Budget has not adequately addressed employers' pension problems, and I shall return to what I believe is a genuinely straightforward part solution to that serious difficulty. It strikes me that the issue of tax on business is becoming one of lack of balance.
The Chancellor also said that he is doing something for research and development. Again, we must read the small print closely. On research and development tax relief and an approach by Treasury advisers, I ask the House to consider the fact that one company—a significant investor in research and development—said thatthe sad and almost tragic reality is … none had realised the financial implications … and realised that 17 per cent. of the credit would go to one company and 60 per cent. to the top ten".Had the advisers done so,they may almost certainly have given a different response".In a few weeks or perhaps months, it will be interesting to see who has benefited from what the Chancellor said today about research and development benefits. Interestingly, he referred to larger companies, but I suspect that they do not need assistance. Often, fledgling, growing companies need research and development tax help.
On petrol tax, the Chancellor's approach is cynical. The Budget freezes fuel duty, but we know that the Exchequer will maintain revenues from the tax because of rising oil 637 prices. The plain fact is that petrol tax is disproportionate to that in eurozone countries, so it is perhaps no surprise that our growth is declining compared with theirs.
Stamp duty, which the Chancellor has removed in deprived areas, is effectively a mobility tax. Constituencies such as mine are desperately trying to attract key people to work in the public services—nurses, police officers and teachers—but stamp duty is simply a further tax that deters them from moving to such areas, where house prices are high. Therefore, the tax that must be paid on buying a house is also high, so it is perverse of the Chancellor to remove stamp duty from economic black spots. He should consider reducing or removing stamp duty in areas such as mine, because those who want to come and work in key sectors of the economy are finding that very difficult.
§ Mr. Hendrick
Does the hon. Gentleman accept that reducing stamp duty in constituencies such as his would increase house price inflation and make moving there even more difficult?
§ Tony Baldry
No, not at all. Stamp duty is simply a tax on mobility. It deters people from moving and is, in many ways, ludicrous and anachronistic. Frankly, if I were an officer in Thames Valley police wanting to move to Banbury or a nurse wanting to move to Oxford to work at the John Radcliffe, I would not be particularly happy that people in some parts of the country are being let off stamp duty while I would have to pay a hefty sum. As days go by, Labour Members will begin to regret the inclusion of such divisive measures in the Budget.
§ Mr. Kevan Jones (North Durham)
Does not the hon. Gentleman recognise that in constituencies such as North Durham, where it is difficult to get certain sites developed, abolishing stamp duty will allow development that would not otherwise take place? Therefore, abolition will help to regenerate the economy of such areas.
§ Tony Baldry
For a number of years, I was a Minister at the Department of the Environment, and I had responsibility for the construction industry for four years. I am bound to say that I cannot recall a single occasion on which someone in the construction industry said to me, "We are not going to develop areas such as Durham, the north-east and elsewhere unless you remove or reduce stamp duty." That just did not happen.
It was widely predicted and widely trailed that national insurance contributions would rise. We now know that they will rise by at least 1 per cent. —a tax hike. It is difficult to calculate by how much tax will increase as a consequence of the Budget, so we must look to page 14 of the Red Book. Through some swift maths, my rough and ready calculation is that the tax burden will increase by £8 billion in the financial year 2004–05 alone. That will not come out of thin air; it will be a burden of taxation on individuals and businesses.
§ Mr. Plaskitt
If the hon. Gentleman is concerned about the tax burden, has he also noted on page 218 of the Red 638 Book a table showing total current receipts to the Government at 40.1 per cent. of GDP this year, but at 40.2 per cent. in 2004–05?
§ Tony Baldry
As one of my hon. Friends said earlier in the debate, the only time the Labour party is really happy is on Budget day, because it can put taxes up. The hon. Gentleman clearly does not appreciate that taxes have to he paid for by someone—by businesses and individuals. Perhaps tomorrow he will appreciate that an £8 billion tax hike in a single year must be paid for, and will come out of the pockets of individuals and businesses in his constituency and in mine.
That leads me to the second comment by the Prime Minister that I found striking in the build-up to the Budget, when he asserted that we could not have world-class schools and hospitals unless we were prepared to pay for them. I suspect that over the next year we shall find that the real problem of the Budget is that the delayed and disfigured tax hikes will not provide a clear and delineable view of which taxes are spent where and when on public services, even with an annual report to Parliament. It will take some time for that money to get through to public services. People will expect public services to improve and I am sure that next winter I shall still be receiving as many letters from constituents in Banbury, Bicester and the villages of north Oxfordshire expressing concerns about cancelled operations, waiting lists and inefficiencies in the NHS. Those problems are not the fault of NHS staff, but next year people will feel even more frustrated because they will be paying more in tax but still not getting a better service.
Today's Budget raises taxation substantially, and much of the burden of that taxation will fall on businesses. Such taxes make businesses less competitive and less able to create jobs. No wonder the Prime Minister was so keen, at Prime Minister's questions, to trumpet the fall in unemployment. He knows—indeed, the Red Book tells us—that the Government now expect unemployment to increase. Never in the history of this country has the state taking more, taxing more, spending substantially more and controlling more led to greater individual and collective wealth and happiness.
I agree with my hon. Friend the Member for Chichester (Mr. Tyrie): the Budget is a turning point that—let me return to my earlier analogy of a bingo Budget—in due course will mean that No. 10 is longer Tony's den.
§ Mr. Mark Hendrick (Preston)
I welcome the Budget. As the Chancellor said, it has been drawn up in an environment of the lowest inflation and interest rates that this country has seen for 40 years. For families and home owners in my constituency, in Preston, Walton-le-Dale and Bamber Bridge, it is a tremendous boost.
Unemployment in this country is lower than in the rest of Europe, Japan and the United States. While there have been some job losses in manufacturing in my constituency, those jobs are being replaced by new jobs, and millions of pounds are flowing into it.
The Budget has shown that Labour is the party of enterprise. I am the first Labour Member in Lancashire to be an honorary vice-president of the central and west Lancashire chamber of commerce. I am as proud of that as I am to be a member of the GMB trade union. 639 Labour is also the party of fairness, and today's Budget is one for the public services. Millions of people throughout the country will benefit as we generate an economy that brings prosperity to the country as a whole.
The decision to give the Bank of England independence on interest rates was bold and courageous. As the Chancellor said, since then, there have been seven cuts in interest rates. Let us contrast that bold move with the recent statement by the right hon. Member for Wokingham (Mr. Redwood), who said:We think it was a big mistake. We opposed it at the time. We said no good would come of it.The facts speak for themselves: interest rates are at their lowest for many years.
Many people believed that the events of 11 September and the war against terrorism would cause a great deal of economic instability, not only in the United States but throughout the developed and developing world. What we have seen since then is a testament to the management of our economy by my right hon. Friend the Chancellor. Worries about future growth and stability have already all but disappeared. The world economy will grow, but stewardship of our economy has shown that it will grow more in the UK than elsewhere. In the past year, we have seen growth of 2 to 2.5 per cent. and we expect growth of 3 to 3.5 per cent. next year and 2 to 2.5 per cent. the following year. Those healthy low-inflation growth rates are consistent with a stable economy.
As someone with my eye firmly on the conditions for joining the euro—I look forward to a referendum in this country—I am pleased to see that debt is now considerably less than 40 per cent. of GDP. Given that debt stands at 30.4 per cent. of GDP and that the Government have repaid some £37 billion of debt, we are in a tremendous position and will be the envy of many of our European partners. I was struck by the concern of the hon. Member for Banbury (Tony Baldry) about exports. I share that concern but believe that if we joined the euro, we would win considerably more exports and see an even greater recovery in manufacturing.
The Chancellor announced £4 billion extra in public expenditure. That will help Preston, which is a new, proud city that is central to the provision of public services for the whole of Lancashire. Its first-class hospital will benefit from increased NHS funding, and it has some first-class schools and an excellent police force. Preston is looking to the future. However, that money will need to be matched with expenditure on modernisation and reform. Despite the good provision of services in Preston and the rest of Lancashire, there is no room for complacency. We must have modernisation and reform to make those services even better, and I look forward to seeing that in my constituency.
Business investment has increased from 10 per cent. of GDP to 12 per cent. That shows business confidence, and confidence in the Government's handling of the economy. Corporation tax has gone down from 33 to 30 per cent. Research and development tax credits will bring some £400 million extra to our R and D companies. As a former scientist and engineer, I recognise the importance of R and D to the development of new products, trade and economic growth. My constituency has people employed in aerospace, nuclear power, software and computing, and 640 the country's eighth largest university, which spends millions on research and development. The proposal is very welcome.
My constituency also has many small businesses, and their tax rate has gone from 23 per cent. down to 21 per cent., 21 per cent. down to 20 per cent., and, now, down to 19 per cent. As the Chancellor mentioned, the starting rate is now not 10 per cent. but 0 per cent. Capital gains tax has also been cut. I am sure that small firms in Preston, Walton-le-Dale and Bamber Bridge will all welcome that.
I was surprised to hear comments from Opposition Members about red tape when, today, the Chancellor has again made proposals for simplifying VAT that will benefit all businesses. The flat rate will not just be for companies with turnovers of less than £100,000 but for those with turnovers of less than £150,000. The flat-rate system will greatly reduce the amount of form filling, and the deferred VAT payments will significantly reduce the complexity of making VAT claims. Firms are to be encouraged to go online—e-finance, which is known in Lancashire as "ee ba gum" finance—to which I am sure firms in my constituency look forward. The introduction of 2,000 identified enterprise areas, which will receive 0 per cent. stamp duty status, will be a tremendous boost. There are still many areas up and down this country, which were and still are industrial areas, that need investment.
I also welcome credits for firms developing green technologies. The university of Central Lancashire has done excellent work in that area, and I am sure that firms around Lancashire will do a great deal in it in future. Beer duty will be halved for small breweries; although there is no small brewery in my constituency, I shall still have a celebratory drink in the Strangers Bar afterwards.
The working families minimum income guarantee for full-time workers will be increased to £237, which is £70 more per week than income support. That is a tremendous change. We are now looking forward, for the first time, to a three-figure state pension for a single person, which will be a tremendous psychological and financial boost to pensioners up and down this country. For those with occupational pensions, personal allowances will be raised, and we look forward to tax credits for future pensioners, too. The Chancellor has provided £2.5 billion for families—Labour is now firmly the party for the family.
On public services, huge direct payment increases will go to every school. That will be good for schools in my constituency such as Moor Nook primary school, which I visited a few weeks ago. I was shown photographs by the head teacher of what it looked like six years ago, and, seeing it now, it has undergone a total transformation. Schools such as Corpus Christi high school will also benefit, as ambitious construction work is being carried out there.
I was surprised to hear from Conservative Members that they do not agree that there should be a consensus on the national health service. That consensus has existed since the war, and the Conservative party agreed to it, at least until the election of Mrs. Thatcher. That national consensus will come back—people want investment, reform and a five-year programme of high growth. The criticism that too much of the NHS is centralised is 641 immediately defused by the fact that 75 per cent. of budgets will go to primary care trusts, which, as everyone must accept, is decentralisation.
The financial incentives, the reform of care for the elderly and the money going to primary care trusts are important. The independent audit and scrutiny of the performance of the health service is also important, for two reasons. First, as I said in an intervention, we need to make sure that we get value for money in the health service. Secondly, it will debunk all the myths thrown out by the Conservative party, which wants to denigrate the services provided in this country and the people who work in them and to leave an impression that things are far worse than they really are.
§ Mr. Hugo Swire (East Devon)
I welcome the hon. Gentleman's comments on long-term care for the elderly. Which part of what the Chancellor has said to date in relation to looking after the elderly in the long term does he most welcome?
§ Mr. Hendrick
As I shall say in a moment, there will be a 6 per cent. increase for social services. As county councils and unitary authorities up and down the country administer social services budgets, that money can be spent on those services, as it can on other things.
An annual report on how much is spent, where it is spent and what is achieved is an excellent part of the Chancellor's proposals. As I said, the Conservative party does not want that, as it prefers the myths and anecdotes that we have heard today rather than the facts from an independent audit body.
We have heard a great deal about the increase in national insurance contributions, which has been referred to as if, in some way, it is income tax. It is not income tax. National insurance is what the name implies—insurance. Many companies up and down the country are happy to pay for private health insurance for their workers. The Chancellor has made it plain that the money that is raised in this way will be invested not in private health but in public health and public health provision. I am surprised that that should be presented as anything other than what it is. If we remember why national insurance was originally introduced, it was to pay for pensions, health and benefits. Let us not forget that or try to present the increase as something that it is not.
There will be a freeze on beer, wine and spirits, a freeze on fuel duties, a freeze on vehicle licences and, as I said, 6 per cent. extra for social services. UK health will benefit from a 7.4 per cent. increase each year, and my health authority—North West Lancashire—will welcome that, despite its recent statement that the 10 per cent. increase in its budget was still insufficient, even though that increase is five times higher than inflation. I believe that the doubling of expenditure since 1997 over the next five years will turn the Royal Preston hospital into, if not the top hospital, one of the top 10 hospitals in the north-west of England. I look forward to that investment.
This is a Budget for enterprise and for fairness, for investment and for reform. It will be a huge boost for the people in my constituency, and I commend it.
§ Hywel Williams (Caernarfon)
Apropos of the comments of the hon. Member for Preston (Mr. Hendrick), I have every reason to feel protective towards national 642 insurance, as I represent the seat once held by David Lloyd George. I find it difficult, however, to distinguish between national insurance and income tax, as, I am sure, do many other hon. Members.
The Chancellor has often reaffirmed the Government's commitment to ending child poverty—in the pre-Budget statement and in the publication, "Tackling Child Poverty", issued in December last year. He is right to do so again today because poverty blights so many lives, particularly in my constituency. Many people suffer from poor health in Wales, for example, specifically because they are poor.
The Chancellor highlighted the child and working tax credits, and I want to concentrate briefly on the principles of those tax credits. My colleagues in Plaid Cymru and the Scottish National party will consider other issues in the debates over the next few days. The Government emphasise the need to make work pay, and they emphasise that there should be a seamless system. Again, the emphasis is on work, but my party and others are worried about the impact of tax credits in areas of high unemployment, such as my own, where the work is not available, and in rural areas with small populations and scant public transport. In such areas, the costs of owning a car are highly significant.
The Red Book shows that a fund of £5 million will be established to help with travel costs. I have some reservations about that, as my area suffers from severe out-migration by people who otherwise would be economically active and contributing to the local economy. I am afraid that I may be hearing an echo of the phrase "on yer bike".
The working tax credit will guarantee a higher income from work than from benefits, and it is targeted according to income. It is not means-tested in the conventional sense, but there are inevitable concerns about the disincentives to take-up. I am sure that the House would be interested to know the projected percentage take-up of the tax credits, for example in comparison with the take-up of universal benefits, which is very high.
The House will also note that people under 25 are again excluded from the tax credit system. That is yet another example of how age discrimination is becoming entrenched.
We in Plaid Cymru remain uneasy about the lower wage subsidy implicit in tax credits. That possibility will now affect all workers, including those without children. We fear that credit levels will become the ceiling for wage rates, rather than their floor. We in the north Wales travel-to-work areas have some experience of that. The results of the little noticed top-up experiments introduced by the previous Conservative Government do not convince people familiar with them that the new system will be much better.
Child tax credits will be paid to the carer, typically to the mother. That is very much to be welcomed. However, the emphasis on payments to the first child risks masking the costs arising from other children, especially as they grow older. It should be remembered that those costs are recognised in support levels. The House will note too that universal child benefit levels again hardly rated a mention today.
The extension of tax credits to students and student nurses is to be welcomed. As a university lecturer, I have experience of the real hardships faced by some students 643 on low income. Also, uprating benefits with earnings is a principle that could be commended in respect of other benefits.
A significant feature of the child tax credits regime is the recognition of the costs of child care. However, we in Plaid Cymru have serious concerns about the lack of child care in some areas, especially in rural areas. Often, they are areas of high unemployment, or of high underemployment.
Child care is not available extensively in Wales, and to some extent the solution to that problem is a matter for the National Assembly for Wales. We have a national child care strategy, and I hope that my colleagues in the Assembly will take the matter up. I hope too that the Labour party will produce some joined-up government in Westminster and Cardiff, so that people will be able to take up work because proper child care is available.
I note with interest that the child care element will now cover those approved to provide child care in people's homes. The important word in this connection is "approved": what does it mean? The payments in the past have been called, pejoratively, "grannies' wages" or "nannies' wages". We will see how approval is worked out, but I note that the Department for Education and Skills is to consult shortly on the regulation scheme. Let us hope that the scheme fits in with patterns of family care in rural areas such as my constituency.
A change in income could affect the maximum credits available. I see that an increase in income of up to £2,500 will be ignored. However, when income falls, will claimants be required to contact the Revenue? People dealing with the difficulties and sometimes chaos caused by income change will have to decide to reapply. We know that the Revenue will be there to help, but I am not casting aspersions when I say that ordinary men and women facing the chaos and difficulties of income change will not, as a first instinct, reach for the telephone to call the Revenue.
Underpayments will be remedied immediately, but what about overpayments? Document No. 10 accompanying the Red Book states:The Inland Revenue's approach to dealing with overpayments will be set out in a code of practice, which will be published in draft for wider consultation later this year.Why later this year and not now? People should be told.
Given the variations in income due to seasonal factors that affect agricultural areas such as my own, where there might not be much employment available in the hard winter months, does the new system of tax credits fit the real world of work better than the working families tax credit? I have my doubts.
Further ominous words about a fall in income appear in the document dealing with tax credits, which states that people who take a fall in income will be able to reapply. However, taking a fall in income to stay in work sounds rather like pricing oneself into a job. Many people have bitter recollections of what that means.
May I be the first this evening to welcome the reduction in the taper on tax credits to 37p in the pound? However, the level is still too high to provide the soft entry into well-paid work that has worked so successfully in countries such as Ireland. There is concern about the effect of the taper when it is combined with the respective tapers for housing benefits and for council tax.
644 We in Plaid Cymru welcome the extension of the new deal and the introduction of personal mentors, but we hope that the system will not be oppressive, especially in areas of high unemployment. However much people in those areas are mentored, the jobs are not available.
The tax credit system emphasises targeting, but there is the risk that targets will be missed. That compares with the high degree of success that universal benefits achieve in terms of reaching targets. Child benefit is very much the ghost at this particular feast. Targeting individual families also draws attention away from the value of universally available public services, especially in connection with those services—such as the provision of free school meals—that are significant for poorer families.
Finally, I note that the BBC is reporting that the Government underspent last year to the tune of £11 billion. I regret that that underspend extends to the poorer, deprived areas of Wales, which cannot afford it.
§ Rob Marris (Wolverhampton, South-West)
I welcome this Budget. Ending poverty and improving public services in this country calls for bold action. Before 1979, there was a measure of consensus between the parties. That consensus was broken by a Conservative Government, who argued that wealth should trickle down to the poor. That dishonest cant hit the real impact of that Government's tax and benefit changes. The very poor faced tax increases—which included VAT being whacked up to 17.5 per cent—and falling incomes, while the very rich enjoyed almost unbelievable benefits.
In their first term, the Conservatives' single-minded dedication to shadowing the money supply needlessly pushed unemployment beyond 3 million and devastated British manufacturing, particularly in the west midlands, which I am proud to represent. In their second term they massacred the housing budget, cutting it nearly in half. They removed rent controls, and trapped hundreds of thousands of council tenants on housing benefit—they could not take jobs because they would not be able to pay the new higher rents. In their third term, that Government froze child benefit again. They also introduced the poll tax, the most regressive tax in the history of the United Kingdom.
During the 13 years between 1979 and 1992, the incomes of the bottom 10 per cent. in our society fell by 17 per cent. in real terms, not just in relation to the incomes of the rest of society. Between 1992 and 1997, the national debt doubled.
Many of our constituencies contain disadvantaged estates, but they did not appear magically, whether in 1997 or in 2001. Those estates fell into poverty in the 1980s and 1990s, when many people—particularly in my area in the west midlands—were thrown out of their jobs by the Conservative party's monetary policy. That was a direct result of the unnecessary viciousness of the party's economic and housing policies—policies from which the poor on those estates suffered for 20 years.
So what is the situation now, five years into a Labour Government? I have to say that it is very hard for the official Opposition. We have magnificent figures on inflation, which is at its lowest for about 40 years. We have magnificent figures on interest rates, also at their lowest for about 40 years. Unemployment has come tumbling down, and is now lower than it is in the United 645 States and Japan—and, as the Chancellor said in his statement, lower than the European Union average. As he pointed out, in the past year growth in the United Kingdom has been faster than that in any other G7 country. The national debt has come tumbling down as well.
§ Mr. Boris Johnson (Henley)
Does the hon. Gentleman accept that those excellent statistics obtained in large measure at the time of the 1997 election?
§ Rob Marris
No. It is not possible to say, as I have just said, that we have the lowest inflation for 40 years and then to say that it was just as low in 1997. That is clearly not the case. If the hon. Gentleman is trying to suggest, as some of his colleagues have, that the figures are simply the result of some golden legacy from the Conservative Government, I will gladly deal with that point.
§ Rob Marris
I did not set out to conduct a tour of the second half of the 20th century, as the hon. Gentleman well knows, and I shall continue with what I am saying.
In 1997, the national debt was 44 per cent. of gross domestic product. It is now less than 31 per cent. of GDP, and is projected to remain so until about 2007. That will mean a tremendous change in the legacy that we shall leave to our children and grandchildren, and to future generations.
I shall leave it to others to talk, as some already have, of the measures to assist families and pensioners. Let me say something about the measures—which I support—to help the environment. I am thinking of changes in vehicle excise duty for motor cycles and vans, measures to promote cleaner vans, the freezing of vehicle excise duty for buses, and new rates for low-carbon cars. The most efficient cars will attract £100 a year less in vehicle excise duty than the least efficient, which is a great step forward.
Further support for business will be provided by exemption from the climate change levy for electricity generated by good-quality combined heat and power stations, and from coal mine methane. We should do more to encourage such moves, which are beneficial to our environment. The same applies to the fuel duty differential that will apply to sulphur-free petrol and diesel from next year.
Manufacturing industry is dear to my heart, as I represent Wolverhampton, an industrial town—or city, as I should say now—in the west midlands. I welcome the changes in corporation tax, especially those affecting small business. They represent a major step forward, as I hope Opposition Members will be big enough to accept. I refer to the cut from 20 to 19 per cent., and the cut in the initial rate from 10 per cent. to zero.
I particularly welcome the £400 million for research and development that has been announced as a result, partly, of representations made by a joint—I stress the word "joint"—CBI-TUC productivity working group. Research and development has been lacking in this country, although it has started to pick up recently. I also 646 welcome the £30 million provided for small firms to attain "investor in people" status. A community such as mine, where GDP per capita is about 82 per cent. of the national average, must welcome the community investment tax credit and the launch of the £40 million community development venture fund in May. They will be of real help to my constituency, which still suffers from the history of the Tory years.
Conservative Members bang on about regulations, and the way in which business is tied up in regulations. They have done it again today. I sympathise, but when I have asked them what regulations they would get rid of—as I have done here, and in the Standing Committee considering the Employment Bill—I have received no answers. The hon. Member for Banbury (Tony Baldry) mentioned the climate change levy, but it is not a regulation. It is a tax, and one that I support.
I hope that in future Budgets the Chancellor will provide more help for research and development. I would like him not just to assist the development of the green technology which, as he said, represents a growing world market, but to encourage the development of medical equipment technology. That too represents a growing world market. Moreover, it is not price-sensitive. We in the west midlands could do very well in that regard, given our history of innovation, working with metals, research, and building machinery. That is high-tech stuff.
I was disappointed by the lack of any announced increase in finance for education and, in particular, the further education sector. Wolverhampton college is partly in my constituency. Nor was there any announcement of the abolition of higher education student tuition fees. Wolverhampton university is the fifth largest university in the country; it is even larger than the one mentioned by my hon. Friend the Member for Preston (Mr. Hendrick). It needs such action so that it can continue its great work in tackling social disadvantage. It has the best intake figures in the country in that context. That is, indeed, a Government priority, and I wish that there had been more announcements about HE funding in the Budget. Such funding would push us, as other measures in the Budget will, towards the high-wage, high-skill economy that I hope all Members want. I hope that the measures I have mentioned will feature in next year's Budget.
Sadly, there was no announcement that we would move substantially nearer to fulfilling the United Nations target for international aid to constitute 0.7 per cent. of GDP. During the past five years of the present Government, we have seen big increases. I hope that they will continue, but I wish we could move closer to that target.
As for the reply given by the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), perhaps he has been reading The Guardian. The paper said this morning that the Budget was to do with how much it would cost to fix Britain's creaking public services. I do not accept that proposition—I do not accept that our public services are creaking. I do not accept what was said by the Leader of the Opposition and some of his hon. Friends, who suggested that public services were getting worse all the time. "More talk, more taxes and more failure", the right hon. Gentleman said. That might describe the Government he served as a Back Bencher, the Government who were in power from 1979 and so on, but I do not accept that the paradigm exists now.
647 I do not think all public services are getting worse. Of course we need to improve them, but they are not getting worse. When I travel around my constituency, I see things improving. Naturally I would like them to improve more, but they are already improving visibly. School roofs are not leaking as they used to in 1997, for instance, and we have a new accident and emergency department for children. A £44 million cardiac centre is to come on-stream, as is a £13 million state-of-the-art radiology centre. Some of those changes are still in the pipeline, and others have already happened. I do not accept that public services are getting worse—the official Opposition are completely wrong about that.
The Leader of the Opposition is wrong to say that the Labour party was opposed to savings for pensioners. Labour in government has introduced the pension credit to reward thrifty pensioners and to encourage future pensioners to save. The right hon. Gentleman said that investment and reform is old-style tax and spend, but it will not surprise the House to hear that I do not accept that; nor do I accept the pejorative use of the phrase "tax and spend". How on earth are a responsible Government to spend unless they tax? The answer lies in part in the fact that the national debt doubled between 1992 and 1997. Conservative Governments before 1992 had flogged a lot of the family silver, so that was no longer an option; instead, the Conservative Government bumped up the national debt and spent. They refused to behave responsibly and increase taxes, as the Labour Government and this Budget have done.
Taxes will increase slightly, and I support that. Page 218 of the Red Book shows that, on an accruals basis, the proportion of GDP accounted for by current taxation receipts in the tax year just started is 38.7 per cent.; in the years following it will be 39.9 per cent., 40.2 per cent. and 40.4 per cent.; and in 2006–07 it will be 40.5 per cent. In that five-year period, taxes will rise by about 2 per cent. In the same period, NHS spending is projected to increase 43 per cent. in real terms—a 43 per cent. increase off a 2.5 per cent. overall increase in the tax take. That is responsible service delivery. The key issue facing us all is delivery of public services, and the Government are taking great steps. Of course more could be done—that is always true—but we are moving in the right direction. Consideration is being given to management issues, whether in the health service or education, or even transport.
I do not accept the Leader of the Opposition's assertion that the corporation tax burden in this country is among the highest in the group containing us and our competitors. Let me cite some figures from the Trades Union Congress brief, which itself quotes figures from other sources. The CBI business submission in respect of the budget talks of "taxes affecting business behaviour". The briefing gives figures for various countries: France 15 per cent., Netherlands 9.5 per cent., Germany 9.4 per cent., United Kingdom 8.9 per cent., and the United States 7.5 per cent. The figure for the UK is only 1.4 per cent. higher than that for the US, and we get better public services.
Looking at the figures for the share of corporate income tax and employer social security in GDP, we see that the UK is way down the list of OECD countries. In 1999, the Czech Republic topped the list with a figure of 15.1 per 648 cent. The figure for the UK was 7.3 per cent., and a host of our European Union competitors appeared above us in the list, with higher shares. The figure for the United States, which Conservative Members will no doubt want to know, is 5.9 per cent.
In the list of top corporate tax rates in the OECD, the UK figure is 31 per cent., but that is only the top rate. We have learned today that the starting rate is to fall to zero—it was 10 per cent. —and the rate for small businesses is to fall from 20 to 19 per cent. Let us compare our top rate with that of other countries. The top rate in Germany—one of our major competitors—is 54 per cent. In both Canada and Japan—fellow G7 countries—it is 46 per cent. We are way down the table with a rate of 31 per cent.
The figures for employer social security contributions are found in a table from the US Bureau of Labour Statistics. The UK figure is 13 per cent., less than half the figure for France, which tops the table at 32 per cent. The figure for Belgium is 30 per cent.. The United States figure is 21 per cent. The Office for National Statistics Economic Trends figures on international profitability—that is, the rate of return—are 12 per cent. for the UK, 17 per cent. for Finland, 8.4 per cent. for Canada, 3.6 per cent. for Germany, and 9.2 per cent. for the United States.
ONS figures on UK corporate profit records for five or 10-year periods from 1965 onwards show a figure of 12. 3 per cent. for all companies for the period 1997 to 2001, whereas for the period 1965 to 1971 it was 11.6 per cent.; for 1972 to 1981, 8.3 per cent.; for 1982 to 1991, 11.3 per cent; and for 1992 to 2001, 11.9 per cent. Under the Labour Government, that figure has increased to 12.3 per cent. I repeat: I do not accept the Leader of the Opposition's assertion about the UK corporate tax burden. It is simply not true.
The truth is that despite their investigations, research, travels abroad and other endeavours, the official Opposition do not like the NHS and they do not like Government spending. That is why they use "tax and spend" as a pejorative expression. They would prefer either to borrow money on the sly and let future generations pay, or not to have the services at all. As the shadow Chancellor, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), said on 7 October, slightly more than six months ago:The lower we can get public spending as a proportion of GDP the better.The Labour party does not accept that principle. The official Opposition do. They have lost two elections on the back of it, and we will win the next general election as well on that division between us.
§ Mr. Desmond Swayne (New Forest, West)
It is interesting that—merely in passing—the Chancellor mentioned that the economy was well within the Maastricht criteria. Given the importance that many Labour Members attach to the potential for this country's joining the euro, he could have dealt with the subject rather more thoroughly. After all, the decision has been taken in principle; it merely awaits an assessment based on the tests. I could understand the Government's sensitivity if they had bucked a decision in principle—if such a decision had yet to be taken; but given that the decision has already been taken and it is merely a question 649 of assessing economic convergence, I expected the Chancellor to take the opportunity to discuss the convergence criteria in greater depth.
The Chancellor mentioned in passing one or two statistics. For example, he said that the growth rate in the eurozone was 1.5 per cent., whereas our own growth rate was much better at 2.2 per cent. That begs important questions about the rate of convergence. It would have been interesting to hear the Chancellor's assessment of whether it is suitable for our economy to enjoy a growth rate so much greater than that of the eurozone that we anticipate joining and with which we anticipate sharing an interest rate. It begs the question what differential effect an interest rate suited to an economy with 1.5 per cent. growth would have on an economy with 2.2 per cent. growth. I suggest that it would make us much poorer. I would have welcomed the Government's assessment, but the Chancellor bucked the opportunity.
With great flourish and rhetoric, the Chancellor advertised his decisions on corporation tax on small businesses, but there is a trick: for small businesses to benefit from a reduction in corporation tax and from a new corporation tax regime, they have to be making a profit. That is the difficulty facing many of our small businesses. The critical factor is not the tax they pay on their profits, but whether they are able to make a profit as a consequence of the regulatory environment in which they exist. The key thing that the Chancellor and those on the Treasury Bench can do in determining the profitability of small businesses is to alleviate the regulatory regime; it is not to change the corporation tax rate.
I take one example. One industry has been literally decimated by regulation: the intermediate care industry, or residential nursing homes. In the past four years, we have lost 10 per cent. of capacity—10 per cent. of the beds. From my experience in my constituency, that has arisen as a consequence of the stifling regulation that has been imposed on the industry, and the determination by the Secretary of State for Health to control that industry from the centre.
When he set up the NHS, Bevan said that he wanted to hear a bedpan in a provincial hospital drop in his office in Whitehall—such was his determination to control his new creation from the centre. It has taken until this Secretary of State to deliver that centralised control. What business can it be of the Secretary of State to determine the widths of the doorways of a residential home in Milford on Sea? What business of his can it be to impose a regulatory regime that determines the number of baths and the size of the rooms? These regulations are not important to me. They are measurements that are easy to make but by and large they do not measure the important things that determine the quality of care in a home. However, if those regulations were important to those on the Treasury Bench—
§ Mr. Swayne
Let me develop the point. If they were important to the occupants of the Treasury Bench, the way to achieve them would be to pay a premium to homes that met the requirements of those regulations. The market would quickly follow.
The regulations were introduced with no regulatory impact assessment. Standing here, I asked the Minister what they were going to cost and he admitted that he had 650 no idea. No assessment had been made of the cost. I can tell hon. Members what they have cost: 10 per cent. of capacity at care homes. As a consequence, there has been a huge effect on the health service itself. As a result of those beds being lost, elderly people with nowhere else to go have occupied acute care beds—some 7,000 at any one time on an average stay of six weeks.
The knock-on effect of that is the cancellation of some 78,000 operations. In order to expedite the turnover in beds, where there is somewhere else for someone to go, they are taken out too early. As a result, we have the shocking statistic that nearly 500,000 people had to be readmitted to hospital within months of their discharge, presumably because they were discharged too early. We see the enormous consequence of the determination of the Secretary of State to get his way by regulation. Reductions in corporation tax will not retrieve the situation.
§ Rob Marris
What has happened is a concern to many hon. Members. There seem to be two ways forward. Perhaps the hon. Gentleman will agree, or perhaps he will disagree. One is to get rid of the Care Standards Act 2000, which appeared to be his approach. although he can clarify that. The other is that, in order to meet the increased costs for residential care home owners—I have talked to some in my constituency—of complying with the standards, which I support, the social services budget could be increased by, for example, 6 per cent. a year in real terms, which the Chancellor has already proposed in his Budget. We can either increase taxes and Government spending to deal with that problem, or we can dilute or abolish the standards. Which would he like?
§ Mr. Swayne
I made my approach clear on Second Reading of the Care Standards Bill. I said that I did not believe that the standards were important. I predicted entirely what subsequently happened.
§ Mr. Swayne
I will answer the point that has been made before I take another intervention.
There was no suggestion from the Chancellor this afternoon that the proposed increases in social services budgets will be used to carry out the structural changes that are required at care homes in order to make extra beds available. If the right hon. Gentleman wants a way out of the problem, he should remember our approach at the last general election.
I have concentrated on the effect of the regulations on the structure of the industry. Another underlying problem is that social services departments have been unable to fund clients in residential care homes sufficiently. In other words, the argument must be that there should be greater expenditure on social services budgets.
Our proposals at the last general election would have dealt with that. Paradoxically, the best way of assisting acute care is to readjust the budgets so that some of the expenditure goes into intermediate care, which would unblock many beds. An amelioration could have been delivered without an increase in overall expenditure.
§ Mr. Hendrick
Does the hon. Gentleman seriously think that it is not important for an elderly person in a care 651 home to have enough space in which to move around? In some cases, one can just about fit a bed into the room—the person is almost like a rabbit in a rabbit hutch. Is it not important that a wheelchair can get through a door if one of the people at a care home happens to be disabled? Is it not important that there are minimum nutrition standards, so that people are fed properly and not starved, as a minority have been in some of the worst-run care homes—although most of them are run very well? Is it not the Government's job to govern?
§ Mr. Swayne
It is appropriate that there be an inspection regime that stamps out abuses—a light regulatory touch. The hon. Gentleman is right. It may be very important that a particular doorway accommodates a wheelchair but in a significant number of the homes in my constituency there are no wheelchairs, so there is no requirement for those doorways to accommodate a wheelchair. By and large the buildings are very old, so changing the width of the doorway would present a major structural problem. There is no reason to do that.
The nonsense is that the decision is made in Whitehall. It has a disproportionate and catastrophic effect in Milford on Sea. That is the problem with the regulatory regime that the Government have designed.
I come to the main thrust of the Chancellor's Budget. He himself defined it is a question of how we deliver the expenditure to provide world-class public services. He concentrated on the NHS. As hon. Members will accept, we have heard some distortion in categorising the different positions of the parties. We must be honest and mature about the debate. By and large, there is a consensus. The consensus is that we want a comprehensive health service providing services that are available to those who need them and not based on the ability to pay. There is generally an acceptance of that principle. The difference between us is how we deliver that situation—what policies we pursue to achieve that ideal.
We do not serve the profession of politics well by pretending that that consensus does not exist, and by categorising our respective positions as a determination to destroy that ideal, rather than to achieve it. We may differ profoundly about the means by which to achieve it, or there may be shades of grey about the way in which to pursue the ideal, but it is monstrous for Labour Members to suggest that the Conservative party is determined to destroy the NHS and to create something different in its place.
I do not think that the electorate are taken in for one moment. Some of the turn-off from politics that ordinary people experience is to a great extent a consequence of the way in which we sometimes conduct our arguments—painting a bleak picture of one party vis-à-vis the other. We would do the debate and the public much greater service if we concentrated on a proper argument about how to deliver the services that we generally agree the electorate should have.
§ Rob Marris
I am grateful to the hon. Gentleman for his generosity in giving way again. I salute his search for common ground between the two main parties—indeed, between the three main parties and the smaller parties represented in the House—but Labour Members, 652 who uniformly support the concept of the NHS, find it difficult when confronted by statements such as that made earlier by the right hon. Member for Wokingham (Mr. Redwood), who seemed to suggest that there should be a much greater role for the private sector in delivering private medicine.
I am not talking about the kind of arrangements, such as contracting-out operations, into which the Government have recently entered. The right hon. Gentleman seemed to suggest that it would be a jolly good thing if more people were treated privately—in contradistinction to the Leader of the Opposition, who seemed to decry the fact that there were 250,000 private operations last year. Those mixed messages from the Conservative party confuse Labour Members and make it more difficult to find what common ground there might be.
§ Mr. Swayne
I welcome choice for patients as I welcome choice in any market: 250,000 people deciding that they want to pay for their health care would be very different from the situation that we face. My constituents are writing to me complaining—precisely as my right hon. Friend the Leader of the Opposition said—that they have had to use their life savings for life-saving or life-changing operations. They do not want to do that, but in the current environment they are having to do so. I share the hon. Gentleman's desire for a national health service that provides a comprehensive service that is available to those who need it, not on the basis of whether they can afford it, but if we simply continue the present funding structure exclusively for the NHS, we shall put it and that ideal in much greater danger than if we explore other possibilities.
The Chancellor largely pre-empted such a debate by having the Wanless report published this morning and then launching into his Budget speech clearly having made his mind up about the way in which we will proceed. Indeed, when he addressed the Social Market Foundation a month ago, he made it clear that there would be no debate or discussion about how we fund the NHS. Mr. Wanless may well be right—I do not know the answer to the question—in his assessment that a publicly funded system from taxation is the best and most efficient. I doubt it very much, but it might be the case. I want to have that debate and to test all the arguments. I want to examine and be open to other possibilities. The Government are trying to close down that debate, but the nation and, potentially, the NHS would benefit greatly from it.
Effectively, we are saying that, by and large, with a measure of modernisation here and there, the only problem that the NHS faces is underfunding and that it has been underfunded for too long. However, hon. Members will know from the five Budgets at which they have waved their Order Papers in delight that we have been spending a great deal more on the NHS for some time. Indeed, the Chancellor said that spending has increased by a third. The estimate of ordinary people is that that has not done the trick—indeed, that things are marginally worse in some respects. It is a great leap of faith simply to say, "Let's double spending, and that'll do the trick." My belief is that it will not. It will be interesting to see whether at the end of this Parliament it has delivered the improvements in services that we want.
§ Mr. Hendrick
The hon. Gentleman is perfectly correct about the extra sums of money that have gone into the 653 NHS, but does he not recognise that, for their first two years, this Government stuck to the previous Government's spending proposals and that in the two and a half years since then, we have increased investment? He knows as well as I do that it takes four years to train a nurse and six years to train a doctor. Although there have been improvements in buildings and in much of the health service infrastructure, it will take time for that extra investment to come through. Does the hon. Gentleman not accept that simple point?
§ Mr. Swayne
The hon. Gentleman is right that the Government accepted for their first two years the plans that had been laid down by the preceding Conservative Government. As a consequence, expenditure on the NHS significantly increased, as was the plan. Of course that has been added to since, and spending has increased by a third. Of course it takes time to change things, but we are still running into enormous problems of loss of capacity as people become exhausted by the pace of modernisation. The last thing hospital staff are looking forward to is yet more change as a consequence of what the Government call modernisation. Staff are already exhausted by it.
The experience of my constituents as a consequence of increasing the health service budget by a third is a bleak one. We still wait three years in New Forest, West for a hearing test. If someone in New Forest, West, has a stroke, suffers dysphasia and as a consequence is in intensive need of speech therapy, they cannot have it unless they are over 65. That example is from the letters of complaint about the level of service in the NHS that I have received in just the past seven days.
As I said at business questions when the Leader of the House was trumpeting the heroic achievements of the NHS with respect to waiting lists, a lady wrote to me only last week to complain that she has been waiting for an operation in excess of the very sensitive figure of 18 months. She was telephoned by a Southampton trust and told that because she had been waiting in excess of 18 months, the operation could be carried out by the Royal Bournemouth and Christchurch hospitals trust. She agreed, but some four months later when she rang to ask why she still had not had the operation, she was told by the Royal Bournemouth and Christchurch hospitals trust that, as she had been waiting only four months, she did not have a prayer. The trick is to start the clock the moment that she moves trusts. Then, lo and behold, the target has been met because no one has waited for more than 18 months. That is not an isolated case. We saw what happened at Derriford hospital. When the executives who were responsible for the extraordinary system of hidden lists lost their jobs as a consequence, they tipped up elsewhere in the NHS executive in better-paid jobs. That sends a powerful signal to executives throughout the NHS.
We have also heard of examples of people being offered appointments when they have gone on holiday so that the trust can say that as they did not turn up for the appointment, they do not count on the waiting lists. The holiday dates were solicited and the appointment offered after the person had set off. It is shocking that such things should happen at this time.
Those examples characterise a malaise in the NHS structure that we have delivered. I should like to explore alternative ways of fixing the problem to simply throwing more taxpayers' money at it. I am prepared to accept a 654 debate that comes to the conclusion that the only solution is to throw more taxpayers' money at the NHS, but we have not yet had the debate and the Chancellor has already made his decision to throw the money. It will be interesting to see what happens.
Several hon. Members rose—
§ Mr. Deputy Speaker
Order. Before I call the next hon. Member, I would point out that time is running out and several hon. Members wish to catch my eye. Unless contributions are a little shorter, some will be disappointed.
§ Gareth Thomas (Clwyd, West)
This is not just a good Budget, it is a very good Budget. It is a courageous Budget and it is an important Budget because it will set the course for the Government for the remainder of this Parliament and, I hope, well beyond. It has a greater significance because it throws into stark relief the dividing lines between the Labour and Conservative parties. The Conservatives are committed to a decline in the size of the state, a low tax economy, tax cuts and the destruction of the NHS as we know it. On the other hand, the Labour party accepts the need not so much for tax and spend as for tax and investment in our public services, combined with a process of reform.
We know that in the general election of 1997 and last year, when the Conservatives ran on a policy of tax cuts and were comprehensively beaten, the great British public did not give us a blank cheque to spend their money. We must ensure that the outputs justify the increases in taxation. Labour Members accept that taxation is the price that we pay for living in a civilised society and I do not apologise for being fulsome in my praise of the Chancellor.
As well as being courageous, the Budget is also redistributive. The social measures, including the working tax credit and the child tax credit, will be of tremendous value to millions of poorer households and it is clear that the Chancellor has balanced the need to raise further taxes with the need to ensure an end to child poverty and the aim of lifting more people out of poverty.
The increases in public expenditure are substantial. The increase in the NHS budget between 2003 and 2008 will be 48 per cent. in real terms. That will make a difference, although we cannot be complacent about the need to ensure that the uses to which the money will be put will be considered carefully. That is why the Government are right to redouble their efforts to ensure that the process of reform continues. The Wanless report makes it clear that that is exactly what is required. We need a sound, long-term and sustainable programme of spending in the NHS if it is to remain a service that commands the respect and affection of the British public.
This is a Budget for the NHS, although additional spending will go into the other great public services, including education, policing and transport. As a Welsh Member, I am of course aware that we have created a democratic institution in the National Assembly for Wales and I hope and expect that it will wish to use the extra money for a drive to improve standards and cut waiting lists. I also hope that it will make those tough decisions 655 that are sometimes necessary if we are to reform the NHS. I emphasise that the public will expect us to achieve results, and in that respect the Budget is courageous.
I turn to the measures that are, in my view, designed rightly to help fulfil the Government's commitment to creating an enterprising and fair society. Those terms are not mutually exclusive. We know that they have been a theme of the Chancellor's Budgets over the past five years, and it is a theme that I applaud.
I welcome the measures to promote enterprise, especially for small businesses. I welcome also the changes to corporation tax, which will be of great significance, as will be the changes to VAT and the research and development tax incentives. These measures will, as I have said, be a great help to small businesses, which are a considerable feature of the Welsh economy.
The welfare-to-work proposals build on the measures that the Government have already introduced. They will make a considerable difference to many of my constituents.
The Budget steers a clear course. It builds upon the record of a strong economy and our desire to create a fair and enterprising society. I welcome it greatly.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
We have had a good debate and I shall make a brief contribution to it. I am aware that colleagues are waiting to participate.
First, I shall deal with process. Secondly, I shall talk briefly about poverty, and thirdly, I have a constituency point that I shall share with the House.
The hon. Member for Wolverhampton, South-West (Rob Marris), a fellow member of the Select Committee on Work and Pensions, complained that he had not received big announcements about education expenditure. It occurred to me that we have come a long way from the old days. Perhaps I have been in this place for longer than is good for me. In those days, Budgets used to be about raising revenue, not about spending. I accept that a November pre-Budget statement is good, because it gives us an idea of what is coming up. A comprehensive spending round announcement will come in July, and there will be another round of spending announcements. Many tax measures are announced for implementation in a year or two's time and, as a result, the situation becomes extremely complicated to follow. I accept that modern life is complicated, and we are a sophisticated democracy. I am not complaining about that.
The hon. Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Select Committee, made an interesting and sensible speech. He talked around some of the new ideas for Budget scrutiny that are being exchanged. That is a long way round saying that we should be thinking more seriously—the hon. Member for Banbury (Tony Baldry) mentioned this—about how we cope with complicated Government financial announcements. The Chancellor makes the most of them politically, and we would expect that. He does it with some style, as he did this afternoon. But the House needs to think more carefully about how we scrutinise the work that the Government are doing and how we explore spending and revenue raising.
656 I think that tax raising and spending should be done all at once. There is a case for making announcements of spending and revenue raising at the same time. We should try to make it easier for Members better to understand the Red Book, taxation forecasts and other press releases. We would serve our constituents more effectively if we did that.
Complexity is another important part of the process issue. Those on the Treasury Bench should think seriously about some legislative consolidation. I know that in the past the Treasury Select Committee has considered disaggregating some of the technical tax changes and introducing a tax Bill every year, which would be for the real anoraks. That could be safely parked on one side while the rest of us could get on with a sensible debate about issues that affect our constituents directly. That would be helpful.
One complaint that I would make about the Budget is that the complexity of what the Chancellor is doing is loading complication upon complication. The social security system has been sucked into the Treasury purlieu in a way from which it may never recover, I fear. Some of the new tax credit ways of developing and delivering services are certainly interesting. However, they risk complicating the benefit situation in a way that makes it ineffably complicated.
There is also an irresistible temptation for all Governments to seek to centralise power in Whitehall. That might seem a strange view, coming from someone who welcomed the devolution to the legislatures of other nation states in the United Kingdom and the Greater London Authority, but I believe that there is still a propensity in Whitehall to seek to control. For the Chancellor of the Exchequer to state in one of his rhetorical flourishes the pounds, shillings and pence that he plans to send to every school seems to me to be ridiculous—as someone said earlier, Ministers like listening to the sound of bedpans. Ministers are for ever trying to influence local agendas, whereas we should be content to set limits, thresholds and ceilings for expenditure and let the decision-makers at a much lower level get on with the job.
Finally on process, the hon. Member for Preston (Mr. Hendrick), who made an interesting speech, said that the penny increase was nothing more than a slight change to the national insurance system. In my view, the national insurance fund is now completely redundant. The Government have made no secret of the fact that they have been making substantial changes to the way in which they deal with the contributory benefits system. The national contributory system has been substantially changed by the Chancellor's announcement this afternoon. If that happens entirely by default, it is a shame. The Beveridge contributory system has served us well. I am a little old-fashioned about that. To make such changes and to increase national insurance as the Chancellor has done—it is an income tax increase by any other name—is a shame. It is a retrogressive move in many ways.
§ Mr. David Rendel (Newbury)
I am grateful to my hon. Friend, as I know that he is trying to speed up. Has he taken on board the point, which has not yet been mentioned in the House, that not only is that an income tax increase, but it is tax increase on income worth 2p—1p from the employer and 1p from the employee? It will 657 affect most of all those with smaller incomes, because there is a cut-off for employees' national insurance contributions.
§ Mr. Kirkwood
Indeed. I am happy to concur with that view. There are unintended consequences that will start to unfold in terms of the increase in the employers' contributions. National insurance contributions have a specific focus and incidence, and I would have been much happier to use the income tax system, which is more transparent and more progressive. It is a great shame that the Government have decided to use the national insurance machinery to increase resources, but, then again, about time too. I have been waiting for this day since 1997. Some Labour Members reflected that in the euphoria of their reaction.
There are, however, some concerns about the Chancellor's statement. I welcome the expenditure, but I am worried about households that are in abject poverty. Of course I understand that the national health service deserves and needs expenditure, and I support the Government in the creative measures that they have introduced to change the culture of those who are on benefits for many years and who as families have been locked into benefits for long periods.
The move towards Jobcentre Plus and the concept of welfare to work is right and appropriate, but I worry for those who in the immediate future will get nowhere near the labour market. I know that the child tax credit will make some inroads into that, but I worry about some of the unintended consequences of the working tax credit. The emphasis on people who are in work and on subsidising low-paid work can stigmatise people who are a long way removed from the labour market and in abject poverty. The Child Poverty Action Group and other pressure groups are right to say that we need to give the poor a voice. We must also try to define poverty more clearly. I hope that there will soon be a consultation paper from the Government about how they assess their success in floating people out of poverty. That is an important issue.
Minimum income standards are used to great effect by sister European countries to measure the performance of Governments in terms of the reality of people's earnings—not just relative poverty and all the other difficult statistics, and how the weekly budgets of people who are nowhere near the labour market are affected. That is a group of people about whom I have real concerns. The Government did not do enough for such people in today's Budget.
There are further real concerns about the working tax credit and the way in which it is implemented. It can have perverse incentives within households where there is a working member and a non-working member and, if we are not careful, there is real opportunity for collusion with employers about introducing fraud into its implementation. Depending how the tapers are played out, people can be frozen into the tax credit and that diminishes the opportunity of a later career at a higher wage level than that set by the working tax credit.
The working tax credit poses many difficulties. I am prepared to consider the concept carefully, but we must be careful that we get its implementation right and that we do not forget that if families do not get into the labour market they cannot take advantage of many of the welcome announcements made this afternoon.
658 I repeat the point that I made to the hon. Member for Dumbarton about the NHS and the King's Fund. In many parts of the UK the NHS is not in a fit state to take big sums of cash and spend them sensibly in the short term. We shall have to deal with that and we must be careful about containing people's expectations about how long big sums will take to come through before they can make a difference to ordinary people.
I was slightly taken aback to learn about the effect of fuel duty rebate on local bus services in rural areas. Indeed, I was astonished to learn from my constituency of the adverse effect that the absence of fuel duty rebate was having on local bus service providers. There has been a strenuous effort in the Scottish borders to reduce social exclusion, both for those who lack access to basic services due to age, infirmity and limited means, but also for those who are physically a long way removed from central services and who are geographically isolated.
Some 30 per cent. of border households do not have a car and they have been particularly hard hit by the imposition of fuel duty on local bus services. Although fuel is duty free on trains—though the borders have no railways—ferries and air services, local bus operators are required to pay fuel duty, only part of which can be reclaimed.
What surprised me was the estimate that local bus operators in my constituency now pay some £320,000 a year in unreclaimable duty. Against that figure, only £193,000 is provided to the council through the rural bus fund, so public transport users in the borders region contribute more to the Exchequer than is received back in public transport support. I do not know whether that makes the region unique in the UK.
The cost of fuel duty is obviously directly reflected in the fares, which as a result are among the highest in Britain. The tax falls on those least able to pay and increases the isolation of most rural communities and the social exclusion of the most vulnerable. That scarcely represents a joined up social or environmental policy.
If that is not bad enough, it is particularly harsh that school transport bus contractors must pay fuel duty in full. In a rural area, where a high proportion of pupils qualify for free school transport, some children face daily journeys of up to 60 miles. The council makes every effort to co-ordinate school and public bus services, but most school services get no rebate on fuel duty. Any efforts made locally to encourage more parents to send their children to school by bus so as to reduce road traffic and improve pedestrian safety at the school gate, are frustrated by the high cost of fares. The estimated cost of fuel duty on statutory school transport amounts to about £115,000 a year, some 4 per cent. of the council's school transport budget.
Those are important issues which I hope that those on the Treasury Bench will note and take to heart. I understand that there is a wider strategy with an environmental dimension, which is very important, but if we are dedicated, as I am sure that we all are, to trying to eradicate social exclusion in our rural areas, such issues will have to be addressed.
§ 9 pm
§ Mr. David Kidney (Stafford)
It is a pleasure to follow the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). Like him, I think that we need better 659 scrutiny of the economic and financial decisions that are taken or approved of in this place. I also believe, however, that departmental Select Committees could do more about departmental budgets if they wanted to in conducting their scrutiny. I am sure that they are all very busy, but there is also a feeling that such work is for anoraks—just as he felt about people interested in tax legislation. That is a shame; it is a perception that we should try to change by pointing out the value of such scrutiny.
I want to remind myself of the position when I spoke at the same stage in last year's Budget debate. At a time when we faced the general election in which I made my first attempt to be re-elected to Parliament, I was able to praise the position that the Chancellor had achieved. The sound and sensible work that he had done in all his previous Budgets had put Labour into a strong position in which it could implement a Budget that would stand it in good stead for the coming election. Lo and behold, the election was successful. The result was very good for Labour and we looked like achieving something that we had never achieved before: two full consecutive terms in government. I was returned to Parliament, so who am I to complain? Indeed, I am one of the dozens of Labour Members who took seats in 1997 that Conservatives had held for decades, and I do not think that I was untypical in then improving my majority in the 2001 general election. All that is a tribute to the sound economic work that Labour did in government in those first four years.
The Chancellor has run out of stealth taxes, and has determined on taking the necessary risks in the decisions that he has made today. He is taking two particular risks. First, on the very high-profile taxation for investment in our public services, the public must see improvements in the next few years, otherwise they will object to having had to pay the higher taxes. To some extent, I am relaxed about that, as it does not matter what we say in the Chamber: it is the experiences of voters and residents in our constituencies that will determine whether they perceive those improvements. Nothing that we can say will change that. The second risk is that the public do not want to pay higher taxes. The opinion polls tell us that people are willing to pay more for better public services, and we are now going to put that to the test, as they will be paying higher taxes in a year's time to fund such services.
The Government's economic strategy has moved on. In those first four years in office, it was clearly based on stability and fairness. They have now moved on to enterprise and fairness. That is not to say that they have given up on stability, but that stability has put in place foundations on which they can be more ambitious and start to tackle some more deeply rooted problems such as the productivity gap between us and our main competitors. Again, it is a credit to what we did in those first four years that we can now move forward and deal with problems in enterprise and productivity.
The Chancellor mentioned the Enterprise Bill, which has just started its passage through the House. The Bill is a worthwhile development because it takes politics out of competition decisions—an echo of the bold decision in 1997 to take the politics out of monetary policy. I wish the Government as great a success with the current decision as they achieved with the 1997 one. The Bill 660 also introduces criminal sanctions against cartels, better protection for consumers and some improvements in insolvency measures.
We heard in today's announcement about improved work force skills and reductions in some tax rates, especially for smaller companies. The Chancellor reminded us that only a month ago, he responded to the Competition Commission report on bank services for small businesses. I suspect that the best announcement today for small businesses was the introduction of the flat-rate VAT scheme for companies with a turnover of less than £100,000 this year—and £150,000 next year—which will apply to more than 500,000 companies. Large companies will of course be delighted that, like small and medium-sized enterprises, they will benefit from a research and development tax credit.
That is all to the good for the enterprise and productivity agenda, but it is worth mentioning as a footnote my attendance at last week's conference at Staffordshire university, where I spoke on the subject of starting up a new business. My message was factual—in dealing with the support available—rather than party political, and after giving it, I was able to sit back and listen to the other speakers. About half the audience were undergraduates thinking about their first job, and about half were people in work and thinking about career changes. Two messages came across. First, self-employment and starting up a business is not a soft choice but a tough one that might also prove rewarding and satisfying. The economic climate in which to take such a decision has been very benign for some time, and the future also looks reasonably benign. Secondly, the Government are giving good support to people who run small businesses, and to those who want to start them up. The impression came across that things are much better than in the past, which is reassuring in terms of this Government's enterprise and productivity agenda.
On the fairness agenda, it is clear that improvement in public services is at the heart of today's Budget. Although the national health service has understandably taken centre stage, it is worth reminding ourselves that the Chancellor did not overlook other public services. He had things to say about our defence forces, law and order and the law agencies and education. Although education occupied only a small part of the speech, he said something very significant about it: the Government remain committed to increasing substantially the proportion of GDP that is spent on education services. It is important not to overlook such statements, even though our attention is on the national health service.
It is a matter of equity and fairness that strong public services are available for everybody when they are needed, without the worry of being able to pay for them. As the Chancellor and the Wanless report have stressed, with money must come reform. The same is true of the national health service. We have already witnessed national examples of reform such as NHS Direct, national call centres, walk-in centres and more nurse consultants. Consultation is also taking place on wider prescribing by nurses and pharmacists. In terms of money, such reforms are reflected locally. Improvements have been made to my local hospital's accident and emergency, medical assessment and intensive care units. Improvements have also been made to GP surgeries, all of which now have a social worker attached. More courses from nurses and therapists are available at GP surgeries, and improvements have been made to our mental health hospital services.
661 With the money has come reform. I witnessed a good example of that in March, when I visited the new eye centre that the local hospital trust has set up in my Stafford constituency. Back in 1997, the biggest proportion of the many complaints that I received about health services concerned waits of 15 to 18 months for cataract operations. All such services were provided under contract at a hospital outside the district. My local hospital took advantage of the Government's offer of a modernisation fund for cataract treatment by accessing that fund and setting up the local eye centre that I visited in March. It is modern—it has just been built—run in modern ways, and ophthalmists can refer patients directly. The service is fronted by nurses, and patients have a single assessment to check whether they are suitable for a cataract operation. Their operation is booked then and there. During my March visit, operations were being booked for May. Instead of waiting 15 months, patients are getting their operations within 15 weeks. That example shows how money and different working methods can be combined to improve service. I now receive glowing letters of praise from constituents about cataract services when I used to receive letters of terrible complaint. An hon. Member asked about operations to replace hip joints. To complete the picture locally, Stafford wants to establish an orthopaedic surgical unit that gives people the same service as the orthopaedic unit. We will look to the Government for help from the modernisation fund to do that.
I do not want to get carried away with how rosy everything looks because there are still dreadful problems, some of which are noticeable in my constituency. One of the three pilots for drug testing of offenders who are arrested by the police and charged with an offence is taking place in Stafford. Just under half the people tested have proved positive for drug dependency, which makes it a health problem. Most of them say that they would like help with that dependency, but when the police and the referral service turn to the health service, the support is not available to the extent that it should be.
The problem of access to NHS dentistry is not unusual in Stafford and is experienced throughout the country. For the elderly, there remain the problems of delayed discharge, lack of domiciliary care help and difficulty in adapting people's homes. More needs to be done and the way forward for the NHS is set out in the Wanless report. The money is earmarked for reform. It is not meant to pay for services when people are sick, nor to go towards private insurance schemes or even a social insurance scheme. No hon. Member would propose that employers pay more in social insurance contributions than they are going to be required to make under national insurance.
At the end of my speech last year, I made three points that are valid today. I berated Departments for underspending their budgets. It appears that a year later the situation is the same. They are letting the country down if they do not spend the money that is allocated.
My second point related to the unfair distribution of education money by central Government to local authorities. The Government have now made the commitment to change that system for next year. I just hope that this summer's comprehensive spending assessment contains enough money for education to level up the money that is paid to local authorities so that everyone gets a fair and decent amount from the Government.
662 My third point concerned the attempt to eradicate poverty. I am delighted that the Chancellor disclosed the rates for the child tax credit next year. Ally that with the national minimum wage, the universal child benefit and the new working tax credit and I am confident that the attack on poverty will make great advances in the next four years, never mind the next 15.
§ Mr. Jeffrey M. Donaldson (Lagan Valley)
My party welcomes the additional initial investment in the national health service, which for Northern Ireland means a total of £2.7 billion extra over the next five years. In 2003–04, we will get an extra £73 million, rising to £1 billion in 2007–08.
I note the Chancellor's proposal for the appointment of an independent auditor for the NHS in England. I hope that that measure will be replicated in Northern Ireland. It is important that we get proper scrutiny and accountability of how money is spent on health because we think that we are not getting value for money. The appointment of an auditor in Northern Ireland would be welcome.
I want to enter a note of caution. Northern Ireland spends more per capita on health than England. In fact, our health care spending is on a par with that of France, yet we still have among the longest waiting lists in the United Kingdom. As Opposition Members have said, it does not always follow that additional expenditure on the health service equals reduced waiting lists. That has been our experience in Northern Ireland, which is why we need to look at bureaucracy in the health service and take steps to ensure that the extra money gets to the point of delivery and reaches our constituents at the point of need. The key test of the success of this welcome investment will be the extent to which waiting lists are drastically reduced in Northern Ireland and throughout the United Kingdom.
On families and children, we support the Chancellor's measures to introduce a new child tax credit from 2003, and to increase the working families tax credit from June 2002. In addition, the child care element of the new working tax credit, which will allow families to receive extra tax credits to meet up to 70 per cent. of their eligible child care costs, is a significant improvement which will especially benefit families who are most in need. In Northern Ireland, these reforms should see some 250,000 people benefit to the tune of £600 million from next April, and we welcome that additional investment in the family and children.
Staying on the theme of children, we welcome the additional capital investment for expenditure in our schools. I note that this money will go directly to the schools, but the £2,500 for a typical primary school and £7,100 for a typical secondary school will not go far. The primary and secondary schools in my constituency will not find it difficult to spend that extra money, and I would have liked to see more capital expenditure made available for schools throughout the United Kingdom.
On business, the economy in Northern Ireland is heavily dependent on small businesses, which are at the heart of our economy. I welcome the proposal to reduce the small companies corporation tax rate from 20p to 19p, and to consider further steps to reform and modernise the corporation tax regime. Although I welcome the additional reliefs on capital gains tax for business to 663 encourage investment and entrepreneurial activity, and the proposals to simplify VAT for small businesses, more needs to be done to help the business sector in Northern Ireland.
The new tax credit for research and development will also help Northern Ireland companies, which have an excellent record for innovation. The Ulster Unionist party has been concerned at the lack of investment in R and D by some of the larger companies in the Province, and we hope that this new tax credit will be an incentive to those companies to invest in research and development for the future.
High transport and energy costs continue to impose a disproportionate burden on business in Northern Ireland, in comparison with other parts of the United Kingdom. The freeze on fuel duty rates is welcome, but it does not go nearly far enough to ease the situation. The high fuel duty rates in the UK seriously disadvantage the road haulage industry in Northern Ireland, and the cost of this is inevitably passed on to business and, ultimately, to the consumer. With a land frontier next to a eurozone country whose fuel duty rates are much lower than ours, our retail petroleum industry has been devastated by the differential between those rates. As a result, fuel smuggling has increased substantially in Northern Ireland, and the result of that has been the closure of a large percentage of retail petrol outlets in the Province. We would therefore have welcomed a decrease in the fuel duty rate in the United Kingdom, which would have helped Northern Ireland's road haulage and retail petroleum industries.
We welcome the announcement of the introduction of a distance-based lorry road user charge that will make foreign lorry operators pay towards the costs that they impose in the UK. Obviously, as Northern Ireland has a land frontier with the Irish Republic, we will see the benefit of that. However, I cannot understand why the Government are delaying the introduction of the new charge to 2005 or 2006. The British road haulage industry wants those reforms to be introduced at the earliest opportunity, and that is especially true in Northern Ireland, where our haulage industry is under enormous pressure. I urge the Chancellor to reconsider the timetable for the introduction of the new charge and to implement it at the earliest possible opportunity. We shall monitor the proposed consultation process with the road haulage industry and shall want firm action to be taken to alleviate the pressures on that hard-pressed industry.
The decision to increase duty on cigarettes will once again increase the likelihood of cross-border smuggling in Northern Ireland. That will undoubtedly have a detrimental impact on the tobacco industry in the Province and throughout the United Kingdom. The black market in smuggled cigarettes and fuel in Northern Ireland is booming, primarily filling the coffers of the paramilitary organisations that are at the heart of such smuggling and racketeering. We need the Government to take action to deal with that, not only by tackling crime, but by reconsidering duties on those products. Smuggling must be deterred, not encouraged. Such encouragement may be inadvertent, but it is the end result. The problem must be addressed by reforming the duty regime for those products. That will be a key element in closing down the smuggling that is the scourge of our economy in Northern Ireland.
664 We welcome the Chancellor's announcement that in Northern Ireland the proposed tax relief for aggregates in respect of processed products will be backdated to 1 April 2002 on receipt of European Union state aid approval. That is to ensure that no levy is paid on aggregates that are used to make such products in Northern Ireland in the tax year 2002–03. My party has lobbied hard to gain recognition for the special circumstances of the quarry industry in Northern Ireland, and the announcement of further relief is a welcome step in the right direction. Nevertheless, we shall continue to press the case for consideration of those special circumstances and for further relief to be given to the quarry industry in respect of the introduction of the aggregates tax.
We welcome many of the provisions in the Budget, but it remains to be seen whether the tax increases to enable additional investment will result in the substantial improvements in health care and other public services that give people confidence that their taxes are being well spent. My constituents will measure the Budget's success by the extent to which it results in shorter waiting lists, increases the number of hospital beds available and delivers the best health care to them at the point of need. The final verdict on the Budget may have to wait until the people can make that judgment for themselves.
§ Jon Trickett (Hemsworth)
In the very limited time available to me, I want to reflect on the national health service.
Last year, my father was taken into hospital twice with an eye condition, and he eventually lost the affected eye. On two other occasions he was taken in, with blue flashing lights, for a broken femur. At Christmas, my mother was taken into hospital, where she was finally diagnosed as suffering from brain cancer.
I have spent hours every week in hospitals—great NHS hospitals—in the city of Leeds, and I think that I know as much about the NHS and how it works, from a patient's point of view, as is possible. I have met hundreds of patients, doctors, consultants, nurses and others, and I can speak with some knowledge about their feelings about the NHS.
I feel a moral obligation to a woman who died from brain cancer to argue for the national health service. It is apparent to everyone who uses it that it does not need reform, the private sector or any of the other remedies that are being discussed. The NHS is suffering from a simple lack of resources. The top and bottom of the matter is that there are not enough resources to make people better sufficiently quickly.
I congratulate the Chancellor on commissioning the Wanless report, which clearly and starkly states the extent to which the NHS is under-resourced. It estimates that we need an extra 300,000 staff, including 62,000 additional doctors and 108,000 more nurses, to reach the average standard for an acceptable NHS by 2022. Wanless demonstrates that people in this country are dying younger than they should because the NHS is suffering from a lack of resources. He uses a sinister phrase—"PYLL" or "potential years of life lost" because of an inadequately funded health service. Wanless compares us with many similar countries and shows that people in the United Kingdom die younger because of inadequate NHS funding.
665 I have taken a special interest in cancer because of my mother's cancerous tumour. According to Wanless, 10,000 people a year die needlessly of cancer because the service is underfunded when compared with the European average. If we moved to the standard of the European best, 25,000 people a year who currently die of cancer would live. That shows the scale of the crisis in the NHS. It is simply wrong to suggest that there are systemic, structural or managerial failures in the health service. The problem is underfunding.
I will not join a conspiracy of politicians from any party to imply that better results can be achieved through reform. Wanless demonstrates that people in this country have to wait an average of 4.3 months to see a consultant when people in Germany can see a consultant the same day. The average waiting time to see a general practitioner in some of the comparator countries is 14 minutes, whereas in this country, 25 per cent. of patients have to wait a minimum of four days.
The NHS suffers from underfunding and underresourcing, and Wanless shows that clearly. It is wrong for us not to spell out the facts to the nation, which, in any event, already understands them. I believe that 25 million patients a year go to see a GP. The figures are staggering, and people understand that the NHS is under-resourced.
Conservative Members make a fundamental misjudgment about our political culture at the turn of the millennium when they assume that they can appeal to the perhaps natural desire of people to keep more of their money in their pocket rather than paying tax. The country has moved on from the Thatcherite years. People want our services, especially the NHS, to expand, and they are prepared to pay for that. I congratulate the Government on finally taking the bull by the horns with today's Budget.
I have listened carefully to the debate. I left the Chamber only for a five-minute comfort break when an hon. Friend was speaking and I have therefore heard every Conservative speech. Not one Conservative Member made a positive comment about the NHS or the increase in expenditure. Opposition Front-Bench Members have not argued for an expansion of a publicly funded health service. That is lamentable; they fundamentally misunderstand the country's mood and the daily experience of families such as mine who have been through a crisis.
How shall we pay for the health service? My family, who are reasonably well off, could not possibly afford the care that they received from the NHS when my father lost his eye and then broke his leg, and my mother developed brain cancer. It is beyond our capacity, as a middle-class family, to pay for such services. There is only one way that middle-class families such as mine can pay, and that is through a publicly funded health service.
The Tories misunderstand the nature of the British people, who clearly comprehend that, although it is possible to pay for minor operations such as cosmetic surgery and perhaps possible to pay for a new hip, paying is beyond the capacity of many people when a mother or a father suffers the acute traumas from which my parents suffered.
I believe that among the various strata, apart from the super-rich, there is a broad social coalition that the Government should encourage. Those people say that there is only one way adequately to fund a health service that is currently inadequately funded, and that is by general taxation of one sort or another.
666 The Chancellor has constructed an interesting taxation package, which is a mixture of measures on national insurance and holding down personal allowances. That is progressive to some extent, as poorer families will pay less than wealthier ones, but I would prefer an honest, straightforward income tax increase, which is progressive. After all, many families can afford to pay and would gladly do so. They understand that the strong should help the weak and that the rich should help the poor. That ethos, I believe, runs strongly through our country.
In a nutshell, there is a strong case for overcoming the new Labour fear of a middle-class revolt over tax. It is possible to build around health socialist policies that argue for progressive taxation and provide the massive injection of additional funds that is clearly necessary to develop the health service.
I feel passionate about this issue and I want to say much more. I have been through some horrendous experiences and I have seen miracles—people brought back from the dead by the skill of nurses, doctors and consultants. I have seen the most amazing things, which I would have liked to describe to the House. Perhaps the opportunity will arise in the next few weeks, but the Whip is indicating that I should sit down.
§ Mr. Boris Johnson (Henley)
Thank you, Mr. Deputy Speaker, for the opportunity to speak in the debate. It is a strange comment on our parliamentary system that, although we are about to raise £8 billion in revenue from the British people, only about eight Government Members have bothered to turn up to defend that conduct.
I welcome, very sincerely, some measures in the Budget, in particular the plan to alleviate the burdens on rural breweries, although I note that nothing has been done to de-tax Brakspear's 2.5, which is a fine brew. One can drink three pints without being over the limit, so it would be nice to have fiscal recognition of the benefits that that beverage can provide to the rural economy.
I also congratulate the Chancellor on getting rid of some ridiculous tax breaks that the Labour Government instituted for the film industry. Well done, at last. However, bigger announcements were made today, and I turn to those— [Interruption.] I hear the word "disaster" coming from the other side of the Chamber. Well, well, well—dissent.
I turn to those announcements, because most Members will agree that this is an important political Budget in which the Chancellor, Gordon Brown, finally felt confident enough to raise taxes openly. He has done so by stealth over the past five years, raiding pension funds, for example, by £5 billion. This is the moment at which he has decided to raise taxes without anaesthetic, to use an NHS metaphor. The thought is not original, but that must reflect some power shift on the Labour Front Bench between No. 10 and the Treasury. It was the essence of Blairism—the unique selling proposition of Tony Blair—
§ Mr. Deputy Speaker
Order. The hon. Gentleman must use the correct terminology when referring to Members of the House.
§ Mr. Johnson
I am grateful to you, Mr. Deputy Speaker; I meant the Prime Minister and the Chancellor of the Exchequer. It was the Prime Minister's unique selling 667 proposition that he could improve public services without raising taxes. Labour Members may recall the gigantic posters that sprouted up all over the country with images of the then Leader of the Opposition—with his signature appended, the better that we might believe his pledge. It is interesting that the Chancellor has today made nonsense of that promise. I agree with the analysis that we heard earlier from my hon. Friend the Member for Banbury (Tony Baldry) that this surely constitutes a power grab by the Chancellor.
I can see why there was so much cheering and waving of the Order Paper on the Labour Benches. Like the hon. Member for Hemsworth (Jon Trickett) and others, I have listened carefully to the debate. It has been wonderful to behold those on the Labour Benches, because this is what they came into politics to do: tax and spend. It is what they like doing. They want to take money away from the productive sectors of the economy and give it to public sector special interest groups, which they largely represent.
Labour Members may have missed two points in their discussion of the national insurance hikes: first, that those raises will hit the very public sector workers whom they hoped would benefit from the Chancellor's spending plans; and, secondly, as the hon. Member for Newbury (Mr. Rendel) rightly said, that the national insurance increases are regressive, and someone earning £32,000 will pay exactly the same as someone earning £132,000. That may be why Labour Members were so jubilant: we all know that they are now fat cats and MPs, and will not be as hard hit, relatively speaking, as many of their constituents.
§ Lynne Jones (Birmingham, Selly Oak)
Does the hon. Gentleman advocate a more progressive rate of income tax for those on higher incomes? If that is his policy, I agree with it.
§ Mr. Johnson
I merely point out that it is ironic that Labour Members should cheer a regressive tax.
Those regressive taxes are expected to go a very long way. The Chancellor said that he would increase public spending from £390 billion to £470 billion in about four years' time. I hope that I heard him correctly. If his growth projections are wrong, someone will pick up a large bill, and I expect that it will be the taxpayer.
It is the judgment of the Chancellor, the hon. Member for Hemsworth and many others who have spoken tonight that the time is now propitious to raise taxes and that the taxpayer is willing—
§ Sir Robert Smith
Has the hon. Gentleman noticed the sleight of hand in the Chancellor's statement? While the ceiling remains for most levels of national insurance, it will not remain for the 1 per cent. level. In effect, therefore, the Chancellor has taxed income right up through the scale—except unearned income or income 668 from investments, which will not contribute to the national health service—despite saying that he did not want to increase income tax.
§ Mr. Johnson
I am grateful to the hon. Gentleman for pointing that out.
The Chancellor hopes to take a huge amount of money from the public and he thinks that the time is right to do that. Labour Members may be right that the public are in a generous mood and are prepared to pay more in taxes. What the public want more evidence of, however, is that those taxes, if taken and spent exclusively by the Government, will deliver a better health service. We have had umpteen health service reforms, and we now have more health administrators than beds. More people are on waiting lists than when the Government came to power and we are now driven to the crazy expedient of using taxpayers' money to send patients to France and Germany in the hope that they will be cured there. I wonder how the Chancellor can call the NHS the envy of the world, or whatever fatuous phrase it was that he used, when people are driven to go to South Africa for cataract operations and to India for heart surgery. More people than ever before are now being forced to use their own resources to pay for operations. That is not because the Labour Government have been particularly kind to private medicine; on the contrary, when the Government came to power they took away the tax break for private health care for the elderly, with the result that 200,000 people immediately gave up their policies. People are being driven to use private medicine in despair at the NHS. There should be no shame in pointing that out.
It should not be sacrilegious to say that the NHS is failing. I think that Nigel Lawson said that the NHS is the religion of the British people, and, to some extent, that is true. We all sign up in a general way to the objectives of the NHS. I think that the Chancellor said today that the NHS amounted to a definition of the character of this country. It is all very well to treat the NHS as a religion, but it is legitimate for some of us to point out that, in so far as it is a religion, it is letting down its adherents very badly.
It is wrong of the Chancellor to set his face against the experience of other countries that have a far better record of health care provision, a far better life expectancy, and a far better record of dealing with cancer and coronary heart disease. Those countries do so not just because they spend more money on health but because they do not rely exclusively on a top-down monopolistic health service of the kind that we have in this country. The Chancellor has decided that there is only one model for health care in this country—the NHS model—and he has decided that it is unimprovable except through the addition of more taxpayer's money and platoons of auditors to swell the ranks of the administrators. The best auditors of health care in this country should be the patients, and it would be far better if they were given more control over how money was spent for their health care.
We have had five years of bluff about the Labour Government's tax and spending intentions. Now, at last, we are getting the reality—in their hearts they are deeply wedded to tax and spend, and they have no more imaginative prescriptions for the NHS than those outlined by Labour Members today. All the froth, the candy floss and the spin of new Labour have finally been blown away. People such as the hon. Member for Hemsworth have 669 been revealed in their true colours as taxers and spenders and believers in the NHS unreformed and as it is—monolithic and monopolistic. They think that that is the only way to improve health care in this country. I hope that they are right; I fear very much that they will be proved wrong.
§ Fiona Mactaggart (Slough)
In the previous Labour Government, the Chancellor achieved through, first, independence for the Bank of England, and, following that, low and stable interest rates and growing employment, an important reversal—that of Labour's reputation for economic incompetence.
I hope that this Budget will mark another change—a change in the way that politics works. For some years, we have experienced a sort of ersatz politics, in which politicians have become so expert at presenting policies in the best light that people have begun to believe that all politicians are interested in treating them like fools and patronising them. The consequence has been a growing distrust of politicians and an abandonment of the political process. Many politicians have wanted to make politics easier and simple to understand; instead, we have made it simplistic and confusing. We have implied that one can have extra investment in public services without paying for it, and have then faced the wrath of people when they realise that they are paying for it through so-called stealth taxes.
Let me take this opportunity to nail the myth that stealth taxes were invented by the Labour party. I recall the 22 Tory tax increases between 1992 and 1997 imposed by Conservative Chancellors.
§ Fiona Mactaggart
I will not take any interventions. I have sat here all day and am the first woman to speak, but I have only eight minutes.
No one likes paying tax. We all think—usually correctly—that we are the best judges of how to spend our money, but there are some things, such as public transport, that we cannot provide for ourselves. Other provision, such as health care, is much cheaper and better when provided collectively.
I know that because I remember vividly when my mother required a kidney transplant. The private health insurance company, on which she had depended for half a century, abandoned her. Because of her growing ill health, it put her premiums up to thousands of pounds a year. When my uncle lay dying in a British hospital, his daughter told me that, despite the pile of empty cardboard boxes by the lift and the lack of a carpet on the floor, the quality of nursing care that her dad received was fantastic. It was much better than the care that her mum received in a very posh private hospital in Florida.
We must not doubt that the quality of care that NHS patients receive is unmatched. Because we can hold the institution of the NHS accountable, we can deliver a better service. That will always be hard for an individual to achieve.
Another sign of the growing maturity of politics is a willingness to invest in the long game, when results will not be seen before the next general election. Research 670 shows that that long-term investment is worth it when it comes to children: every pound spent on a child under seven results in savings of £7 later in that child's life. The investments that have been made in the child tax credit or in innovations such as sure start will not show a return for 10 or 15 years, but other beneficial effects will be evident—women will continue to participate in the labour market, children will have a better start in life and be able to achieve better skills, and so on.
The Budget's emphasis on directing resources towards mothers is really important. Women have done better than men out of Budgets under this Government since 1997. That is sensible politics, as it recognises who is the responsible person in a family. The mother is the one who invests in the children and protects the needs of the family.
Fear and despair are the greatest destroyers of real politics. People are afraid for their children's futures and for their own health. A third great fear that destroys politics locally is the fear of crime. I was glad to hear that the Budget will devote some extra investment to the criminal justice system. More will have to be done, however: people can buy their way out of the consequences of crime by acquiring gates and security guards, but the criminal justice system cannot be privatised.
Am I right in thinking that the Budget could deliver a new integrity in politics? For politics to work, people have to engage in debate. They have to respect each other, and I admired what the hon. Member for New Forest, West (Mr. Swayne) said—I rarely do that, but the hon. Gentleman said that the Opposition should not be treated as scoundrels. He suggested that we should accept that Opposition Members want to do their best for people, and that their proposals are worthy of examination.
I was terribly disappointed that, when he responded to the Budget statement, the Leader of the Opposition did not rise to the challenge laid down by my right hon. Friend the Chancellor to create a national consensus on the health service. Instead, the right hon. Gentleman asked what we had to show for the extra investment in education. Well, I shall tell the House what my constituency has to show for that extra investment.
When I was selected to stand for the Slough constituency, half of all children leaving the primary schools there were unable to reach a basic standard in reading. That proportion is now 25 per cent. It is still too high, but the number of pupils leaving our primary schools who are unable to read properly has been halved. That is the difference that the extra investment has made.
We should not just consider British standards, however. We should make international comparisons, as we have with the health service. During the same period, Britain has moved from the bottom quartile to eighth in international comparator tests relating to literacy and numeracy.
If we invest well and base our investment on good research, we can improve standards. The Budget gives us the chance to do that if we build a national consensus, but we cannot do it if we adopt the approach of the right hon. Member for Wokingham (Mr. Redwood). He was right to say that it is not the amount spent but what it delivers that counts, but he went on to justify everyone's cynicism about politics by observing that if it did deliver in the health service he might say "Well done", but he would 671 say it the day after a general election rather than the day before. If we engage in politics like that, we let down the British people. We betray them, and we betray the duty that we bring to this House of Commons.
I urge the Chancellor, however, to make it easier for people to understand the set of processes involved. I have two degrees, but I do not understand my tax return. I do not think I am alone in that, although I may be alone in admitting it. We must make it easier for people to see where the money comes from, as well as where it goes. A number of suggestions have been made today—the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), for instance, made precisely this point in terms of scrutiny of the Budget—but we certainly need to ensure that the context of people's tax take is much clearer to them.
I welcome the simplification of small businesses' VAT, and I feel we should keep working to make the operation of tax credits more comprehensible. I understand why the Chancellor rejected the idea of a hypothecated tax for the NHS, but I think he should continue the investment in a way that enables people to see where the money comes from.
The Chancellor should invest in a way that will deliver change. He should ignore the counsels of despair from Opposition Members who say that that is not possible with public investment, and ensure that public investment delivers the reform and the improvement that we require.
§ Mr. Henry Bellingham (North-West Norfolk)
It is a pleasure to follow the hon. Member for Slough (Fiona Mactaggart), and I thank her for allowing me time to speak. I agree with her about the need to make the whole tax system simpler. Since the present Chancellor took office, Tolley's tax guide has got bigger and bigger. I do not think this was the Chancellor's intention, but the system has become more complicated and less easy to understand. As the hon. Lady said, roll on the day when we can deal with our own tax returns again.
I found parts of the Budget very encouraging. There were a number of plus points. The Chancellor spoke of a ladder of opportunity for businesses and said that the Government were on the side of business. I welcome the research and development tax credit, which he said would be worth £400 million a year, and the reduction in small companies' corporation tax by 1 per cent. to 19 per cent. However, as was pointed out by my hon. Friend the Member for New Forest, West (Mr. Swayne), many small businesses do not make a profit at all. I wonder how many of them will benefit.
On the plus side, I welcome the changes in capital gains tax and the VAT regime. On the minus side, the increase in national insurance contributions—as the Leader of the Opposition said—is equivalent to a 3 per cent. increase in corporation tax. It will lead to a tax take of £6.1 billion. Furthermore, as well as hitting companies and largely undoing the good done by the corporation tax reduction, it will hit the pockets of senior nurses, police officers, hospital radiographers and senior post office sorting staff. Many of them do not have a large income, yet they will be about £29 a month worse off. They—the people on the front line of public services—are exactly the sort of people we need to deliver better public services, but if their morale is damaged they will not be in a position to do so.
672 There is nothing in the Budget about reducing the burden on small businesses. Last Friday in my constituency I attended a chamber of commerce lunch at which every business man I spoke to mentioned the increasing burden on small businesses. A recent survey of 600 members of the Institute of Directors reveals that 84 per cent. feel that excessive bureaucracy is worsening. The British Chambers of Commerce estimates that the costs faced by business have increased by £15 billion.
Some of the burdens are home grown—the current Employment Bill has been mentioned—but there are various European directives as well. The end of life vehicles directive will oblige car makers to assume financial responsibility for scrapping old cars from this year onwards. If it is strictly enforced, that directive could wreak havoc on this country's car industry. There are 26.5 million cars on our roads: if it costs £300 to deal with each car under the directive, the overall cost will be £7.95 billion.
The problem is not only red tape but the growing tax burden on businesses. The CBI estimated that the Labour Government had increased business taxes by £5.8 billion. Business taxation as a whole in this country was moving in the right direction in terms of the supply side of our economy vis-à-vis that of other countries. That movement has now been arrested, and it might even go into reverse as companies have to pay more tax. That will mean that Britain's competitive position will continue to slip—we were ninth in the world, now we are nineteenth—and our productivity, which was better than America's, will continue to fall. I am concerned that there is not more in the Budget to help small businesses and to reduce the burden of bureaucratic red tape.
Much of the Chancellor's speech was devoted to the national health service. There have been large increases in NHS expenditure, but I can see no real evidence of improvement. I spent four years out of Parliament. When I was last a Member of Parliament, I received about one letter a week from constituents complaining about NHS matters. I should say that they were not complaining about the staff, the management or the nurses, who we all know are entirely dedicated and do a superb job. Now, however, I get five or six letters a day from constituents complaining about, for example, cancellations of operations or long waits. Two days ago I received a letter from a constituent who has had a serious stroke: he must wait 14 weeks for an MRI scan, even though his consultant believes that there is blood on the back of his brain and he needs a scan immediately.
My local hospital in King's Lynn, the Queen Elizabeth hospital, has a severe shortage of consultants in key disciplines, including radiology, pathology, histology and dermatology. The hospital recently recruited 80 Filipino nurses; they are extremely caring and hard working, but that is not a long-term solution. There has been a large increase in emergency admissions, but our number of acute beds per head of population is less than the average. The number of beds in the hospital has fallen from 602 eight years ago to 504 last year.
That is not all the fault of the last Conservative Government. As my hon. Friend the Member for New Forest, West pointed out, the bed-blocking problem is entirely the fault of the Labour Government. The Opposition will support increased funding for the NHS, but only in a framework of structural changes to the NHS. In every other European country that is spending more on 673 health than we do, there is a mature mix of private and public health provision. The only way to bring our expenditure on health up to the European average is to secure a bigger role for the private sector. Yes, we need more public expenditure on the NHS, but we also need a genuine partnership between the public and private sectors.
§ Debate adjourned.—[Mr. Caplin.]
§ Debate to be resumed tomorrow.